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“Brexit” and BD:Some economic implications

Bangladesh is not about to face a doomsday scenario when Britain finally leaves the European Union in 2019 as expected. It is quite possible that between now (August 2016) and 2019 (called “B-Day” in Whitehall) when Britain officially leaves the EU, many other major events can affect our economic and political landscape, but it is unlikely that the economic prosperity of Bangladesh or its trade relations will change in a big way entirely because of Brexit. But there are some changes on a small scale that will possibly happen, such as more immigration from Bangladesh to Britain, increased levels of trade with Britain, and more international aid. However, a major factor that will affect us in the final analysis is the precise terms of withdrawal negotiated by the EU and the UK, particularly the trade deals.

Against this backdrop, the UK representative to UNCTAD Mr. Mark Mathews’ assertions that Brexit will have no impact on UK-Bangladesh relationship is a little empty, since in the post-Brexit world, market forces will determine what happens to trade relationships. Most importantly, if the UK falls into a recession (the “income effect”) or its exchange rate goes down (the “price effect”) for a sustainable time period, Bangladesh exports to UK could be hurt. His other claim that the UK will continue to meet its commitment to providing 0.7 percent of their Gross National Income in Overseas Development Assistance (ODA) will obviously be good news for its recipients. This will allay any fears that ODA might drop after Brexit, a claim made by the United Nations Office of the High Representative for Least Developed Countries, Landlocked Developing Countries and the Small Island Developing States (UN-OHRLLS), which estimates that British aid to all developing countries will drop by $1.9 billion.

Currently, UK is Bangladesh’s third largest importer of RMG after the US and Germany. The lower value of pound will make Bangladeshi garments more expensive to British buyers, but this “price effect” is expected to be minuscule and short-lived. Bangladesh now enjoys a duty-free-quota-free status (DFQF) with the UK, and unless something changes, we should be able to keep that DFQF status, at least in the short run. On the other hand, our imports from the UK will be cheaper and it might be a good time to buy British equipment and other capital goods.

It may be worth mentioning here that some in the anti-Brexit camp have been predicting dire consequences of Brexit for developing countries. Overseas Development Institute (ODI), for example, has estimated Bangladesh will experience a significant drop in exports due to its dependence on the UK and EU for 50 percent of its export destination. To quote its July 7 report, “Bangladesh and Cambodia in textiles and garments, and Kenya in flowers, will be among the countries most directly affected. In the case of Bangladesh, 90 percent of Bangladeshi exports to the UK are in textiles and garments, with the UK representing 10 percent of Bangladeshi exports. Assuming a unit elasticity of demand, total Bangladeshi exports are expected to fall by 0.9 percent as a result of the weaker pound. This does not even include the negative effect in the UK demand associated with the fall in income and a decrease in consumer confidence.” Needless to point out, the pound has bounced back and Bangladesh is maintaining its competitive position in the UK market.

In so far as trade is concerned, in case the UK is allowed to remain in the “single market”, a privilege it now enjoys, British businesses will still have access to 500 million consumers across the EU. The impact on Bangladesh will then be minimal. The question is how likely is this outcome? The “single market” stipulates free movement of goods, people, services and capital between the countries and is made possible by removal of trade barriers including tariffs and the harmonisation of national rules at the EU level. In the post-Brexit world, it is impossible for the UK to comply with many of these regulations, including free movement of labour, child benefit for migrant workers, open fisheries, etc. In fact, the most clamorous voices in favour of single market are equally vocal against the free movement rules. Thus, it needs to be seen whether Britain can skilfully negotiate a deal which lets it maintain the unfettered trade relationships it enjoyed while it chooses to opt out of the less popular ones that the Brexit voters rejected.

Turning to immigration, it is a foregone conclusion that the UK will tighten its immigration rules to slow down net immigration from the EU. How that affects the rest of the world, including Bangladesh, is still up in the air. In 2015, the UK had a net migration of 333,000 up from 318, 000 in 2014. “Some 630,000 people moved into the UK in 2015, while 297,000 left the country, for a net migration of 333,000. Of those, 184,000 came from the EU”. These figures are in sharp contrast to David Cameron’s promise in 2010 to keep the “net migration” level to 100,000 (100K). While it is not clear if the new cabinet in UK will adopt this 100K target, it is known that the new Prime Minister Theresa May had as early as 2014 embraced 100K as the magic number, and most recently reiterated her preference for the 100K ceiling.

In this context, Bangladeshi students who were planning to study in the UK might find some universities or colleges of their choice have tightened their admission rules. The new government is of the view that many future migrants find colleges as easy entry points to the UK. The British Home Office has reportedly “estimated that one in five foreign students overstays their visa and continues to live in Britain long after their course has finished.”

Whatever the final outcome from UK-EU negotiations, Bangladeshi restaurant owners in the UK are already rejoicing and it is expected that Brexit will benefit them considerably. It is reported that five restaurants are closing every week due to shortage of Indian chefs, which is blamed on the EU immigration policy. Since Britain last year had 333K net influx of immigrants, it had decided to curtail immigration from non-EU countries, including Bangladesh, India, and Pakistan, to comply with “free access” for EU citizens rule. According to Pasha Khandaker, President of the Bangladesh Caterers Association (BCA), a trade association in the UK, “EU’s freedom of movement rules had led to the UK Government introducing crippling limits on non-EU workers, which had made it much harder for curry businesses to recruit skilled chefs”. Needless to point out, BCA members are likely to savour the rosy outlook for the future of their industry.

The writer is an economist, and writes on public policy issues for The Daily Star.

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