Brexit Effects On UK, EU, Singapore: An Essay.

Discuss some potential effects of Brexit on Singapore.

The Brexit Referendum and its Impact

The step of Britain to be separate from the European Union was a shocking situation for all the nations. This also had a marginal impact on the global economy, which will create several unbalances. In addition, the Brexit already had shown an immediate impact on its European associates and related nations of the European Union (Hunt & Wheeler, 2018).

The results of separation can be seen easily when the UK economy had been slowed down after the Brexit Referendum. In addition, around £25 billion was added into the Autumn Budget for the support of the business in the Britain. The economy of Britain also takes a downturn when it negatively rose to 1.5 per cent from the previous estimate of 2 per cent (Chu, 2018).

This European Referendum had created the situation of disaster in several sectors of the industry over the world. Majorly this created a bad impact over Britain in terms of its reputation in the world but according to various economists, the result came as a short-term outcome as no one can perceive its long-term proposition over the economy and the world.

One of the largest trading partners of the United Kingdom, i.e. Singapore holds for half of the exports in the UK (around £5.6 billion) to the Association of Southeast Asian Nation (Teo, et al., 2009). This shows that the United Kingdom does heavy investment in the Singapore including total foreign direct investment exceeding £30 billion.

The separation of one of the dominant country like Britain from the European Union was unexpected and this lead to creating an unstable political system in the foreign exchange markets, which constitute opposite to their demand. The vote of Britain for the Brexit also leads to the decline in the value of the pound against various dominant currencies like Yen and Dollars.

It cannot be estimated that how Brexit will help Britain and whether the single market will be effective in the future for Britain, or there will be any new trade policy or contracts with the other countries. However, it can be analysed through a hint that the “Hard Brexit” will be proved beneficial for the poor people in Britain (Blyth, 2016). However, opposite to the fact, the negative impact will come in the face of the high cost of investment and trade between the nations.

Therefore, it can be analysed that Brexit comes with various threats to the international market but the opportunity will lie with Britain in the form of making of new relations with trade or renegotiation of old trade agreements. This all depends upon the long-term agreements and contracts made with the new countries over the globe.

Impact on the UK Economy

A financial market is a place where financial products such as shares, bonds and mutual funds are to be sale or purchase. It is further divided into several others market like primary and secondary, the stock market, equity market, bond market and money market (Harwood, et al., 2010).

Brexit has a short-term impact majorly on the financial markets, rather than the economies and the major concern for all should not be the impact of Brexit on stock market and currencies (Irwin, 2016).

 In Singapore, the equity market took a serious downturn because of the Brexit referendum as the STI (Straits Times Index) was reached down by 2.1% when the voting was done in the referendum (Lim, 2018). This index serves as a benchmark for the whole Singapore stock market and shows the performance of the topmost 30 companies listed on the Singapore Exchange. It also changed the history as it was called to be as strongest against the pound.

The exporters of Singapore having strong relations with the markets of UK were also affected by the devaluation of the Pound Sterling (Stefanova, 2016). Comparing to most of the European cities (such as Frankfurt and Paris), London has high market capitalization and due to this called to be a financial capital of Europe but the future can be changed anytime.

With the support of Europe’s financial capital, the financial standards of others European cities will be harmonized which will affect the financial market of Singapore due to the Strength of the Singdollar against the GBP.

In addition, the revenue and fees of banks will be affected when the organizations will not depend on the foreign exchange services because of the fewer exports.

Therefore, the result of Brexit Referendum was a turning point for the EU and UK and because of this, for the next few years, economic uncertainty added with the cause of critical outcomes.

FDI (Foreign Direct Investment) includes a direct investment into a business or production within the personal capacity by an organization and individual into another businesses or company with the controlling interest in a foreign company (Moon, 2015).

FDI leads to increases in productivity, most of the countries allow and welcome it so that the output can be increased which result in the rise in the wages. One of the major recipients of FDI is Singapore (Mottaleb & Kalirajan, 2010).

For the long-term perspective, one of the biggest uncertainty was that whether the Other European nations will be with Britain and leave the EU, which is Singapore’s second-largest trading partner after China.

Impact on the Global Market

In the Asia Pacific region, the largest trading partner of UK’s is Singapore. This governing commercial relationship is due to an agreement which was signed on 22^nd of July, 1975 relating to protection and promotion of investment.’

Before the happening of the referendum, any type of investment made in Britain comes with various opportunities, growth and expansion and this all come in a single European Market. This could help Britain to be more developed and flourished the nation of the world.

With the vote in the referendum, the financial markets have to go through various changes like fluctuations in the exchange rates, affecting the pound sterling value and thus cause major disruptions in the investment flows. This affected the overall business environment and the increasing gap in accessibility with the EU market will cause more troubles.

The depreciation in the Pound Sterling has also created a suspicious situation for many Singapore companies who wanted to invest in the UK, as this will affect directly on their profitability. According to the Mills, Chief Executive of the Singapore International Chamber of Commerce, states that until and unless the Brexit new terms of Britain will not be shown clearly, the volatility will be continued.

Around 25% of the whole FDI portfolio in Singapore rolls in from the European Union. In addition, many investments were made by the UK inside the European Union (EU). Therefore, the referendum of Brexit will directly cause with the lesser investment in Singapore from both the European Union and the UK (Oliver & Williams, 2016). Therefore, the British firms will face difficulty in expanding their business due to the lower profits and higher costs in Singapore.

In addition, many economists think that if British companies started pulling back their investment in trade and production because of their weaker pound, then the overall Singapore economy will be affected.

For any country, one of the major sources of revenue is Tourism. In Singapore, this is one of the constant growing sectors over a number of years. In addition, against the Singapore Dollar, the Britain Pound is continuously falling. After the Brexit referendum, the pound sterling is weakening on a continuous basis against the Singapore Dollar and this leading to the creation of the strong demand for travel to the UK.

Around 30 per cent of the total tourist in the UK comes from the European Union (Calder, 2016). However, the referendum of Brexit leads to a decrease in the value of Pound and this result in the less amount of inbound tourists from the UK as per the statement by the CEO of TripZilla.com. Other travel booking companies like Wego.com also has the same view towards it and they stated that after Brexit, there is more amount of tourists coming to the United Kingdom. So, Tourism proved to be another sector that receives a boost after the post-Brexit referendum.

Brexit Effects on Singapore

In addition, a Singapore based travel booking company named Chan Brothers Travel, also stated that they have analysed the increase in demand for travel to the United Kingdom by 30 per cent.

This shows that the dollar of Singapore is strong and makes travelling cheaper in the UK whereas the inbound tourists into Singapore from the UK will be less due to the weak Pound Sterling.

Conclusion

The Brexit Referendum leads to many changes and consequences in the terms of policies, economy and relations. However, exact specifications and future outcomes are not known and so, the long-term impact cannot be analysed. This referendum also has a broader aspect and results, which cannot be generally perceived. In addition, the problem will occur for those countries who mainly depend on the UK for their business, as they now have to adopt separate trade policies for both nations i.e. one for the European Union as a whole and other for the UK specifically. Therefore, the UK must focus on readdressing its global relationships in this continuously changing of the world order.

From Singapore perspective, Brexit neither comes with doom, not with gloom but the impact of Brexit cannot be analysed in a short-term period.

References

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Calder, S., 2016. HOW BREXIT WILL AFFECT BRITISH TOURISM. [Online]
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Chu, B., 2018. One year to Brexit: How well has the British economy really been performing? And what can we expect next?. [Online]
Available at: https://www.independent.co.uk/news/business/analysis-and-features/brexit-uk-economy-one-year-gdp-inflation-investment-growth-a8270861.html
[Accessed 19 08 2018].

Harwood, A., Litan, R. E. & Pomerleano, M., 2010. Financial Markets and Development: The Crisis in Emerging Markets. Washington: Brookings Institution Press.

Hunt, A. & Wheeler, B., 2018. Brexit: All you need to know about the UK leaving the EU. [Online]
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Irwin, N., 2016. How ‘Brexit’ Will Affect the Global Economy, Now and Later. [Online]
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Lim, K., 2018. Singapore shares decline at Monday's open; STI down 0.68% to 3,334.04. [Online]
Available at: https://www.straitstimes.com/business/companies-markets/singapore-shares-decline-at-mondays-open-sti-down-068-to-333404
[Accessed 19 08 2018].

Moon, H. C., 2015. Foreign Direct Investment: A Global Perspective. Singapore: World Scientific.

Mottaleb, K. . A. & Kalirajan, K., 2010. eterminants of foreign direct investment in developing countries: A comparative analysis. Margin: The Journal of Applied Economic Research. The Journal of Applied Economic Research, 4(4), pp. 369-404.

Oliver, T. & Williams, M. J., 2016. Special relationships in flux: Brexit and the future of the US–EU and US–UK relationships. International Affairs, 92(3), pp. 547-567.

Stefanova, K., 2016. The Rise And Fall Of The British Pound. [Online]
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Teo, T. S., Lin, S. & Lai, K.-h., 2009. Adopters and non-adopters of e-procurement in Singapore: An empirical study. Omega, 37(5), pp. 972-987.