How Brexit Can Impact the Construction and Structural Engineering Industry

On 23 June 2016, the United Kingdom European Union membership referendum, also known as the Brexit referendum, occurred with a majority win of 51.9% for Britain to leave the EU. Some who wanted a Brexit believed that an EU leave will help with regaining national sovereignty and freedom of trade, saving costs in EU membership fees, and controlling immigration. Some wanted Britain to remain in the EU, since leaving will decrease Great Britain’s power to control world affairs, decrease in investments, and decrease in trade relationships between the EU and the UK.

Currently, there is already uncertainty and only educated predictions on what the divorce terms will be between the UK and the EU. Now, we are already seeing stock markets crashing and the pound sterling falling. Big companies, such as Morgan Stanley, Toyota, and Goldman Sachs, are already planning to move offices and operations to EU nations, due to new EU tariffs and costs. 

But how will this affect the construction and structural engineering industry in Great Britain?

Source: katehon.com

● Skill shortage and reduction in labor availability

● Construction projects are heavily dependent on foreign immigrant labor from the EU for skilled or unskilled labor. Foreign migrant workers from the EU make up nearly 12% of the UK’s construction industry’s 2.1m workers, including carpenters, steel detailers, general laborers, architects, etc.

● Due to Britain’s withdrawal from the EU, the immigration restrictions will make it harder for companies to hire these skilled and unskilled foreign migrant workers. The foreign workers will then find work elsewhere in the EU, such as France or Spain. Due to the decrease in foreign labor, there will be an increase in multidiscipline needs and a decrease in efficiency and productivity in construction projects. Companies will have to hire more local workers, which will incur higher project costs and longer periods of time to train skilled labor. Due to the high costs in projects, developers would invest in less construction projects, which means less residential and commercial development projects, including housing and infrastructures.

● Construction Management Procedures

● It is uncertain what changes will be made for the participation of UK companies in the tender and procurement process for EU construction projects. However, there might be some cases where UK companies will need to be in partnership with local EU companies in order to participate.

Source: http://www.consultancy.uk/

● Large Projects in Commencement and in Planning Stages

● As an EU member, UK has gotten access to funds from the European Investment Bank and European Investment Fund. However, due to Brexit, it will be more difficult to obtain funds from these institutions. It will be hard for projects that are in their planning stages and in construction beginning stages to obtain funds, such as the third runway for Heathrow, Hinkley Point nuclear power station, and the Atlantic Gateway transport hub.

● Moreover, since foreign investors are uncertain about the overall economy impacts due to Brexit, foreign investments will be reduced in the UK, which will reduce development projects.

● Construction material imports

● Since the pound sterling is falling after Brexit and that there are now duties and restrictions on movement of EU goods, material costs are rising. Because of the rising costs, there will be limited construction material imports, which also leads to a reduction in construction projects.

However, it is not to say that the UK construction industry cannot rise again.

There will be more flexibility in legislation after Brexit, depending on the new trade relationships with EU, EEA, and EFTA. This will bring more freedom of goods, services, capital and people with other parts of the world besides the EU, which indicates more construction opportunities with other nations.

Although it is still uncertain what the long term impacts are due to Brexit and the extent of what these long term impacts, it is certain that the short term effects are detrimental to the UK construction industry.