What rapid change will the world experience in the new year?
The COVID-19 pandemic, Brexit finale, Black Lives Matter protests, US election drama – and Stock & Oil market crash. Followed by an incredible rebound of tech stocks. With the Tesla valuation reaching levels hard to explain even for our electric car enthusiasts. These are all major events that took place this year. They accelerated the pace of change already underway and will drive rapid change in 2021 and beyond. In this article, we share some thoughts on the first two, primarily.
The Brexit deal signed on 24 December seems to leave a substantial amount of continuity: the UK has swapped ‘ever-closer union’ for what may be an ever-closer agreement, as the Financial Times put it.
A Partnership Council will govern the agreement. A UK minister and a European commissioner will supervise it, jointly. It will make decisions binding both the UK and EU. Its deliberations can be confidential. The Council will spend half its time in London and half in Brussels.
Interestingly, the UK parliament will only have the right to be “informed” of these legally binding decisions. And an arbitration process will deal with any dispute and be subject to absolute and discretionary rules of confidentiality.
The decisions of the Council will only bind the UK and EU as a matter of international law. They will not apply to any other persons.
Goods such as cars will be tariff-free, while services will face new barriers as freedom of movement of people will be limited.
Statistics on UK-EU trade
A recent UK Government paper states that, in 2019, the UK recorded a deficit in goods with both the EU and non-EU countries. Which is worth -97 billion GBP and -34 billion GBP, respectively. But it also recorded a trade surplus in services with both the EU and non-EU countries. Which is worth 18 billion GBP and 83 billion GBP, respectively.
Services accounted for 42% of the UK’s exports to the EU, in the same year. Financial services and other business services (a category which includes legal, accounting and other professional and technical services) are important categories of services exports to the EU.
The UK financial services firms will no longer have access to the EU single market from 1 Jan 2021. For now. It was actually decided a while back that Britain’s future relationship with the EU in finance would be negotiated separately and later. Therefore, Brexit will on balance be bad for the City (London’s financial district), but not a disaster, according to The Economist.
The Conservative government led by Boris Johnson took the view that Britain’s leading financial services firms were big and smart enough to look after themselves. And it focused on fishing, which is 0.12% of the overall economy, according to another UK Government paper… However, many smaller financial firms providing services in the EU may find it difficult to continue serving EU clients in 2021.
Conservative brexiteers talk of turning London into a financial hub with closer links to Asia and the Middle East. They hope that leaving the EU will boost London’s prospects in hot areas of finance. Such as fintech and green finance.
The EU sees Brexit as an opportunity to make its financial sector stronger and more coherent. There is renewed interest in kick-starting the bloc’s “capital-markets union” project. Officials in Brussels would like to see key functions like clearing (currently allowed to stay in London) move within a few years, too.
For more on the Brexit deal and change that it will bring: UK-EU trade agreement summary (UK Government website).
Yesterday, the UK has approved the second vaccine, the ‘Oxford-AstraZeneca’ one. An equally effective, but cheaper and easier to store vaccine than the one developed by BioNTech-Pfizer. (Approved first in the UK at the beginning of the month.)
It will accelerate COVID-19 vaccinations in the UK and around the world. Because, at the end of the day, till 70+% of the world population is vaccinated, nobody is really free from COVID-19. But it will take time to get there. Perhaps, the Western world will return to some level of normality in the second half of 2021 (at the earliest). The rest of the world, from which the West depends, will take longer. Possibly a lot longer.
Meanwhile, some of the change that COVID-19 forced organisations to implement will be permanent.
For more on COVID-19 impact and change that it will bring: Project-based Smart Working and the Project Economy.
In 2020, change was a reaction to a “white swan” event virtually nobody prepared for. In 2021, change will be a planned activity. One resulting from what we learnt this year. Unfortunately, the combination of Brexit and COVID-19 may put a lot of smaller businesses out of business, in the UK, the EU and other parts of the world.
In order to survive, they have to be a critical business (e.g. goods delivery), have plenty of cash/ receive financial help from the government, or adapt to the new world. For example, they may “digitise”, i.e. develop a strong digital platform to continue to do business with existing and new clients and customers. This will be true for corner shops (e.g. food or homeware) or financial services (e.g. local banks or wealth managers).
2021 will also be the year a large number of people realise that the car of post-COVID-19 will be a technology gadget which will be sometimes owned, sometimes rented (shared), but always electric, connected and eventually autonomous.
HAPPY NEW YEAR!
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