The Polish city of Gliwice is home to one company that fears a no-deal Brexit could hit business hard in eastern Europe. Photo: Shutterstock
Trade with central and eastern Europe already affected and local GDP could shrink by 5%.
Jarosław Granat has worked for Future Processing since it was a scrappy startup run from the first floor of its founder’s house in the southern Polish city of Gliwice. Now the software development company has more than 1,000 employees based in a gleaming office complex and serves dozens of blue-chip clients around the world.
More than half of the company’s clients are in the UK, and Granat fears that two decades of hard work building up the business could now be put at risk by the looming threat of a no-deal Brexit.
“We don’t know how Brexit will look and it could be chaos,” he said. “Very few people, including us, believe that no-deal will happen. But maybe we’re just wishing it won’t.”
The company, which started life when its CEO, Jarosław Czaja, was a computer science student at Gliwice’s Silesian University of Technology, now has annual revenue of nearly PLN100m (£20m). The overwhelming majority of employees are still based in Gliwice but many travel regularly to Britain.
Lack of any certainty
Just as for many British businesses, the most crippling aspect of the ongoing Brexit negotiations for the companies in central and eastern Europe with major links to Britain is the complete lack of any certainty. Many had assumed that a no-deal Brexit was an impossibility, but with two months to go their faith that a workable deal will be agreed on by all sides and passed through parliament is beginning to be tested.
For Future Processing, there are three main concerns about a hard Brexit. First, the likelihood that the pound will plummet, creating currency risk. Second, that transport connections between Poland and the UK will be disrupted, making it harder for the Polish company’s representatives to visit British clients. Finally, that the UK breaking away from EU law will create legal uncertainty and potential additional costs as the Polish and British systems diverge.
“We understand that people in the UK and politicians might not have considered the implications a few years ago, but the consequences could be drastic,” said Granat.
While making preparations is tricky when nobody knows what kind of Brexit to expect, Future Processing has already made attempts to diversify its client base and thus reduce exposure to the British market. It has also introduced flexibility in contracts to protect against currency fluctuations.
A no-deal Brexit is likely to have an economic impact in the broader region well beyond the companies that are inextricably tied to Britain. Vladimir Vano, a Bratislava-based analyst and member of the British Chamber of Commerce in Slovakia, estimated that a hard Brexit would lead to a 1% lower GDP for both Slovakia and the Czech Republic, due to trade disruption and increased bureaucracy, with further indirect impact likely as well.
“We are on different edges of the EU geographically, but Britain has gone from zero to be the in the top five or six trade partners for Slovakia and the Czech Republic,” he said.
Supply chain disruption
The European Bank for Reconstruction and Development estimates that the direct and indirect effects of a no-deal Brexit could lead the broader region to have a 4-5% smaller GDP by 2021 than it would have done otherwise. The automotive industry could be particularly affected by disruption to supply chains, mainly in Slovakia and Hungary.
The uncertainty has already led to a slowdown in some sectors. “In the last three months I’ve seen a delay in contracts coming in from Britain, and I fear I’ll have fewer orders from the UK in the near future,” said Genoveva Hristova, managing director of Bulgaria’s Ligna Group, which makes furniture for luxury hotel chains.
Britain is in the group’s top three markets, but she said the company’s contractors were already looking to shift business from Britain to central Europe or Germany to avoid potential Brexit hurdles. Her biggest worry about a no-deal Brexit is the potential customs hurdles.
As well as exporters, the tourism sector across the region could also be hit by a potential fall in the pound or a Brexit-related economic slowdown.
Boris Šuljić runs the boutique Hotel Boškinac and its associated restaurant and winery on the rugged Croatian island of Pag, which has become a popular destination for British foodies and partygoers in recent years.
“British guests love it here, for the clean sea, the food and the crazy parties,” he said. “But we are aware that many of them will cut ‘luxury’ expenses and wait for the epilogue of the Brexit process. Tourism will feel the eventual drop in sterling, and the weakening of consumption power from the British market.”
Šuljić, like everyone, was uncertain exactly how Brexit might affect his business, and said he hoped that a “compromise” would be achieved to avoid the problems a no-deal Brexit would entail.
For most businesses in the region with exposure to the British market, there remains a hope that the worst will not happen, but as each week goes by, the worry increases. Granat admitted to a frustration with British politicians’ failure to agree on a deal and the hopeless Westminster infighting.
“It seems like this is a political discussion where everyone needs to think of the overall picture, and the need to find a compromise, rather than pursuing personal goals. We’re keeping our fingers crossed for a postponement, or a second referendum.”
UK-eastern Europe trade in numbers
4-5% Estimated impact on GDP across the region from a no-deal Brexit.
£2.2m Value of Czech car exports to UK.
170,000 Jobs in central and eastern Europe connected to food exports to UK.
£7bn Value of remittances sent to EU countries in 2017 from UK-based workers.
2% Proportion of the Polish workforce in employment related to UK exports.
Sources: World Bank, IMF, ING Group, EBRD.
By Andrew MacDowall and Shaun Walker. Maria Georgieva contributed reporting.