Markets & Companies

Britain in Uncertainty

Chemical Manufacturers and Drugmakers Identify Priorities as the UK Prepares Plans for Post-Brexit Life

15.07.2016 -

As the reality, and increasingly the finality, of Britain’s June 23 vote to leave the European Union began to sink in, chemical and pharmaceutical producers across the country in mid-July began to prepare for doing business post-Brexit. There will be old ties to sever and new ties to bind, existing regulations to study as to their adaptability, questions of compliance and, crucially, how to attract enough young talent without recourse to personnel from EU countries.

Both the UK chemical and pharmaceutical industries have established committees to address regulatory concerns and other top issues while developing strategies for the country’s negotiations with its former EU partners. The Chemical Industries Association (CIA) said last week it was putting together a full-time team to prepare a detailed manifesto outlining its post-Brexit needs. Staying on good terms with Europe will be essential as all of the association’s members are dependent on exports, and 60% go to the EU.

According to the European Chemistry Council, CEFIC, the UK contributes €46.3 billion (about 9%) of the EU 28’s chemicals sales of €531billion. The EU’s chemical exports to the UK total about €22.3 billion, while the UK’s chemical exports in the other direction are worth €20.3 billion. The CIA’s figures show that the chemical industry’s annual contribution to the UK economy totals £200 billion and could grow to £300 billion by 2030.

A peculiarity of the British chemical industry is that it is not a production powerhouse – due to the major national upheavals of recent decades. Some 50% of the chemical companies doing business in the UK are headquartered elsewhere.

Identifying Priorities for Chemical Companies

Upfront, the CIA has identified three priorities for the government’s negotiations with EU leaders in preparation for exiting the economic bloc. Along with access to the single market the availability of skilled labor and a secure energy supply are concerns. Steve Elliott, the association’s chief executive, has identified “big skills gaps” in the UK, as companies struggle to find maintenance and process operators.

On a positive note, Elliot said chemical companies see energy as an area where the UK can go its own way successfully. The EU’s energy policy “is taking place in a vacuum with no attention to the rest of the world,” he commented, “making it more expensive and undermining the whole industry.” An independent UK could gain muscle, among other things by exploiting shale gas, he said, echoing remarks by Ineos Chairman Jim Ratcliffe in a comment for The Times newspaper. Overcoming resistance to shale gas could be easier post-Brexit, Elliot asserted.

Drugmakers Facing Even Bigger Issues

In the referendum, UK drugmakers overwhelmingly supported remaining in the EU. While globally active companies such as GlaxoSmithKline (GSK) and AstraZeneca will feel the impact of a Brexit less severely than others, the pharmaceutical industry fears that being based outside the EU could undermine future investment, research and jobs. The life science sector, which accounts for about a quarter of all business research spending in the UK, is especially worried.

To make the transition as seamless as possible, the pharmaceutical industry and the UK government have established a task force to address regulatory concerns and other top issues facing the drugs sector. A 15-member EU Steering Group co-chaired by Andrew Witty, CEO of GlaxoSmithKline, Pascal Soriot, CEO of AstraZeneca and UK life science minister, George Freeman, will review issues ranging from intellectual property and trade to market regulation and access to skilled workers.

Supported by the British Pharmaceutical Industry Association and BioIndustry Association, the steering group will advise the new Conservative government in its upcoming negotiations with the EU. It will also look at opportunities for the UK life science sector outside the common regulatory environment.

Apart from research, one of biggest issues for the drugs sector in a post-Brexit Britain is the obligatory disentanglement from the European Medicines Agency, EMA, which tests and approves new drugs sold throughout the EU. The agency is currently headquartered in London and deeply entwined with the UK research infrastructure. Following the British EU exit, it will be forced to relocate.

Several countries including Germany and Sweden, Italy and Denmark are expected to offer a new home to the EMA, a prestigious asset for any country. A stranded UK hopes it will be able to fall back on the resources it has developed as the self-designated “life science powerhouse” of Europe. However, Steve Bates, CEO of the BioIndustry Association, warned before the vote that moving the agency could lead to disruption, expense and significant regulatory burdens for both Britain and Europe as a new system is developed.

The UK government is now trying to allay fears at home. Noting that its own Medicines and Healthcare products Regulatory Agency “has done much to shape the European regulatory environment,” life science minister Freeman insists that the UK “intends to remain a very influential regulatory voice in the European life science sector” and at the same time create an environment that is “conducive to attracting international investment as a gateway to the European market.”

Brexit’s Impact on the Investment Climate

Attracting investment in the early aftermath of the Brexit crisis may not be as easy as the government hopes, given the mood of uncertainty as the country unravels a more than 40-year economic, political and social entwinement and simultaneously replaces its government, all against the backdrop of a possible replay of the Scottish independence drama.

How quickly any of this could happen and whether a longer or shorter transition would be more positive were other questions looming as new prime minister-designate, Theresa May, prepared to take over from David Cameron. In any case, May – in contrast to her more hesitant male counterparts – has stressed she is prepared to invoke Article 50 of the EU treaty, starting the countdown to withdrawal, as soon as possible.

The financial markets are still not convinced that leaving the EU makes economic sense for the UK. Since the referendum, the pound has fallen continuously against the US dollar, and all three major financial ratings agencies – Moody’s, Fitch and Standard & Poor’s – have all slashed the country’s credit rating, adding financial security to the political conundrum.