What are the expectations of German and British companies in the era of Brexit and Covid-19? Which Brexit scenario did they anticipate and how do they assess the time after Brexit? Together with the British Chamber of Commerce in Germany (BCCG), we surveyed 66 German and British companies with business connections to Germany and the UK to hear their views on these questions. Our survey was conducted in September and October 2020 and thus some weeks before the EU-UK trade and cooperation agreement was reached and before the UK ultimately left the EU.
The findings show that the current situation for businesses is heavily impacted by the ramifications of the pandemic:
More than half of the companies surveyed (54%) have seen revenue fall in 2020.
As compared with the prior-year survey, six times as many companies actually anticipate significant declines in sales, at 31% as against 5%. The reason for this gloomy outlook is the double blow of the coronavirus pandemic and Brexit uncertainties.
Indeed, there is little difference between the current snapshot and future sales expectations, pointing to an ongoing trend. Around a quarter of all respondents likewise forecast considerable declines in sales for the coming three to five years.
At the same time, the majority of those surveyed anticipate significant rising costs due to Brexit. Major sources of this rise in costs concern increased administrative expenses (78%) and rising logistics costs (70%), followed by increasing customs duties (68%).
Additional administrative costs are incurred as now a whole array of new regulations and formalities need to be observed in trade between the United Kingdom and the EU, including with regards to immigration, data protection, customs clearance and taxation. Due to further customs formalities and potential disruption on account of new border controls, greater logistics costs are expected. New and increased duties may impact companies twofold, both upon exporting and importing goods into the EU market. This is of particular significance in the case of procuring primary products from the EU and then later exporting the end products back into the EU.
Business relocations after Brexit
For the time being, a little under seven out of ten respondents (68%) have no intention of relocating their company. In fact, there are no plans of this kind even until 2025, at least according to 61% of the respondents. In cases where a relocation to the EU is planned, Germany is the preferred option (14% intend to relocate to Germany, 17% to other EU27 nations).
Opportunities for businesses after Brexit
Only 8% of survey participants see potential new partnerships with companies on either side of the Channel in third markets as a certain or highly likely post-Brexit option. Even more significant is the scepticism regarding the possibility of a new US-UK trade agreement or the regulatory environment and administrative aspects becoming simpler than before; only 5% consider either of these options to be certain or highly likely. Instead, many anticipate additional red tape, especially as regards data protection. Now that the UK is considered a third country as a result of Brexit, new regulations are required to govern what data may be transferred and under what conditions.
For more in-depth survey findings, please do not hesitate to contact us. Our expert, Andreas Glunz, Head of International Business, is on hand to this end as well as to answer any other questions regarding the economic impact of Brexit and the Covid-19 pandemic.
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Partner, Audit, Head of Country Practice United Kingdom
KPMG AG Wirtschaftsprüfungsgesellschaft