Brexit Tracker helps chart the confidence

The most valuable commodity in any market is confidence, which is measured out in various currencies. The pound, according to the text on the front of a fiver, is a promise to pay the bearer. Likewise, the verdicts given by Equifax and Experian are judgements of their belief in your financial fortitude. The lines of credit and levels of discount that a distributor extends to a reseller are another channel partner confidence rating. Those decisions are based partly on instinct, which are affected by our emotions.

Debate’s over Britain’s exit from the EU (Brexit) were tragically distorted by volatility in the emotional currency markets. It should have been an examination of accountability, governance and trade policy but sadly it ended up becoming a phoney moral grandstanding competition.

Impartiality means I won’t judge people - that would be unfair to both the Leave Voters and the Remainiac Emoters. But the bottom line is that national confidence seems to have plummeted, according to our national broadcaster - and they are always strictly impartial.

Some say that morale on HMS Britain is at an all time low as we drift closer to that section on the map marked ‘Here Be Dragons’. If we drift any further, experts say, we will reach the edge of our flat planet, fall off and plummet into space.

Confidence is being eroded daily, and with that our credibility is being destroyed. Under these circumstances, investment is harder to obtain, because the money markets like certainty - as much as possible. Yes, they like to take a punt, but only if they are reasonably confident they have superior knowledge of the future and have analysed every angle, test driven it, kicked the tyres and minimised the risk.

Brexit represents a risk to IT resellers and service providers. Under the circumstances, no venture capitalist would want to lend money to a company that hasn’t bothered to calculate the risks, according to Ben Martin, who has 20 years on the other side of the desk as an investment banker.

Global corporations, which can afford to hire PWC consultants on £2,000 a day each, have no such problems. They will have a nice big Alpha Mail report that rattles the tea cups when it’s thumped down on a desk. That impresses people.

But most UK service providers can’t afford this. To fill this risk analysis affordability gap, Martin has created a service within his Brexit Tracker business, which creates risk analysis reports for SMEs operating in any particular market.

As part of that service Brexit Tracker identifies which vertical markets are doing well and which are struggling in the wake of Brexit. Should you wish to create your own Brexit Risk Analysis, here’s some intelligence you can crib.

Metal product manufacturing, mining and transport, storage and distribution have been the best performing sectors July 2015, according to Brexit Tracker’s analysis.

The worst performing sectors have been health and social care, shipbuilding and retail. The best performers and worst are those that have won or lost from the weakness of the pound, says Martin.

“The drop in skilled and temporary EU migrants worker coming to the UK also adds massive head winds to those sectors performing poorly,” says Martin.

Brexit tracker forecasts that, coming December 2019, it’s likely that 26 out of the 30 sectors it tracks could show worse operating profits if we had a Hard Brexit rather than a Soft Brexit.

In that time, the four sectors showing an improved operating profit would all benefit from global sales. This would be a consequence of three factors: the weakening pound, less exposure to possible EU tariffs and non-reliance on EU employees.

So why are some sectors doing well? 

Mining and quarrying sector, pharmaceuticals and some manufacturers have performed very well since the Brexit referendum because of the strong underlying demand for their product which benefited from their comparative cheapness as the pound fell. 

All sectors are labour intensive, however, and financial performance gains are starting to slip, as costs move higher and productivity gains slow.

Isn’t IT supposed to be linked to productivity? Can IT compensate for the drop in skilled EU workers?

“They’ve been major focus on the fall in EU skilled workers here in the UK – perhaps too much,” says Martin. Sadly, there is no pressing demand for IT being created by the lack of skilled workers.  Figures from the Office of National Statistics say the rate of net arrivals of EU skilled workers has fallen since the Referendum, but there is still a positive influx.

This is often an overlooked area in the Brexit hysteria and the UK has more EU skilled workers now than before the referendum. “The next few quarters of data will be crucial in determining the future trend,” says Martin, “given recent positive developments from the UK Government over EU citizenship rights, the numbers of skilled workers leaving the UK may well reduce.”

Yes, there have been some scares, including home grown ones like the Bitcoin bubble. But once you can prove that your risk has been mitigated, that are still plenty of capitalists ready to venture into the IT channel, says Charlie Ross, spokesman for the investment team at mid market private equity firm Livingbridge. 

“The volatility which surrounds Bitcoin and cryptocurrency won’t turn off venture capitalists from investing in the IT industry in general,” says Ross. Neither will Brexit deter them in the long run.

“Brexit has introduced volatility to the British market and, with that, risk. Risk is no bad thing as long as rewards are appropriately linked to that risk,” says Ross.

In fact, Brexit will create more opportunities for disrupters than you’d expect in a more stable climate, says Ross. “Technology companies that can be nimble and navigate these uncertain times make for strong investment opportunities,” says Ross.

That’s if you can get the funding of course. Get working on that risk analysis. The Brexit Business Index might be a good starting point.