Brexit: Uncertain times ahead – but let's focus on what we can manage new The recent UK referendum has left more questions than answers. The biggest… News
The recent UK referendum has left more questions than answers. The biggest question facing local businesses is what Brexit will look like. Only when answers to that begin to emerge, will we have any degree of certainty.
So What Do We Know So Far?
Following the ‘leave’ vote there was an immediate market response which resulted in large shifts in the value of sterling and global financial markets – like the rest of us, the markets too are uncertain!
Brexit’s impact on the economy
Brexit will have an effect at many levels of the local economy: trade, foreign direct investment (FDI), retail, tourism, energy, the labour market, EU funding, financial services, immigration and border controls to name a few.
However, in Louth we have been living with a border for nearly 100 years which has distorted trade, commercial and community life, so the challenges posed by Brexit are not new to us. And despite this, local businesses have had a strong track record in succeeding when challenged.
Some parts of the economy will be affected more than others, particularly retail, tourism and small indigenous businesses in border areas which rely on Northern Ireland and British markets. But there will be opportunities too.
The economic risks in the short term are centred around exchange rates. In the past year there has been an 18% fall in the value of sterling against the euro, making it difficult for local retailers and those trading into Northern Ireland and Britain. Very few businesses have the margin to cope with swings of such magnitude and the only way to cope is to build certainty through hedging. This could be achieved by purchasing in sterling to off-set sterling revenues, or availing of forward exchange rates or sterling accounts from banks to help provide currency certainty. It’s critical, however, that businesses should not rely on currency as a profit-centre.
The Medium Term – Trade with the UK
In recent years cross-border trade has steadily increased and today over €3Bn of goods are traded annually between the Republic of Ireland and Northern Ireland. Notwithstanding the knock backs during the recent financial crisis and the collapse in construction, cross border trade has bounced back, and evidence from InterTrade Ireland suggests businesses will continue trading across the border and into the UK post-Brexit.
While a recent survey indicates that 97 per cent of businesses have no Brexit plan in place – the next two years will see that number change as businesses start to prepare.
In the absence of other indicators, it is advisable for firms to take prevailing World Trade Organisation (WTO) tariffs as a worst-case scenario, and at least crunch those numbers to see if they can make it work.
The UK market is worth €15.5bn to Irish goods exporters, equivalent to €1 in every €7 of our exports. But for Louth businesses, the cross border and British markets are even more important. The sector most likely to be vulnerable is Agri-Food, typically hit by WTO tariffs of up to 50 per cent. With approximately half of all cross-border trade on the island accounted for by Agri-Food, such levies will be hard to digest.
FDI – The Long Term
Encouragingly, there are likely to be opportunities for Louth from FDI companies as overseas investors seek access to the EU’s Single Market, especially in the financial services and FinTech areas.
Responding To The Challenges
Part of the solution is for companies to build margin and value into their products to help insulate them from cost pressures. Enterprise Ireland and the Local Enterprise Office Louth are offering LEAN programmes to their clients, with the aim of increasing their profit margins.
And by introducing innovation to their products and processes, businesses can differentiate themselves and make it more difficult for others who can only compete on price. In March 2017, the County Councils in the border counties, through their Local Enterprise Offices will launch a ‘Co-Innovate’ programme offering support to local businesses looking to become more innovative.
Enterprise Ireland has increased the number of foreign trade missions, set up a UK export helpline, run information seminars on Brexit and has published a Brexit guide promoting market diversification and supports. They’ve also organised a number of useful webinars on exchange rate management.
The Next Step
The vast majority of businesses haven’t commenced planning for Brexit yet. Now is a good time to start that process. A useful and very practical first step is to avail of InterTrade Ireland’s Brexit Voucher. This allows companies engage a professional, to the value of €1,250 to assess its exposure to Brexit and to highlight recommendations. Any support that helps companies manage what they can control against the backdrop of Brexit is welcome.
Thomas McEvoy is Head of Enterprise in Louth. He and his team in the Local Enterprise Office in Dundalk and Drogheda provide support to pre-start, start-up and established businesses across the county. To find out more about Brexit Vouchers, the Co-Innovate and LEAN programmes mentioned above visit www.LocalEnterprise.ie/Louth or call the Local Enterprise Office on 042-9324185.