Ben Butters: Brexit will have knock-on effect on the broad economy
Customs procedures would be among the most obvious problems if there is a 'no deal' BrexitMaria Koleva , Graz
The two top challenges for our business community for 2019 will be the cost of labour and skills shortages. This is a bigger problem than exports, access to finance, and Brexit. It is really becoming quite an urgent issue to address, and it is not only in countries where there is very low unemployment, but also in countries where there is high unemployment. So it is not simply supply and demand, it's about the mismatch between the skills which are required and the skills which are on offer from the workforce, says Ben Butters, Policy Director at EUROCHAMBRES.
- Mr Butters, what would be a good Brexit solution for the business community?
- The best situation for the businesses in the EU27, which we represent, would be the UK remaining in the EU but that seemingly isn't going to happen, so we need to find the least bad Brexit solution. Our view is that the agreement between the EU and the UK from 25 November is a sensible one. It allows businesses to continue trading between the EU and the UK with minimal barriers. I wouldn't say we are optimistic, but we really hope that this agreement will be approved by the UK Parliament. The alternative seems to be a no deal, and that would be disastrous for the businesses in both the EU and the UK and would have a negative knock-on effect on communities that depend on trade between the two economies. So, it is very important to us that this deal is secured politically before 29 March.
- Does this situation concretely affect small businesses?
- We must remember that it is just an agreement on the terms of withdrawal. For us it is important therefore that we have this transition period, so after 29 March until the end of 2020 the trading conditions will basically remain the same as they are today. Brexit will not happen from an economic perspective until the end of the transition period. That allows us some time to discuss the terms of the future economic relationships. We still don't know what those terms would be, but in the meantime we would at least have an orderly, sensible procedure in place which will allow businesses to continue trading between the EU and the UK. A lot of EU27 small businesses perhaps don't trade directly with the UK, but they are subcontractors to big businesses - car manufacturers, chemicals, pharmaceuticals - there are a lot of sectors that trade very actively between the two economies. So it does have a real knock-on effect on the broad economy, including very small businesses. For us it's important that we maintain commercial relations that are easier for the small businesses.
- What will be the picture if eventually there is a 'no deal' scenario?
- The relations will become far more complex, there will be a lot more non-tariff barriers and possibly tariff barriers between the UK and the EU. We are reasonably confident that in the long run a deal will be found to avoid tariffs. Between two economies that currently don't have tariffs, it surely is going to be possible, but if in a short term there is no deal, they will revert to WTO terms and that implies tariffs and it implies a lot of non-tariff barriers as well. Customs checks would be the most obvious problem if there is hard Brexit. Some small businesses in the EU that trade with the UK have never completed a customs form in their entire business life, and from 29 March they will start having to do that. It's not complicated, but it's a barrier, and if they have to do it every time they import or export a product between the EU and the UK, it becomes a burden. We would prefer to avoid that kind of burden that cumulatively slows down the economy and reduces job opportunities, and we really want to avoid this 'no deal' scenario. It's very important to us that this withdrawal agreement is secured before the end of March and then we have enough time hopefully to work on the future economic relations.
- As a European association, how do you help your members to prepare for Brexit?
- A lot of Chambers of Commerce are advising businesses, warning them about the possibility of a 'no deal' scenario, trying to get these businesses to think about the implications in terms of contract law, employment law, customs, VAT, intellectual property. There are many issues that they will have to consider and the chambers are providing advice and guidance to prepare the business community for this scenario, even though we hope it won't happen. For example, the German Chamber has presented what they call a 'Brexit checklist', which makes a business think in a structural way about the implications of Brexit. We have translated that into different languages and shared it among the chambers, so they can all understand this approach and perhaps adapt it for their own purposes. The chambers' network is extremely active. We, at European level as EUROCHAMBRES, our main role is to talk to the policy makers, to talk to the European Commission, and in fact last December we took a delegation of national chambers from 12 countries to London to meet politicians, to meet British officials, to try and understand better what is happening.
- The UK leaving the EU affects the life of many people, case by case in a different way. What is your personal Brexit story?
- I am British originally and it is not a happy experience for me. I am strongly pro-European, I have worked in EU policy and have lived in Brussels for over 20 years, and I was very disappointed with the outcome of the referendum. I wish it weren't happening. So, on a personal level it's disappointing, but on a professional level I just focus on trying to make sure it has the least possible negative impact on the EU27 business community.
- At the SME Assembly in Graz you led a policy session on “Bridging the Skills Gap”. What is the scale of this issue?
- It is a big problem and this is showing in our Annual Economic Survey, which we presented on 21 November in Graz. Each year we ask businesses across Europe to tell us what the main challenges are for the year ahead and we get 45,000 replies from them. It is a forward-looking survey, asking businesses their perception about what will go well, what may be more difficult, what challenges they will encounter in the year ahead. The two top challenges for our business community for 2019 will be the cost of labour and skills shortages. This is a bigger problem than exports, access to finance, and Brexit. It is really becoming quite an urgent issue to address, and it is not only in countries where there is very low unemployment, but also in countries where there is high unemployment. So it is not simply supply and demand, it's about the mismatch between the skills which are required and the skills which are on offer from the workforce. We talk with our members in the Czech Republic for example: they have hardly any unemployment in their country and they are trying to bring workers in from Ukraine, from outside the EU, to fill the gaps. On the other hand, we talk with our chambers in countries where there is very high unemployment, like Spain or Italy, and their businesses also have problems finding people with the right skills.
- What is your view about the programmes of the Commission dedicated to boosting the skills?
- They are broadly positive. Erasmus, for example, dedicates a lot of money to increasing mobility between the EU Member States and the proposal for the next MFF gives a lot more money to vocational education and training, which is very important. But education, training and employment are national policy competences, sometimes even regional, so it is difficult for the EU institutions to tackle this, as they don't have many policy tools available. They provide some funding, they make Council recommendations, but ultimately these issues have to be tackled at national or even regional level. Our view as the European Association of Chambers of Commerce is that it needs to be done in a coordinated way, so that a Bulgarian can fill a vacancy in Sweden, or a Portuguese can fill a vacancy in Greece. There needs to be more mobility, which isn't just about languages, because there are lots of other barriers which stop people from moving where the vacancies are. But we believe that it is the road ahead for the EU. If Bulgaria, Portugal, Greece, Sweden, etc., all work on this separately and in different ways, we won't find effective solutions.
- Could you please say more about the other top issue - labour cost?
- The issue is that in some countries it is becoming extremely expensive to employ people, and at the same time it is difficult to increase the prices of goods and services. Inflation is very low in most countries, so businesses are cautious about increasing the retail cost of their goods and services. The cost of employing people is becoming higher because of various reasons. In countries where unemployment is low, that is inevitable, but as far as I can understand from our members, it seems to be a general problem. Being squeezed, this is preventing businesses from expanding and diversifying into new areas. It is a challenging period and the general mood in the European business community remains optimistic, but they're under pressure in terms of labour costs. At the same time they are slightly worried about export forecasts. For some, this is more of a general feeling - partly, we sense, because of the negative rhetoric of 'America first' and Brexit. There is a sense that the global market is not necessarily moving in the right direction. So the business community is still optimistic, but cautiously optimistic - we perceive - about the coming months and years.
- What are the challenges for the small and medium-sized enterprises that prevent them to unfold their innovation potential?
- There are several challenges. Innovation usually requires a lot of investment. You can have forms of innovation which are less expensive, but breakthrough innovation typically requires R&D, which is costly. Then, R&D needs to be commercialised, brought to the market, and that requires piloting, testing, acquiring financing to upscale it. There are a lot of different actors involved in it - you need academia, you need business, you need financiers, so it's a complex puzzle to bring together.
The European Commission through its Horizon 2020 programme has done a great deal to stimulate R&D, but what we want to see more of, is that the smaller businesses can capitalise on this R&D, to commercialise it and turn it into innovation. If it just remains in a laboratory - that means it is not innovation. It has to get onto the market and that is a big challenge. We want to see more measures to help SMEs turn R&D and ideas into commercially viable services and products. It is just a question of putting all the pieces and actors together effectively, making sure that the money, the academic researchers, the entrepreneurs and the other players are all working together in a consistent and coherent way, otherwise it won't work.
- What are the attitudes in Europe towards failure?
- Business failure undoubtedly has a stigma in many European countries, and that can have a profoundly negative effect on an entrepreneur's ability to try again. Whereas in the US, business failure is accepted as a natural part of the learning process, even an advantage, because you can learn from your mistakes and your failures. That certainly needs to change in Europe. I think that there is, at least on a political level, an acknowledgement of this, but I don't think in the streets and cities of Europe it is the case yet. You are still as an entrepreneur often somehow tainted if you are associated with business failure. That is not just a cultural and social impact, but it can also mean that you have problems in registering a new company, it can prevent you from acquiring finance for new projects. In some countries, if your business enters into bankruptcy for perfectly innocent reasons, that can mean it's another 5 or 6, or even 8 to 10 years before you are in a position to start a business again. This needs to be addressed. The European Commission, with other institutions, is trying to finalise a new directive in this field, but I don't think it is going to change anything radically.
We should also remember that prevention is better than cure, so there needs in parallel to be more support to prevent bankruptcy when it is avoidable. In some cases, a company clearly is not going well and you need to close the business one way or another. But in other cases, with the right advice and support, a business can be put back on a more sustainable path. EUROCHAMBRES is a partner in a COSME funded project called “Early Warning Europe” which is designed specifically for this purpose, to identify companies at risk and to help put them back on a more sustainable route when possible. This dual approach is important: preventing avoidable bankruptcy through timely intervention, combined with helping entrepreneurs that have experienced 'honest' bankruptcy to get a second chance and to enable them to climb back on the horse.
Ben Butters is a Director at EUROCHAMBRES, the European association of Chambers of Commerce and Industry that altogether represent over 20 million businesses in Europe. He spent several years in international publishing in the UK before embarking on a career in EU public affairs. Before joining EUROCHAMBRES in 2008, he worked in the European Commission, the European Parliament and as a project manager for a European innovation network, as well as creating and running for several years his own EU advocacy company.