Many Spanish and European businesses that deal with the UK seem to have held on to the hope that Brexit will not happen.  That is unlikely, and it’s time for them to start preparing

Spain and the UK have in recent years enjoyed an especially close relationship in economic terms.  The UK is Spain’s 3^rd most important markets for export of goods and services, and Spain is UK’s 3^rd biggest market.  Over the last 3 years the UK has been the biggest European investor in Spain and the number one destination for Spanish investment over the same period.   Spanish companies own UK utilities, airports and banks.   On top of that the British are the best customer of Spain’s biggest industry, with nearly 18 million British visitors last year.    Hundreds of thousands of British live in Spain, and a large number of Spaniards have made their home and found work in the UK.

That’s why Spain is one of the European countries with most at stake if the Brexit negotiations go wrong.   In a recent roundtable hosted by law firm Gómez Acebo & Pombo, all experts agreed that Spain wanted the ‘softest’ Brexit possible, the closer to the status quo the better.

But just how concerned should Spain be?

The most recent Barometer on Climate and Outlook for British Investment in Spain, commissioned by the British Chamber of Commerce in Spain and carried out by Analistas Financieros Internacionales (Afi), seems to indicate that so far there is little reason to be alarmed.  One year after the Brexit vote, the UK is the no 1 investor in Spain.   The survey showed that British companies have no intention of reducing their investment in Spain – 70% expected to increase it – and their perception of the country as a destiny for investment has improved slightly since the last survey, in spite of the Catalan situation.

But this apparently rosy picture shouldn’t lead to complacency.  The importance of the bilateral relationship means that Spain has more in play than other European countries.  And the most recent news is not so good.  Spain’s exports to UK fell 6% last year against the general trend (an 8% rise in its exports to the EU) as the British economy slowed and the Pound weakened.

And Brexit hasn’t happened yet.  UK companies are still trading with all the advantages of membership, which helps explain why the effects have been limited.

A KPMG report discovers that nearly 50% of Spanish companies have some link with UK.  Their research indicates that after a period of denial European companies are finally beginning to believe that that Brexit will take place, but the report also warns of the danger that the planned transition period – during which the UK is out of the EU but everything goes on as before- will encourage complacency and stop companies planning now.

One problem is that nobody knows what the final agreement will look like.  Many businesses hope that it will be as close to the status quo as possible, but no one following British politics can be confident that this will happen.   The possibility of no agreement, although remote, still exists, and that would mean the UK “falling out” of the EU in less than 10 months.  With no agreement, and no transition period.  Crazy as it seems, that is actually the favoured option of some high profile British Members of Parliament.

Even supposing that is avoided, Spanish companies should start thinking about issues like possible delays at customs, rules of origin, extra paperwork and customs duties.  Moving employees in and out of UK subsidiaries will be trickier.   Countries outside the EU will be affected too, since the trade agreements with the Union which regulate how they currently trade with the UK will cease to have effect and will have to be replaced.

Spanish companies should also be on the lookout for opportunities.  Some may be interested in attracting back some of the young talent which went to UK in search of work.  British competitors may struggle if the UK economy suffers, or if they have problems hiring if European workers leave.  Companies could be looking at targeting European clients of British suppliers.

The message from the experts is that the unpredictability of the final outcome of negotiations should not be an excuse to delay preparations.  In How2Go we’ll be there to keep our clients abreast of developments and help them navigate through the Brexit Storm, because whatever happens, in an economy like the UK’s, there will be opportunities at the end of the storm.

Roger Pike, Business Partner UK at How2Go