Brexit: 3 reasons why SMEs and entrepreneurs are safe

July 6th, 2016

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23 June 2016 will be remembered around the world as the date on which more than 17 million people in Great Britain and Northern Ireland took to the streets to vote to end a 41-year relationship with the Union. European. When the first results of Brexit (British Exit) were announced, the pound sterling hit its lowest level in three decades, an effect that was replicated in stock markets around the world. An analysis carried out by the rating agency Standard & Poor's reveals that the exit of the group could generate a contraction of 1% in the Gross Domestic Product (GDP) of the United Kingdom.

However, although the international outlook looks bleak, analysts consulted by Entrepreneur and Alto Nivel agree that small and medium-sized enterprises (SMEs) and entrepreneurs in Mexico are safe.

As a matter of principle, Fernando Lelo de Larrea, partner of the NUMA Mexico accelerator and founder of the ALLVP investment fund, explains that the effect generated in the short term can generate uncertainty in the national ecosystem, but he assures that it will also have a positive influence in the medium term. long term. “Mexico's economic problem existed yesterday, today and will exist tomorrow regardless of what happens between the United Kingdom and the European Union. It is important that the Mexican entrepreneur does not lose focus and continues working. For now, entrepreneurs will have to face the storm”, he comments. Next, we share three reasons why SMEs and entrepreneurs in Mexico will not suffer this effect, according to the experts consulted.

reach new markets, according to Roberto Anaya, general director of the National Chamber of the Tequila Industry. This beverage closed in 2015 with a production of 248.3 million liters, an increase of 2.4% compared to the end of 2014. This year the industry expects to exceed 260 million liters. On the other hand, tequila exports in 2015 closed at 182.9 million liters, an increase of 6% compared to 2014. This year the industry expects to export 190 million liters. The other side of the coin is the dairy sector, which will be threatened by the entry of Australia and, above all, New Zealand, which is the most efficient in the sector globally and produces almost twice as many liters per year at low cost. than Mexico. This will increase foreign competition from finished dairy products, according to René Fonseca, general director of the National Chamber of Milk Industry (Canilec).For this reason, Mexico agreed that the final text of the TPP would include eight quotas or tariff concessions, limited to specific amounts per year, in products that are not as competitive, such as fluid, powdered, evaporated, condensed milk, butter or cheese.
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In general terms, the commercial exchange with the United Kingdom is not of great proportion: it is equivalent to 0.7% of the total that Mexico exercises with the world, according to data from the Ministry of Finance and Public Credit (SHCP). At the end of 2015, the commercial flow between both territories amounted to 4,312 million dollars, show figures from the Bank of Mexico (Banxico). In this regard, Iliana Rodríguez Santibañez, director of the Department of Law and International Relations at the Tecnológico de Monterrey, explains that this figure does not represent a risk if one takes into account that the exchange that takes place with the United States, Mexico's main trading partner, was of 495,693 million dollars. “The UK is the fifth largest economy in the world.

It is not a minor economy, but we must be certain that Mexico will not suffer from this measure. In times of change, crises always generate opportunities, you have to know how to understand them to get on them”, says the professor. However, Rodríguez Santibañez recognizes that not all Mexican entrepreneurs have the competitiveness to insert themselves in complex moments in an international environment, for which he recommends implementing measures that avoid an inhibition in their operations. 2. Exchange rate volatility is temporary

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When the first results in favor of the "Yes" were announced in the early hours of the morning of Friday, June 24, the Mexican currency touched the barrier of 19.5187 units per greenback at teller windows, to later drop to 19.25 pesos per dollar, levels not seen since 2009.

During a joint announcement between the Ministry of Finance, Economy and the Bank of Mexico on a reduction in public spending of 31.715 million pesos, the Mexican currency fluctuated between 18.80 and 18.90 units per dollar. Later, the exchange rate registered a rise again to 19.13 pesos per dollar. Given this, Carlos Ponce Bustos, executive director of Analysis and Strategy of Grupo Financiero BX+, argues that this overreaction is "a normal effect" derived from the magnitude of the announcement, but it is not permanent. “There are many factors that are involved, but it is important that Brexit is not seen as a crisis issue. The United Kingdom is an important economy, but we cannot compare what is happening with the financial crisis that began in 2008. It is normal for volatility to be generated, but it is temporary. We must not see this as bigger than it is not” , assures the expert.

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Ildefonso Guajardo, head of the Ministry of Economy (SE), assured at the conference that took place last Friday morning that Mexico is prepared to present a proposal for a Free Trade Agreement (FTA) with the United Kingdom and negotiate it within a to two years, after 51.9% of the British chose to leave the European Union against 48.1% who decided to remain in the bloc. "As long as we do not reach the point of defining the model, the relations we currently have with the European Union and the United Kingdom will remain in force," said the Secretary of the Economy. Currently, Mexico has a network of 11 FTAs with 46 countries that provide support to its trade flow. Kristobal Meléndez Aguilar, a researcher at the Center for Economic and Budgetary Research (CIEP), believes that Mexico can make the most of this situation, since it can negotiate directly with the United Kingdom and obtain a competitive advantage in the long term. “Entrepreneurs can have great opportunities with this situation. If their final market was the British, they can look for a way to strengthen commercial relations, but if it was not, this will allow them to start looking towards a new strategic partner. In the long term, this will give Mexico the opportunity to negotiate directly a commercial agreement with the United Kingdom and obtain a greater profit”, shares the researcher.

THE REAL RISK

 Experts agree that the issue of Brexit is relevant, but they warn that the real risk will come when the presidential elections are held in the United States on November 8. One of the most important reasons is that the United States is Mexico's main trading partner. On average every minute a million dollars are exchanged between both sides of the border and 80% of Mexican exports are sent to the North American territory, show data from the Ministry of Foreign Affairs. Mexico is the first destination for exports from key states such as California, Arizona and Texas and six million jobs in the North American country depend on Mexican trade.

“In the coming months we will have periods of great uncertainty due to the US elections. Whatever happens to our neighbor to the north, we will experience volatility and that does affect us directly,” says Carlos Ponce Bustos, executive director of Analysis and Strategy at Grupo Financiero BX+. When the Brexit results were announced, the virtual candidate of the Republican Party for the presidency of the United States, Donald Trump, described the decision made in the referendum as positive during a visit he made to Scotland. “I think it's a very good thing, a really fantastic thing. I can see a parallel between what is happening in the US and what is happening here (in the UK). People want to see the borders, people want their country back, they want to have independence”, he specified when referring to the migration issue.

Iliana Rodríguez Santibañez, director of the Department of Law and International Relations at Tec de Monterrey, sees the position of the conservative businessman as a real threat, because if he reaches the Oval Office, relations with Mexico would take a complicated course. “At this moment we have to worry more that Donald Trump shares this nationalist sentiment of the separation of the United Kingdom from the European Union, if that is the strategy of someone who can become the representative of the number one nation and of which we depend on, then we definitely have more important things to worry about than Brexit.”

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