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maltatoday, SUNDAY, 31 JULY 2016 40 Feature Can your business navigate Brexit? BY STEFANO MALLIA UNCERTAINTY continues to dominate the Brexit situation. What happens now – after the Brexit vote and the implications for businesses and organisations in the UK, as well as Maltese and EU companies that trade or carry out transactions with the UK – is still very unclear. The only certainty that does exist is that once the UK formally trig- gers Article 50 of the EU Treaty, there is a time window of a maxi- mum two years within which to negotiate a divorce from the Un- ion whilst at the same time broker a trade deal (covering goods and services). Technically speaking the negotiations for a new trade deal could actually take longer than two years as Article 50 only relates to leaving the EU and not to negotiat- ing new deals, although it is clear that one is explicitly linked to the other. The UK has moved faster than originally expected to appoint a new Prime Minister and this will help reduce the situation of un- certainty that still dominates. Fol- lowing the Brexit vote the initial debate within the "Brussels bubble" was whether the UK would actually leave. UK Prime Minister Theresa May immediately put an end to that debate by stating unequivocally that "Brexit means Brexit". The EU has also responded al- beit in a somewhat different fash- ion. The initial reactions of 'the UK must quickly trigger Article 50' have now given way to a more measured response of 'the UK must be given some time to put its house in order before trigger- ing Article 50'. Commission Presi- dent Juncker has now appointed (some say somewhat diabolically) the former French Commissioner Michel Barnier. Barnier has been described as "hardly a soul mate of Britain" and was once dubbed by the Daily Telegraph as "the most dangerous man in Europe". Whilst for the moment there is no actual upheaval of rules and regula- tions within the UK, it is clear that change is well on the horizon. Giv- en the current scenario of volatility and lack of a clear way forward, it is clear that private enterprise must start to seriously assess the possi- ble implications of Brexit on their current business model. In doing so they cannot start by examining the business dynamics of the sec- tor they are operating in. Rather they must start by understanding the framework within which any trade deal between the EU and the UK will be negotiated. It is vital to understand and then keep track of how this framework is developing as this will give a clear indication as to where the negotiations are head- ing. Will it be an effort from both sides to preserve as much of the status quo as possible or will it be the case of the Commission and the remaining Member States trying to show that it does not pay to leave the EU and will therefore give the UK a poor deal? What is certain is that based on the extensive commercial ties be- tween Malta and the UK, we are possibly amongst the most exposed Member States. In fact the Brexit Sensitivity Index issued by Stand- ard & Poors ranks Malta in second place out of the 20 countries most exposed to the impacts of Brexit. Malta, Ireland, Luxembourg and Cyprus are all ranked as the most vulnerable with only Switzerland and Canada being non-EU. This drives home in a most unequivo- cal manner that the Maltese busi- ness community cannot be com- placent in the face of such turmoil. Of course the impacts of Brexit will vary from sector to sector as will the opportunities that might pos- sibly arise. In Malta, the initial focus has pri- marily been centred on the tourism sector and the financial services sector, two main pillars of the Mal- tese economy with extensive links (direct and indirect) to the UK mar- ket. Grant Thornton believes that both these sectors could be impact- ed in a severe way if negotiations go pear-shaped for the UK. On the other hand not much would change if the current rules and regulations are kept by the UK as part of its new deal with Europe. With tourism it will be macro factors such as the general health of the UK economy and the strength of the Sterling which could impact significantly whilst with the financial services the issue of maintaining passport- ing rights will be the key issue. There are however numerous en- terprises operating in other sectors of Maltese economy (for example in the manufacturing sector) that are heavily linked to the UK market. Those companies that depend on tariff free access to the UK market will have some serious thinking to do whilst companies forming part of larger conglomerates based in the UK may have the opportunity to provide the vital access to the EU Single Market. In thinking about the impact on your businesses you will want to consider not only legal and regu- latory changes but also market reactions, consumer and business behaviours and the wider political and economic environment. What is certain is that this is no time for complacency and that we should use all the time we have to 1) keep a close eye on the day to day develop- ments as they happen and 2) devel- op contingencies in case the worst case scenario starts to unfold. Stefano Mallia Grant Thornton Partner, Business and EU Advisory partner © 2016 Grant Thornton Malta Ltd. All rights reserved. Grant Thornton Malta Ltd is a member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another's acts or omissions. Please see www.grantthornton.com.mt for further details. Drawing on more than 40 years of experience, Grant Thornton Malta combines the international reach, depth and expertise of the global brand with the personal attention, value for money, focus and relationship approach of the local team. It is how we keep you moving forward to maximise your investment. Initiative you can rely on and knowledge you can trust. Take the lead with Grant Thornton and unleash your potential for growth. Contact us today to see how we can help. Contact us today to see how we can help. T. +356 21 320 134 E. grantthornton@mt.gt.com www.grantthornton.com.mt A unique alternative to help you engineer success. Audit Tax Advisory Outsourcing Following the EU referendum there will be a wide range of external factors that may have implications for your organisation and affect your business strategy. At Grant Thornton we have set out some initial thoughts on these, looking at politics; the economy; the legal and regulatory environment; trade; and wider business behaviours. We see our role as helping you navigate through this environment, initially by sharing insights into what we think may happen next and what issues organisations to be effected by Brexit should consider in planning for the future. Our Business Advisory team can also assist you with assessing the specific implications on your business, developing plans to mitigate risk and capitalise on new opportunities.