The British exit from the European Union is being discussed widely – its initial impact on the global economy and implications in the future. Clean India Journal takes a quick feedback from the cleaning industry Talking of the consequences of Brexit in general firstly the UK is still a member of the EU and all agreements of the EU with third countries are still valid for the UK. Nevertheless, several rating agencies have rapidly downgraded the creditworthiness of the UK. And even the credit rating of the EU was downgraded as a follow-up of the first reactions. The British Pound lost about 10% against the US-Dollar from the day of the referendum until beginning of July. We can see that numerous international companies are worried about the situation and stopped hiring people in the UK and stopped planned investments in the UK. Cities on the European continent such as Berlin already started their marketing to attract British companies who are willing to invest in the EU or re-locate their businesses. Northern Ireland but especially Scotland are obviously not happy with the result of the referendum and would be happy to find ways to remain part of the EU.
After the UK government file the necessary papers to officially leave the EU, the process of dissolution of the complex contracts will take at least two years. The UK government will in parallel work on a large number of bilateral agreements with the EU and all third countries that were linked to the UK with contracts that the EU has signed. As the UK has not entered the EURO-zone and they have not been part of the Schengen-Agreement, this will reduce the complexity of this process only a little. Provided the currency exchange rate of the British Pound stays weak, it will improve the competitiveness of UK exporters. Imported goods will on the other hand be more expensive and the credit rating will have an effect on the interest rates and therefore prices for investments will inflate. This might have an overall negative effect on the industry and on the whole on the UK economy.
Foreseeing a slowdown of the UK economy will have a negative effect on the cleaning market. Cleaning markets tend to suffer as customers will try to reduce their cleaning expenditures as well as costs for maintenance and investments in new buildings. The effect can easily cumulate to a reduction of the turnover of the cleaning industry by 20 percent or more over the coming three years. More-over Britain has a high number of immigrants especially from Poland that entered the UK job market based on the principle of freedom of movement within the EU. A big number of them are working in hospitality and the cleaning industry. With a shrinking number of job opportunities in cleaning and in general most of them might be forced to leave the UK. It might even be that the residence permit status of these people will not be prolonged. What will be more of a challenge will be a brain drain of British academics and skilled people that we do expect in the medium term. Overall we will see a shrinking economy with all natural consequences also for the cleaning industry.
The reasons for the BREXIT decision were not only lying in the UK. While the EU Commission, Parliament and Council did care for product specific measures, for example, on vacuum cleaners to mention a product of our industry, unemployment in countries like France and the UK was becoming a big problem that remained unsolved. In detail, things are more complicated but this is what the average voter in the UK was at least aware of. Let us hope that the EU learned the lesson and will focus their work on the important challenges that have been unresolved for many years such as economic growth in member states, unemployment, the EURO challenge and the depth crisis.
The effect of Brexit has really not affected us to a great extent. But because of the weakening of pound against the rupee, it has brought down the realization for us in the exports front. The pound to rupee rates which was hovering around `100 has crashed to around `87 now. But this is expected to reverse back in the near future as the sentiments improve. On the flip side, in general, for importers of cleaning equipment from Britain, the import cost will be less and hence the realization will be better. But since most of the cleaning equipment which are imported into India are from Italy, Germany, China, etc., the Brexit should not have a major impact on our cleaning industry.
The Brexit could be an example of not so well informed incompetent voters taking a decision. Politicians should have talked about the fact that Europe had no war for the last 70 years and that the foundation of the EU is definitely one key factor for that. I see the UK falling into pieces (at least Scotland will part) and England will not play a major role in the world in the future. Will it affect the cleaning industry, not really. Probably more English companies will look for opportunities abroad so we might see some more FM companies coming to India. India will not be affected much through the Brexit; only more Indian companies will invest in the EU and not in the UK anymore.
With the Brexit, the companies in the UK would be looking at establishing themselves better than before. The local economy would go through the initial stress and the market is down. They would look for opportunities abroad for growth. Hence, I would expect the customer base in India to grow with more entries. The influx of companies in our field, according to me, would increase and the market in India will probably again see the activities picking up. The market forces in terms of customers demanding more organised players and also for associations from the European market and the UK market.
Brexit has taken the world by a bit of a surprise, but as far as its impact on Indian Cleaning industry goes, we would expect the effects to be minimal. The cleaning industry in India is largely self-sufficient and manpower driven – this makes it fairly immune to any groundbreaking impact.
However, there will be an indirect effect – facility management companies working with auto manufacturers or others in the manufacturing segment that had significant UK/ EU ties, may feel the brunt and that may have an impact on that sector. Clients that have a large volume of their businesses from exports and imports will also be affected – and any adverse impact leads to cost cutting. I would actually see this as an opportunity for them to look at an outsourced model for facility management and cleaning.
The changes in currency rates would also impact the cleaning industry players that are sourcing equipment or chemicals from UK/ EU. However, I do believe over the medium to long term when the dust settles, the cleaning industry will continue to grow.
Brexit will be a case study for other countries to decide own fate. However, I don’t see an immediate & escalating impact within 6-12 months as UK government will have to fence properly the transition to new identity. Direct & indirect impact will depend on the independent regulations adopted post Brexit and this will further decide the inflation of the country. Migration remained a problem for the UK but this is a bit of “blessing in disguise” as most (three in four jobs are filled by migrants) lower scale jobs have been filled by migrants only. Indirectly the UK people will be looking for job security. Cleaning industry may see a bit of drop in investment. If free movement to EU are curbed there will be a drop in lower skilled resources to increasing the cost.