Brexit – the seven year itch and some tech implications

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Article 50 gave Britain 2 years to exit from the EU. Deadline date is 29 March 2019. We predict that this shift will take much longer than that, bringing benefits to EU countries and disadvantaging the UK.

In these digital times, it could be expected that Brexit would have a considerable impact on British technology and technology providers. There are very few tech firms in Britain that welcomed the vote to exit the EU, but they are making the best of it.  The main hurdles currently under scrutiny (with more to emerge as EU legislation is gradually unpacked) are:-

Predominantly these are human issues, ranging from the right of freedom of movement to protection of personal data. Even the single market has many aspects targeted around consumer rights and benefits, such as the recent scrapping of roaming charges in June.

While it would not make sense for Britain to deviate radically from anything currently in place, there is a great deal of uncertainty about how “hard” Brexit will be, especially because the British Government is in a very weak position following the snap election last month. What is certain is that none of this is good for the British economy and British businesses, but offers opportunities to EU countries to attract business that would previously have chosen the UK as a base.

 

Where the Risks Lie: Data Centres

The ability to store sensitive personal data as a “safe third country” and the adoption of GDPR obviously have a high impact on whether a site would make a suitable data centre for any multinational. While it is highly unlikely that British companies are not making every effort to comply with GDPR, because so many of their clients and trading partners are based in the EU, compliance with Dublin III is not so clear-cut. Although Dublin III would appear to be about refugee status, it also covers issues such as the safety of valuable personal data such as fingerprints and other biometrics, and whether a country is regarded as a safe haven for storing such vital data. While some major cloud players are still investing in data centres in the UK, they are now also envisaging other sites within the EU, in order to cover their bets. There is also a move to colocation (“colo”) sites, rather than full-on data centres, although this is also an evolution in cloud basis globally, as a more nimble alternative to the heavy investment in a dedicated data centre.

 

The Impact on the Workforce

Freedom of movement is likely to be curtailed, which is going to be a big problem for the UK tech industry, which has a current and future skills shortage. Over 13% of workers in tech jobs in the UK are migrant workers. Their future prospects in Britain are becoming less and less attractive, and they will probably translocate into Europe, which also has a huge skills shortage and will welcome them with open arms, especially seeing that potential employers seem to be making a leap over the Channel.

Banking and Other Big Employers

The uncertainty around Brexit is already causing some defections and migrations among large banks in London; and banks and technology are inextricably intertwined these days. Among those who have indicated that they are making changes based on Brexit are Morgan Stanley, Citibank, HSBC  and Société Générale, and there are plenty more. What is more, some of these banks have reported that many of their large commercial clients are making similar decisions. From a banking perspective, Dublin and Frankfurt are favoured as bases for servicing the EU market, although Paris, Amsterdam, Berlin and Madrid are also on the list.

Benefits for EU Tech Companies

Clearly, new businesses and branches selecting sites within the EU for operations that were formerly based in the UK will bring benefits to a range of EU companies in the tech space, ranging from vendors of hardware and software to custom development companies and IT consultants. What is more, the return of IT skills from Britain to their own countries or other countries in the EU, will lessen the skills gap that already exists. Some countries, notably France, are going all out to become centres of innovation, fostering startups, especially in the tech space. The opportunities of offering incubators for startups in Europe are good, and not just pipe dreams. Taavet Hinrikus, who co-founded fintech startup TransferWise, said recently that if he were to do it all again, he would not choose Britain as a base. His reasons, apart from the uncertainty of what Brexit actually will do to the UK economy in the short- and long-term, is that previously the free movement of scarce skills into Britain was promoted, while now barriers could be raised. The article reporting this points out that 40% of the fintech startups in the UK were headed by entrepreneurs who gained their skills outside Britain.

There are many other opportunities in the tech sector that could see European startups coming to the fore, whether it is in renewable energy, the Internet of Things or artificial intelligence. It is up to each city and country to come up with strategies that will make them recognised centres for these innovation. Meanwhile Britain will no doubt feel the impact of Brexit for years to come. You can rest assured that it will take more than 20 months for final exit; whoever wrote Article 50 in the Lisbon Treaty did not consider the impact of unravelling 12 000 bits of legislation crafted over 43 years. The cost to Britain in lost productivity while all this is happening combined with the uncertainty of the final outcomes is not going to attract new investment for years to come, and will erode what is already there. The UK is only a small contributor to the overall EU trade figures, and companies that benefit from EU trade will want to be close and accessible to their customers, without trade barriers and restrictions.

References:

https://www.rabobank.com/en/images/possible-uk-eu-relationships-and-their-impact-upon-trade.pdf