I was recently asked about what outside actors think about the uncertainty in the UK today, and how the political risk landscape has evolved since the EU referendum. The irony is, that was the first time I had been asked about Brexit in probably a year – Brexit isn’t one of the top political issues keeping global business leaders up at night, particularly outside of the UK.
But why? After all, Brexit was the proverbial canary in the coal-mine for many – the first sign that we needed to start thinking about political risk a little differently. It dominated global headlines for much of 2016 (at least until November) and certainly has remained front page material for the UK in the meantime.
But fast forward four years or so, and Brexit has created a comparatively stable political and business landscape for the UK in many ways, regardless of the outcome of negotiations in December.
From domestic and developing politics to geopolitical risk
Around the time of the EU referendum, most of us in the business world probably thought about political risk as either:
- Domestic - how a domestic political party could create in-country tax, reputational or regulatory risk;
- Developing - how the physical security of an asset could be at risk in some far-flung country as a result of hot war or government appropriation; or
- 'Denominational’ - currency or sovereign debt risk.
I think Brexit changed that. It was one of the first in line of a series of ‘developed market’ public and political developments, that were less predictable to the average business leader and political commentator because these decisions were less driven by mainstream economic theory. It also demonstrated the potential for second-order impacts and contagion effects across borders – meaning geopolitical risk was now on the agenda in a way it hadn’t been before, particularly for domestic businesses.
Predictable, certain, stable
It sounds obvious, but if something is ‘less predictable’, it is more uncertain. Straight after the EU referendum, the future rules of the engagement with the EU (let alone the rest of the world) were uncertain for UK businesses.
They were uncertain because:
- There was a wide range of potential scenarios (with likelihood harder to determine) that would have had materially different outcomes for the business environment; and
- There was limited information around the potential impact of these various scenarios (after all, the ensuing debate enlightened the average non-EU bystander that Switzerland and Norway are in fact not part of the EU at all).
But over the years, I think that level of uncertainty has fallen away – and arguably was not that high to begin with. That is not to say that the differences between potential scenarios were not material and potentially even existential for some businesses; rather, throughout the entire Brexit process there has been a clear delineation of what the ‘best’ and ‘worst’ outcome could be.
A degree of uncertainty remains while we await the outcome of negotiations – and will persist in part if no deal is reached in December - but the Withdrawal Agreement has narrowed the distance between potential scenarios, and that has created certainty. Meaning businesses have been able to grasp the potential implications, dust off the scenario planning and stress testing books, and (if needed) execute contingency strategies to mitigate potential impacts.
Less predictable, less certain, less stable
In comparison, since Brexit, we’ve seen global challenges (PDF 2.8 MB) arise where it is much harder to foresee what the worst or even the most likely case could be - particularly concerning when you consider the comparative speed at which these risks could hit. Like Global vs. Local great power tensions and the East vs. West potential bifurcation of global technological architecture. Or Today vs. Tomorrow climate change, COVID-19 vaccine elitism, the global debt burden and respective national debt stability (fragility?), or what divergent economic recoveries will mean for investment and growth decisions.
The impact of Brexit on the UK’s political and business landscape is (arguably) comparatively more stable, and potentially less influential. Which is why, even for those leaders specifically considering the future of the UK and the EU, there are any number of geopolitical issues that should take precedence on their agenda.