Brexit: a case of how a country can go backwards in developing an innovation ecosystem

Brexit: a case of how a country can go backwards in developing an innovation ecosystem

In Europe, there has been a lot of debate about Britain possibly leaving the European Union as a result of the referendum being called by British government – coined by the media as ‘Brexit’. The question this raises is how will a potential exit impact innovation in the UK, and its tech clusters which have benefited significantly from being part of the EU?

It has certainly raised a heated debate. It’s reported that the UK’s the science minister Jo Johnson has said that science and technology firms could suffer in a ‘decade of uncertainty’ if Britain left the EU.  He said that, “To leave would be a leap in the dark, and one that would put the Cambridge phenomenon and our status as a science superpower at risk. While many factors explain Cambridge’s success, it’s clear that our close ties with the European Union are a crucial part of this great national success story.”

It’s thought that one of the cornerstones of the success of the UK’s tech clusters has been the free movement of and access to talent within the EU.  Leaving the EU would have an adverse impact on the ability to recruit and retain tech talent from within the EU, and that this would negatively affect the ability of UK tech and digital businesses to access developers and engineers with the right skill sets from abroad.

With shortages of tech talent being a constant cry from lobbying groups like Tech London Advocates, a move that limits the ability to tap into a wider talent pool would appear to be a backward step, especially with the perceived restrictive migration policy that the UK already has that affects the ability to recruit skilled engineers and programmers from overseas.

According to ITProPortal, many also fear that a Brexit could impact on the attractiveness of the UK as a go-to country for tech businesses wishing to raise vital early-stage investment. “A trend over recent years has been the increased interest in early stage, UK tech businesses from overseas investors, not only from domestic UK VC firms but also from Europe the US. UK-based tech companies have realized for some time that, in a sector that is inherently global and cross-border in nature, accessing investment from overseas can be a way to accelerate penetration into new international markets,” it says.

It continues, “Overseas investors have been attracted by the innovative and disruptive business ideas being incubated in the UK. However, VCs do not just invest in commercial propositions but in the teams of individuals who are driving them forward. Restricting a substantial and internationally aware part of the technology demographic from which the UK has benefited to date could deflect the investment focus away from London and the regional tech hubs across the country to other cities who have their eyes on the European technology capital crown, such as Berlin, Lisbon, Dublin, and Barcelona.”

This sentiment is echoed by Rajesh Agrawal, founder and CEO of Xendpay, a successful fintech firm out of London, UK. He believes that while London’s booming fintech sector has been one of the city’s creates success stories in recent years, its position would be severely threatened. “The capital’s unique position as a creative platform for new ideas has led to London becoming an international centre for firms big and small, most of which see our position within the EU as a gateway to 500 million potential customers,”, he said in Tech City News.

He said a recent report conducted by Ernst Young declared the UK the fintech centre of the world, beating Silicon Valley and New York due to its deep talent pool, strong availability of capital and high-demand from clients. However, he said, “I strongly believe that if we were to abandon the free movement of goods, services, capital and people principles, all of which have been crucial to the growth of London’s tech industry in recent years, we would be putting this hard earned status all at risk. Leaving the EU would have very direct consequences for London’s tech industry. In the payments sector, for instance, the UK has been a beacon of innovation within the EU made possible by the ‘passporting’ of EU rules which allows a payment company authorized in the UK to conduct business across the EU.”

It’s clear that the British government rhetoric on both its position as part of Europe and also on migration is not going to help its image for foreign companies looking at a base in Europe via the UK. But an exit may also lead to the UK not having access to the talent it clearly says it has a shortage of, and hence could prove costly for its successful tech clusters, such the fintech cluster in London.

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