Ireland beyond Brexit
Resilient, robust and resourceful
David Carson, Partner and Brexit Lead at Deloitte provides insight into the latest issues and concerns on Brexit.
Preparing for Brexit
What are the key strategic planning approaches that Irish organisations are implementing to best prepare for Brexit? (Corporates & SMEs)
Preparations for Brexit are focused on the key areas that will be impacted the most: the movement of people, restrictions to market access, cost of market access and market opportunities. While large corporates have engaged in scenario planning, surveys indicate that relatively few SMEs have done so. The principle reasons for this is a lack of resources, both financial and human. The key planning considerations for any business in preparing for Brexit are: (i) what impact will Brexit have on revenues, costs and profitability and (ii) what changes are required to minimise any negative impact Brexit may have and to take advantage of any opportunities that may arise. These changes may involve exporting more to EU relative to UK markets, an acquisition or diversification strategy in the UK in order to protect and enhance that market or fundamental operational changes to a business’ supply chain and operations.
What are the key and most significant challenges Irish businesses are facing in overcoming the impact of Brexit?
Without question the single biggest challenge is uncertainty. Businesses do not like uncertainty. The level of uncertainty has not diminished since the referendum in the UK and we still do not know what form Brexit will take.
Turning to specifics, in February 2018, the Irish Government published a commissioned report entitled “Ireland & The Impacts of Brexit: Strategic Implications for Ireland arising from changing EU-UK trading relations.” This report highlighted the following key challenges that are most likely to arise from Brexit: (i) the risk of regulatory divergence between the EU and the UK in both goods and services and (ii) the possible introduction of border inspections and customs costs. The report concluded that in all scenarios there are likely to be higher trading costs. In order to overcome the impact of Brexit, Irish businesses face the challenge of entering new markets, increased competition and the costs associated of implementing operational changes in the short term to future-proof the business post-Brexit. In order to assist companies successfully overcome such challenges, the Irish Government and its agencies have implemented new measures such as the Enterprise Ireland grant for Brexit advice and the launch of a €300 million Brexit Loan Scheme for eligible Irish businesses.
Can you talk about industry sectors where Brexit could potentially create opportunities in Ireland such as Financial Services/Real Estate/Agri-Food?
Although it is important to remember that Brexit has not yet happened, it is creating opportunities within a number of sectors, particularly the financial services, real estate and agri-food sectors. We have seen a number of global financial services firms announce Ireland as the destination of their new European headquarters, coupled with an increase in construction in high grade offices in a number of locations across Ireland to capitalise on this trend. On the other hand, we have seen companies in the agri-food sector explore or expand operations in the UK as a hedge against Brexit and to protect either their supply chain or markets. The agri-food sector in particular is a leading example of the importance in diversifying to other countries. Figures published by the Irish Government showed that between the period 2009 to 2016 agri-food exports increased by 56% from €7.8 billion to €12.2 billion. Exports to the UK during this period increased by 31%, with exports to the rest of the EU increasing by 47%. However the most significant export growth was seen in exports to non-EU destinations (+134%) driven primarily by growth in exports to Asia (244%) and the Americas (133%). Another sector that could benefit significantly from Brexit is the higher education sector. Currently, a number of Irish higher education institutes and universities are looking at ways to maximise EU funding in the areas of research and development should the UK education sector be restricted in availing of EU funding post-Brexit.
One major aspect of embracing new opportunities/diversifying in to new markets for Irish SMEs, is their ability to fund and resource sufficiently. How are business owners overcoming this challenge and are there improvements needed in Ireland's business environment that can help ease this pressure?
The ability of Irish SMEs to fund and resource sufficiently is a challenge at the best of times and this has been exacerbated by the uncertainties that Brexit has produced. A recent survey of Irish SMEs revealed that the three main areas of investment for Irish SMEs to achieve growth are (i) increase staff numbers, (ii) employ new technologies and (iii) purchase or lease new plant and equipment. Irish SMEs are overcoming the challenges of funding by availing of loans at current low interest rates and investing in long term projects. The introduction of the Irish Government’s €300 million Brexit Loan Fund is just one example of how Irish SMEs can fund investment decisions that are necessary to overcome the challenges of Brexit, with a maximum interest rate of 4%, with loans ranging from €25,000 to €1.5 million, with the potential for up to €500,000 to be unsecured.
Accessibility is key
Among Ireland's key advantages for international organisations locating here such as Talent, Pro-Business Environment, High Education Standards, Cost of Living, World Class Research & Innovation Capabilities, Infrastructure, Supply of Commercial Property and a well connected business eco-system - one other important point that needs to be highlighted is our ease of accessibility to our cities. For example, it takes less than 30 minutes from Dublin airport to reach Dublin's central business city district. Can you talk about why this is important for international businesses looking to locate here and how it impacts on ease of doing business. Especially as Ireland competes to win FDI as part of embracing opportunities that Brexit presents in sectors such as Financial Services.
The success of Ireland in attracting FDI has been key to the growth of the Irish economy. It is a huge credit to the IDA and the work that they have done over a prolonged period of time that Ireland has been successful in attracting global organisations against stiff competition. In many respects, Brexit can be helpful to the continued success of this process as Ireland as the UK will not be in the single market or the customs union.
Brexit presents an opportunity to continue to improve public infrastructure and increase the housing supply so that Ireland can take advantage of the FDI opportunities that will arise as part of the process.
How optimistic are you that Irish businesses and Ireland's economy can continue to grow beyond Brexit?
Since the UK’s decision to leave the European Union, Irish exports to other markets within the EU and beyond have continued on an upward trend. The full impact of Brexit will not be known until after it occurs, however it is important for Irish businesses to act now in order to be in a position to continue to grow beyond Brexit. This is not without its challenges but opportunities will continue to present themselves, either through diversification, increased foreign direct investment or through a continued trading relationship between the EU and the UK which will be beneficial for businesses in Ireland.
Why is it critical for Irish businesses that there is no hard border?
Trade on the island of Ireland has benefitted significantly from the seamless movement of people, goods and services. There are many sectors where raw materials originate from one area and are processed in another. A customs border has the potential to impact negatively on investment, jobs and trade on the island of Ireland as it will mean more costs to business, in terms of customs and tariffs and increased costs of administration. Unless there is regulatory alignment, a border will have a negative impact on the movement of livestock which has the potential to be a huge issue. There is also a huge psychological impact of a border on the island of Ireland but there is a huge difference between a customs border and a security border and that distinction appears to be lost in some of the debate.
Can technology really solve the problem?
There are differing views on this and the fundamental problem is that we don’t know the criteria for a border in the first place. At the moment we seem to have a problem for every solution.
If a solution was found to this dilemma;
1) What are the key aspects that are likely to change, that will impact Irish businesses most?
If a solution was found to this ‘dilemma’ it would seem that the status quo should be capable of remaining, subject to any future regulatory divergence between the EU and the UK, and how this would be dealt with in the context of cross-border trade.
2) What key benefits, if any, are there for international businesses locating here, given that two economies are operating on one island?
Ireland has an excellent track record of attracting foreign direct investment and has become one of the world’s leading destinations for the technology and pharmaceutical sectors, amongst others. The benefits of international businesses locating here will remain post Brexit, including access to a high quality talent pool, access to the single market, our corporation tax regime and many other factors which have led to leading international companies investing in their Irish operations for the long term.
Ongoing Investment for a stronger future
What hopes does Deloitte have for Ireland's economic future and Irish businesses, entrepreneurs and startups Beyond Brexit?
Deloitte hopes for continued economic growth and success for Irish business across all sectors beyond Brexit, along with a continued strong trading relationship with the UK which has been one of the cornerstones of our economy to date. In summary, businesses should proactively engage in scenario planning to assess the possible impacts of Brexit. Businesses should review their strategy and business plans and maximise any potential opportunities that arise. This may include reviewing the opportunity for mergers and acquisitions, and the identification of new customers and new markets. Action plans should be drawn up for both the short and medium term.
Irish businesses have proven, particularly over the last number of years, how resilient and flexible they can be in responding to changing market circumstances. By taking action now, they can help in building their resilience and flexibility – not only for the challenges but also for the opportunities associated with Brexit.