On Brexit’s Front Lines: Covid Is Dry Run for Upheaval
On Brexit’s Front Lines: Covid Is Dry Run for Upheaval
(Bloomberg) -- Leaving the European Union was supposed to be the most challenging time for Britain’s chief executive officers. Then, of course, came the coronavirus pandemic.
The unprecedented upheaval tested the ability of many companies to keep customers, secure supply chains and recruit and retain workers. And these are precisely the flashpoints that have raised questions about the U.K.’s preparedness to exit the single market at the end of the year.
Bloomberg got back in touch with company chiefs who have been sharing their views as Brexit unfolded. There were mixed opinions on what might happen next. But in one way or another, they’re all managing to navigate the pandemic and Brexit has been relegated to a lesser issue.
Chicken and turkey farmer Traditional Norfolk Poultry is suffering from a shortage of workers after migrant labor dried up, but gained from a jump in demand as more people cooked at home during lockdown. Peer-to-peer lender Funding Circle Holdings Plc had a revival in its business with small companies snuffed out by the pandemic, only to make up for it by being a distributor for the government’s rescue loan program.
Ebac Ltd., a maker of dehumidifiers and washing machines in northeast England, mitigated a six-week loss of production by boosting sales in the U.S. Business is now back to about 90% of where it was, according to CEO John Elliott. He said the pandemic took up 60% of his time when it escalated in March and April. Now it’s about 15%, he said. Brexit, which he strongly supports, by comparison is “probably 0.0001%.”
“2020 was going to be good, but we’ve just been knocked on the head,” Elliott said. “We’re more inefficient because the supply chain’s out of joint. We can get through that. I’m very confident about the future.”
While that outlook suggests the floundering U.K. economy contains pockets of strength, another precarious period is on the horizon. Talks between Britain and the EU over a post-Brexit trade agreement remain deadlocked. The U.K. government, meanwhile, is warning businesses to get ready to leave the single market without a deal.
On a call with industry leaders on Tuesday, Prime Minister Boris Johnson and Cabinet Office Minister Michael Gove acknowledged that businesses had been busy with the pandemic, though said they should be preparing for the changes Brexit will bring.
For Traditional Norfolk Poultry’s managing director, Mark Gorton, it’s a question of how to keep and recruit workers. His district in eastern England backed leaving the EU, partly due to concerns over immigration, while he wanted to remain. Some of his staff—many of whom hail from eastern Europe—departed within a week of the 2016 vote.
When the pandemic spurred border closures throughout Europe, the agricultural industry put out a call to rally furloughed British workers to pick crops. Gorton said his company didn’t get a single application from locals for its meat-packing and farm jobs, despite constant posts in local newspapers and on social media.
Covid-19 was a “sort of trial run for what’s going to happen as far as labor availability if we can’t get the Eastern Europeans workers we rely on,” said Gorton. “As much as we would love to employ local labor, it’s just not there.”
Sales of its free-range and organic birds have climbed throughout the pandemic as Brits hunkered down. More U.K. farmers are also signing on to raise poultry in a bid to diversify their business on the back of Brexit. Raising and processing the extra chickens, though, requires more workers.
The company is offering bonuses and extra training to keep current staff. Another extra cost is for feed after a poor harvest for wheat, which accounts for about 70% of the birds’ diet. The company also boosted stockpiles of packaging and fuel to a 10-12 week supply, instead of the usual 6-8 weeks to cope with any future disruption mainly from the pandemic.
Gorton’s 250-person workforce is keeping operations running. But the firm could take on another 40 or 50 people. “We’re working really hard to embed our workforce to make them really want to stay and work here,” he said. “But inevitably we’ll lose some because they won’t feel comfortable working here in the potential political environment they’ll be in, which is a real shame.”
At Funding Circle, that Brexit backdrop initially put a dampener on business. The Withdrawal Agreement that finally took the U.K. out of the EU in January and into a transition period led to an increase in activity, CEO Samir Desai said.
The company listed on the London Stock Exchange in September 2018, betting that demand for loans would remain constant even as Brexit slowed economic growth. Businesses that might have been putting plans on hold decided to then move forward, he said.
“And then Covid happened,” said Desai. The effect of the pandemic dwarfs the effect of Brexit, he said. “The IPO raised significant funds to see us through a black swan event, we just didn’t anticipate the event being a global pandemic.”
The company, though, has played a big role in the government’s virus aid plan. It had approved 1.2 billion pounds ($1.6 billion) of loans for business interruption as of Sept. 20, or 20% of the total nationwide.
Even with a trade deal, the main issue is the effect on the economy and how that impacts demand for small-business loans, said Desai, who opposed leaving the EU at the referendum.
At Ebac, Elliott said that such things as the potential for queues at the border, another hammering of the pound or soaring trade tariffs are just short-term issues that need to be navigated. One example in the pandemic was filter material for dehumidifiers, which became scarcer because of the demand for face masks.
“These things sort themselves out,” Elliott said. “The coronavirus has been a far bigger problem.”
©2020 Bloomberg L.P.