Apparel exports may be affected

By Rohan Masakorala

The exit of the United Kingdom, the fifth largest economy in the world, from the European Union, which is the biggest market in the world, will affect trade, finance, security and geopolitics.

The initial reactions of the currency and the commodity markets reflect great volatility. This will be there for some time until markets accept the reality of the new change.

This is only the first step of a democratic consent to change the political model in the UK. Under Article 50 of the European Union, gradual changes will take place and the UK will have to untangle itself from Europe on many fronts.

These will include trade/finance arrangements, migration arrangements, education and movement across borders. The referendum reflects a strong division of opinion from Scotland and Northern Ireland compared to the rest of the UK. In the long term, this may result in more demand for separation within the UK and it may filter down to Europe. This will have many global geopolitical consequences, the future generations will need to manage/handle.

The process of transition will take some time, exiting trade arrangements, for instance. This may last for another two years, until formal disengagement takes place. In the case of Sri Lanka, in the medium-term, we too will have to face changes and challenges. In the immediate short term, currency movement and the pound getting weaker will have an impact on export pricing and inbound tourism.

In the medium term, if Sri Lanka gets GSP+ early next year, we may have a disadvantage as over 40% of our apparel and other exports go to the UK market in the EU. If we as a country cannot develop bi-lateral arrangements with the UK, it will affect apparel and rest of the exports in some way in the future.

We need to understand that we are an extremely small market and need to link to the global supply chain to benefit more from world trade.