How Will Brexit Affect the Philippines?

If you tune into any news channel that covers international news, then you’ll have heard about Brexit. The biggest political, social, and economic issue facing the United Kingdom today, Brexit is shorthand for Britan exiting the European Union. It has been the source of much discussion, concern, and political conflict since it was put into motion three years ago, and with the deadline for the exit looming ever closer, it’s as relevant as ever. Here’s a brief primer on what Brexit is, and how it will affect the Philippines.

Brexit: A Brief History

The UK has been a member of the European Union, a political and economic union that enables free trade and movement among all member states in Europe (among other agreements), since 1973. As this brief primer by the BBC discusses, the relationship between Great Britain and the EU has historically been rocky, and concerns over immigration and other issues led to a tipping point in recent years.

A national referendum was held on June 23, 2016 on the UK’s continued membership in the EU, and the Brexit referendum results had 51.9% of UK citizens voting to leave the Union. This put into motion what would eventually turn into a three-year process of negotiating what exactly an exit from the Union would entail, and what the treaties and the relationships of the UK with other European countries would look like.

The negotiations are currently helmed by British Prime Minister Theresa May, who stepped into the position when the previous Prime Minister David Cameron resigned shortly after the referendum. David Cameron believed that the UK’s exit would bring great economic harm and campaigned for the Remain vote, and according to the Guardian felt that the country needed new leadership under this decision.

Theresa May triggered the Article 50 exit clause of the Lisbon Treaty on March 29, 2017, starting a two-year process that will have the UK formally exiting the European Union by March 29, 2019. After months of negotiation, she and her team presented a document outlining the terms of the UK’s exit, but the Theresa May deal was rejected in a historic loss by 230 votes. Currently, with the clock ticking towards the exit date, the UK government is trying to negotiate for a better deal with the EU.

Brexit and the Philippines

Brexit means that the UK will no longer be subject to the same agreements that it was before. With the UK having been a member of the European Union for over 40 years, this entails a whole new renegotiation of different treaties and agreements with both countries in the EU and countries outside the EU. In particular for the Philippines, this means a whole new relationship with the UK as a single country outside of the bounds of the Union, and that has new effects and impacts on the Philippine economy.

Trade and Industry

The Brexit vote in 2016 saw an almost immediate effect on the Philippine economy. The PSEi fell by 1.29% on June 24, 2016, before recovering a few days later. As with other international events, the uncertainty of what would happen next led to sudden dips and changes in capital flows in the stock market. However, those were short-term effects that eventually evened out.

Then-Socioeconomic Planning Secretary Emmanuel F. Esguerra of the National Economic and Development Authority (NEDA) was quick to reassure the public that the impact of Brexit on the Philippine economy would be minimal. According to NEDA, Brexit would have little effect on the Philippine economy due mostly to the Philippines’ strong macroeconomic fundamentals.

Another reason for the minimal impact is because the UK economy accounted for only 2.4 percent of the world GDP in 2015, meaning that direct exposure of the Philippines to the UK economy is relatively low. The UK-Philippines relationship in terms of exports and imports of merchandise is also small in comparison with the Philippines and other countries’, accounting for only less than one percent of total exports and imports from 2010-2015.

However, the government still cautioned to keep an eye out for indirect effects of the UK’s exit from the European Union on the global economy, as these could still have an effect on the Philippines. In an economic bulletin released by then-Finance Undersecretary Gil S. Beltran, Beltran stated that Brexit introduced financial and currency volatilities into the global economy, which might impact attainment of the GDP growth targets for the year.

In general, the effects of Brexit on the Philippine economy seem to be at a minimum. IHS Markit Chief Economist for Asia Pacific Rajit Biswas said that the Philippines has actually lessened its trade dependence on Europe, just like other Asian countries have over the past few years. In fact, the intra-Asian trade boom over the last decade is likely to cushion the Philippines’ economy and protect it from the worst of the effects of Brexit. Eight of the Philippines’ top ten trade partners are Asian countries, and the only non-Asian countries included in that top ten are the US and Germany.

While Philippine exports to the UK and Northern Ireland in 2017 declined by 5.4 percent compared to 2016, ultimately the combined markets were only the top 20th destination for Philippine exports.

Uncertainty regarding the relationship between the UK and the European Union does have an effect for UK-based Philippine companies, especially regarding the issue of tariffs, but some of these companies have actually begun to shift their centers of operation to Europe in anticipation of a “hard Brexit”, or a deal in which the UK has little to no groundwork for its relationship with the EU.

Post-Brexit, the UK has already begun looking at setting up trade deals with Southeast Asian and Asian nations. In particular, there are preparations being made for setting up a relationship with the Association of Southeast Asian Nations (ASEAN) as a bloc, but due to lack of homogeneity, the UK may choose to look at individual countries’ economic strengths instead. Currently, the UK is the third biggest foreign investor in the Philippines, and that may lead to more economic opportunities for the Kingdom.

UK Aid

One area that may be negatively affected by the Brexit deal would be the amount of foreign aid the Philippines is able to receive from the UK. According to the UK’s Department for International Development, the Philippines received a total of 55.9 million UK pounds in bilateral overseas development assistance, which was focused in particular on rehabilitation after Typhoon Yolanda (known internationally as Typhoon Haiyan.)

There are currently 12 projects from UK Aid to the Philippines that are listed on the UK government’s development tracker, and depending on the priorities of a post-Brexit government, the amount of aid from the United Kingdom could be lessened or redirected elsewhere. With Philippine President Rodrigo Duterte already having rejected aid from the UK, expectations regarding development aid might have to be readdressed over the next couple of years.

Tourism

Most concerns regarding tourism and the Philippines and the United Kingdom post-Brexit are centered on attaining visas for Philippine passport holders. While the UK is not part of the Schengen Agreement and needs a separate visa, according to travel website Tripzilla the UK government may put into place stricter measures to prevent students or tourists from overstaying. This may mean that Philippine tourists will have to prepare for a different set of requirements for a UK visa once the UK leaves the European Union for good.

Brexit has led to a weakening of the British pound, which may be beneficial to Philippine tourists as it allows Filipinos a little more breathing room in their budget. Rappler also reports that tourists from the UK grew by 9.3% in the 2010-2015 period, meaning that tourism still remains one of the most resilient industries despite the turmoil of a British exit from the EU.

Regardless, the impacts of Brexit on the British, Philippine, and global economies may still only be beginning. Once a deal between the EU and the UK is reached, the Philippines should still brace itself for whatever happens next.

For more on the world and everything that happens in it, check out the Politics category on Daydreaming in Paradise.

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