Ireland’s Brexit challenge: 20 Irish CEOs reflect on what lies ahead
On June 23 2016, Ireland’s business community had the usual concerns: an uneven recovery, patchy consumer confidence and their own bottom line.
Few predicted the seismic shock that the British people were that very day delivering through the Brexit ballot box. This week marks a year since that fateful result blew British politics apart and hurled Irish business into a volatile and uncertain world not of its own making.
The impact on Irish business was immediate and brutal. As the result became clear, sterling plunged, pushing up the price of Irish goods in Britain. Irish PLCs watched with concern as their share prices tanked in the hours after the votes were counted. A year on, the landscape is as uncertain as it was on the day the result was delivered. The results of the British general election have delivered some hope — of a softer approach to Brexit — and plenty of confusion.
Against that deeply uncertain backdrop, the Sunday Business team spoke to those at the coalface of Ireland’s Brexit challenge: key chief executives from across almost every sector of the Irish economy. We asked them if Brexit actually provide as many challenges as opportunities for Irish business; what companies can do to mitigate the impact of Brexit; where they see the Irish economy heading as a result of Britain’s departure — and just what should the Government do next about Ireland’s Brexit conundrum?
Anne Heraty, chief executive of CPL
Brexit presents many more challenges than opportunities. There’s a real possibility of a bad Brexit deal and in the meantime businesses have to deal with enormous uncertainty. There will be some opportunities, but probably only in a small number of sectors. The negative impact of Brexit will be felt more broadly.
Companies need to be proactive and identify where the key risks and opportunities lie. Diversification into new markets will help spread the risk for some, but for many companies this is far from easy and takes time. A close EU-UK relationship in the future is vital.
Brexit is definitely a negative economic event. Even with a good deal, Brexit is likely to make doing business with our nearest neighbour more costly and complex. Ireland will also feel the effect if the UK economy is weaker as a result of Brexit.
We need to support the closest-possible future EU-UK trading relationship. Direct support will also be required to help viable companies trade through any volatility, along with an increased focus on cost-competitiveness and our business tax offering.
Brexit is not only likely to disrupt trade flows, but will intensify competition with the UK for inward investment. Europe will need to revisit its fiscal rules.
David McRedmond, chief executive of An Post
The main problem with Brexit is not knowing what it means. One year on and it appears not a single issue has been decided. An Post’s major trading partner is the UK, as it accounts for most international mail to and from Ireland. Post-Brexit there will likely be some renegotiation of price to carry each other’s mail.
An Post needs to ensure losses it incurs on mail with the UK (especially from the UK) do not continue. There are many ways to deal with this constructively. The opportunity of Ireland being the European base for businesses in the UK seems ephemeral but these opportunities may become real. Brexit looks nearly impossible. When the pre-negotiation bluster clears Britain may become more pragmatic and the EU looks like it is facing reform. The worst thing for a business is to make self-fulfilling prophecies. The biggest damage may come from the uncertainty which delays capital investment decisions for businesses.
It is difficult to see an upside for the Irish economy but it is impossible to see an upside for the British economy — so Brexit may end up being much less than presumed with hopefully a more balanced outcome. Ireland must be a moderating and pragmatic force in the EU. Most of us dislike Brexit on emotional, practical and logical grounds but we must ensure Irish pragmatism and positivity prevails.
Padraig McEneaney, chief executive, Celtic Pure
Very few Irish businesses can honestly say they wanted Brexit but we have to accept it and get on with running our companies. Initially it definitely brought a grey cloud over the Irish business landscape but as time passes perhaps the silver lining is becoming more apparent. The challenges are easily identified and finite but the opportunities are infinite as Irish business people, as always, fight their way out of difficult positions by hard graft and craft. Ireland is now seen as the ‘gateway’ to Europe.
We have a recognised skilled workforce, we are respected as innovative and our corporation tax rate is very attractive. The relocation of a lot of service companies to Ireland has created a lot of high-earning jobs with benefits to the economy. In the past perhaps some Irish companies had it too easy exporting just to the UK. But the world is now a smaller place in terms of communicating and also a much bigger place in terms of market.
Brexit uncertainty is providing some protection to Irish companies which mainly supply the Irish market, particularly in the FMCG category. British companies are hesitating to enter or grow their presence in this space when they don’t know what is ahead, giving Irish companies an opportunity to strengthen their position to one safe from attack by cheaper imports from the UK.
Dave Kirwan, Managing Director, Bord Gais Energy
Brexit has raised many questions, not least about the future of the Irish energy sector. Our view in Bord Gais Energy is that three key energy areas should be addressed; (1) the continued secure supply of energy to the island of Ireland; (2) Certainty around the future of European policies which underpin a secure energy market, and; (3) a continued focus on the consumer in terms of cost and competition.
Ireland faces two particular challenges. First, our access points to EU energy markets run via gas and electricity interconnectors through the UK. Ireland is largely dependent for its gas supplies on the UK and we also import 4pc of our electricity from the UK system. If the UK is no longer part of the wider European energy market, Ireland risks energy isolation. Second, the operation of an “all-island” single electricity market across the Republic and Northern Ireland could be impacted if the post-Brexit UK regulatory framework moved significantly from EU rules. The market is required to be fully compliant with EU internal energy market rules by May 2018. A major new North-South electricity interconnector project is also under development, and this investment decision should not be disrupted or unduly deferred as a result.
Colm Lyon, CEO and founder, fire.com
Brexit is a serious issue, but one that is surmountable. As a regulated entity we rely on ‘passporting’ across the EU so we can sell our accounts and payment services without the need to acquire licences in each country. Such an arrangement is clearly threatened by Brexit, if passporting to the UK no longer remains an option.
For us, if passporting is no longer viable, then we will be ready to execute our plans to address this risk and seek a licence in the UK to continue to operate there. For fire.com — and I’m sure for many other Irish businesses — the most important aspect of Brexit is how to maintain access to the UK market. Ireland is very small and so many Irish businesses naturally scale by accessing the UK market from early days. This pathway for scaling businesses needs to remain, and therefore every Irish business needs to understand how it will continue to trade with its customers in the UK.
Brexit is about learning and implementing a new way to do business in the UK. While much attention has been given to the large financial services companies that may locate their Eureopean Union operations in Ireland as a result of Brexit, we must also pay heed to the needs of Irish firms for whom the UK is its primary market. Brexit is a risk to be managed and the earlier the planning, the better.
Leo Crawford, chief executive of BWG
Brexit represents more challenges than opportunities. Any disruption to the EU-UK trading relationship will impact Ireland more than any other EU27 country, causing an economic and logistical nightmare. Any disruption to retail and grocery supply chains would be a major challenge, as the vast majority of our imports emanate from or transition through the UK.
Businesses will require a review of their business models and a close examination of their own costs, supplier pricing, the opportunities to identify new suppliers and new markets for future growth. There is no ‘one size fits all’ solution right now.
We’re already experiencing the negative effects of the devaluation of sterling, driving deflation at revenue level, but doing little to moderate cost inflation, creating a classic profit pinch for businesses. Brexit could impact detrimentally on our domestic agri-food and drinks sector, which poses a significant threat to rural Ireland.
The Government needs to work closely with businesses and their representatives, such as Ibec, to negotiate the best outcome. This should be the main priority for the new Taoiseach as the economy’s ability to fund essential services depends on these negotiations. Whatever the outcome, Ireland must remain attractive to inward investment.
John Teeling, serial entrepreneur
I come from a position where I despair at the bureaucracy of the EU. I believe that an economic union will not survive in the long run unless it becomes a political union. That will not happen and I do not want it to happen. I am happy and proud to be Irish. I believe that Brexit is the first crack. It will not be the last. The UK, England in particular, has never been European. The English are an island people, proud of their long millennium of sovereignty.
Brexit will provide both challenges and opportunities. Commodity products are at risk — more from currency movements than from UK tariffs. But they will always be at risk — beef, mushrooms, metal bashing, will be volatile. Value added is the key. Europe is a bigger market than the UK so there will be opportunities. Irish whiskey could benefit mightily if tariffs are placed on Scotch. Other sectors will face similar opportunities. Those of us selling into the UK will face some border bureaucracy but we already handle this selling into most countries. Make sure your company has a policy to handle customs documentation. This needs to be done right — few do it. Look for markets outside of the UK. This should be ongoing. Ireland’s future does not depend on the UK or Europe. Europe is getting old, the emerging middle classes are in Asia, South America and Africa. Opportunities abound.
Shaun Murphy, managing partner, KPMG
Britain has been an obvious and valuable market for Irish business, so for those with a high dependency on the UK market, Brexit could be very challenging — and the recent election adds further complexity. For other businesses, we are a stable location with guaranteed access to the EU. This has appeal and will provide sector specific opportunities.
Start scenario planning now. You should be working out the potential pressure points on your business. Take something like supply-chain analysis — businesses should know the countries where their inputs come from and the various tariff scenarios that could apply.
Employment and Data Protection regulations are other critical issues that need to be considered. The prospect of a ‘hard border’ has highly negative implications for Ireland. Every effort must be made to prevent potential disruption to commerce on both sides of the border.
The work of State agencies such as Enterprise Ireland is also highly valuable in helping Irish business seek out new markets. It’s also vital to make sure that we don’t disadvantage ourselves in areas such as personal tax; Ireland needs talented people to want to live and work here and Brexit brings that into sharp focus.
Businesses need to have a plan to manage the challenges and whatever opportunities that Brexit may bring.
Killian O’Higgins, Managing Director, WK Nowlan Real Estate
A soft Brexit will be more manageable than a hard Brexit. A year on the question remains: what does Brexit mean? The negative impact on the agriculture and food sectors would be enormous in a no deal/hard Brexit scenario. Those of us working in the property sector have at least seen some early evidence of the hoped-for impact of Brexit on the Dublin office market — quoted rents rose significantly last autumn, and we now see JP Morgan’s recently announced €100m-plus acquisition at Capital Dock. Will this sustain itself longer term or will the ‘swarms’ of UK-based insurers and bankers prefer Brussels, Luxembourg, Paris and Frankfurt? Announced relocations suggest we are not getting the anticipated level of projects, and relocation decisions may stall pending further clarity.
But even if there is a spike in take-up, it is hard to believe the results are good for anyone other than a small section of the economy, and overall Ireland will be a loser from Brexit, particularly anything other than a soft Brexit. The Government should push for relaxation of EU State Aid rules. It should also negotiate standby access to EU and EIB funds and seek headroom on government debt levels. We must hope that an increasing number of Conservative MPs realise that a soft Brexit is the best option.
Liam Hanly, managing director, Eason
In the retail sector, Brexit is already posing a significant challenge as consumer sentiment becomes more volatile and the fall in the value of sterling has had an immediate effect in terms of price deflation and the knock-on impact on the sector’s performance.
Irish organisations need to complete a review of their whole business. Any planning should be focused on increasing the options available to address challenges and deliver the flexibility to help curtail and mitigate against market unknowns.
The retail environment in 2016 was heavily impacted by the Brexit vote last June. The immediate impact on exchange rates resulted in the year being a tale of two halves, with the first six months benefitting from year-on-year price inflation, whilst the second half was dominated by sterling-based price deflation. We anticipate that this volatility will continue.
The retail sector has launched a strategy where it highlighted the need for policies aimed at maintaining and building consumer confidence and safeguarding competitiveness.
Retail remains Ireland’s largest private-sector employer and had only begun to recover when Brexit happened. Any potential impact of a downturn in consumer sentiment and the wider economy will no doubt be felt first, and most sharply, at the tills of retailers.
Stan McCarthy, chief executive, Kerry Group
Brexit is both a challenge and an opportunity. Kerry has a broad and diversified business, so while Brexit is uncertain and the challenges are well documented, it does also provide opportunities. Our business teams have put action plans in place for potential implications. Organisations can start to plan for different scenarios, whether on exchange rates, labour costs or possible tariffs.
Organisations such as ours will have to continue to update our plans as greater clarity emerges. But given the manufacturing profile in the UK and across the eurozone, we believe we are well positioned. The Irish Government and the departments have been very focused and have succeeded in informing their colleagues in the 27 member states of the concerns for the North’s position but also for the impact on the entire island. But beyond that, the Government has developed very strong working relationships with counterparts in the UK and this will be very beneficial as Brexit plays out.
It was obvious that in advance of any negotiations that both sides would adopt very strong negotiating positions, which they have done. But I am confident that the eventual outcome will be based on compromise that reflects the interests of both the EU and the United Kingdom.
Pat McCann, CEO, Dalata hotel group
Most Irish businesses will see more challenges from Brexit but there will be opportunity as well. It all hinges on the type of Brexit and this is the big unknown. As the only English-speaking country in the EU following Brexit, Ireland should attract new companies which need EU access. It’s almost impossible to plan at the moment as no one is sure of the final outcome of the negotiations.
All companies ensure as much as possible that their business is not overly dependent on one country. This will depend on the type of Brexit we have. Following the UK elections it is now more likely we will have a softer Brexit than originally thought. If it’s a hard Brexit then the Irish economy will suffer. Until the Government has a clearer view of the outcome it is difficult to see what more they can do.
There is no doubt there are things going on in the background that we are unaware of. We need to watch our Central Bank as there are rumours of issues arising there in terms of dealing with regulated companies wishing to set up here. Once companies know the implications of Brexit they will adapt to suit the new reality. It’s what we do in business.
There is a danger we over-hype the situation and create a sense of panic. Cool heads are needed now. We should not delay unduly any investment decisions as this will cause problems down the line.
Pat McDonagh, founder and managing director, Supermac’s
As Ireland exports such a high proportion of product relative to services and as our market in some key sectors is solely the UK market, Brexit is a huge challenge to those sectors, especially farmers. On the other hand, as the only country with English as the common language we are very attractive as a location for mobile services investment.
Currency hedging is more important now than ever before. Broaden the market area by seeking markets in other countries.
In the short-term Ireland’s economy will be worse off. If we are successful in attracting displaced service industries we will ultimately win out.
The Government should canvas the professional Irish diaspora to establish how many would in the event of services and indeed manufacturing industries indicating a willingness to relocate from the UK to Ireland, be willing to themselves relocate home. This is vital in the headcount exercise when companies are assessing whether we have the labour force to service relocated industry.
Theresa May’s remark that “no deal is better than a bad deal” sounds hollow in the fallout of the British general election. The time may be right for Britain to rethink its decision on Brexit.
Ruth McCarthy, CEO, FEXCO Corporate Payments
Short-term opportunities for Irish businesses have included taking advantage of weaker sterling post-Brexit, for example a survey we published last week showed imports from the UK by the Irish construction industry up 152pc in the first five months of this year compared to 2016. However the opportunity for cheaper imports creates a significant challenge for our export sector, particularly the agribusiness and food industries.
Businesses that have significant trade in sterling should be thinking about locking in rates using forward contracts because the currency volatility is going to continue as a Brexit agreement becomes clear. The Irish Government’s reaction has been strong, and we are seeing co-ordination at every level and a clear message around the border issue, which has to be our first priority.
If the Government maintains this kind of clarity and focus, we are well placed to get what we need from the negotiations. Ireland has also done a good job in encouraging firms like JPMorgan to build their presence in Dublin. Irish businesses are well positioned to handle really significant developments like Brexit. Irish businesses operate in a small open economy and consequently we tend to be very adaptable and entrepreneurial; sometimes we don’t give ourselves enough credit for that.
Tim Martin, Wetherspoons
Britain and Ireland have a mutual interest in trying to achieve a free trade deal between the UK and the EU to create minimum disruption to business arrangements and opportunities for the future. Wetherspoon, for example, buys large quantities of beer, cider and agricultural products from Ireland and I’m sure all parties to this favour a continuation of free trade. A key criticism of the EU and principal reason for the Brexit vote is that it is becoming increasingly undemocratic, with five unelected presidents, a court whose decisions cannot be challenged by democratic governments and MEPs who are unable to initiate legislation.
So unelected EU officials are calling the shots in negotiations with the UK, resulting in considerable posturing and showboating from the likes of the unelected Jean Claude Juncker and Donald Tusk. We’ve heard of threats to ‘punish’ the UK, which are not realistic or helpful. Perhaps the most productive role for Irish business would be to act as the voice of reason, to emphasise the cause of free trade, stressing its benefits for all. The Republic has a unique vantage point and considerable status and trust in both the EU and the UK. Leaving aside the troubles of the distant past, no two countries have had closer ties. Everyone with an interest should emphasise the benefits of co-operation and trade — which is what the EU was created to champion.
Niamh Bushnell, founder and CEO, Tech Ireland
It’s all about strategy and preparation. Brexit prompts companies which are already successfully building a market in the UK to double down and commit to winning there.
For companies dipping into the UK market among others, it obliges them to think less short-term and opportunistically and instead develop a strategy that focuses on where they want to have significant market share in three to five years’ time. Uncertainty will remain the order of the day for maybe years to come.
For Irish companies, what’s important is to ignore the noise, seek educated opinions, plan and be agile. The core tenets of good business remain the most important — financial and FX planning, experienced and confident leadership and a deep understanding of the customer need and dynamics within your specific market.
World-class new Irish businesses were started during the recession, I’ve no doubt more great businesses are now developing out of the Brexit uncertainty. The world economy is changing rapidly and not just because of Brexit. The change is chiefly being driven by technology and the talent gap. Ireland has the opportunity now to recognise the sectors where we’re world-class — food, agriculture, pharma, travel, payments — and become leaders in applying new technologies to them.
John Mullins, chief executive, Amarenco Solar
Brexit and the uncertainty of the body politic in the UK is already creating issues on foreign exchange. Weakening of the pound is not good for Irish exports of all forms. The recent election portrays the UK as a confused uncertain state, never good for international markets. One could read that the election result was one indicating a preference for a softer exit, eg customs union retention with strengthened security at ports/airports.
Such a move would reduce uncertainty for Irish businesses and provide minimal impact on trade. A hard Brexit approach creates more challenges than opportunities. To mitigate the impact of Brexit, Irish organisations should start a dialogue with the DUP. They will keep the Conservatives in power and could put a customs union and the soft Border on the UK government agenda. Diversification of markets needs to be a priority but this may be difficult for a lot of Irish businesses currently trading significantly with the UK. Ireland’s economy will be worse off with Brexit and a hard Brexit will have the biggest impact.
The result of the election provides the Government with an opportunity through the DUP to attempt compromise with the EU through the establishment of a customs union. This would nullify tariffs and ensure free movement of goods and services in the market.
Larry Murrin, chief executive, Dawn Farms
THE protection and maintenance of our share of the UK food market is critical to the future of our industry. The objective of everyone, from Government to business, must be to minimise the negative impact of Brexit and it is a strong reminder that being competitive and innovative are vital for every exporting business. We can only be successful in overseas markets if we build strong and deep relationships with customers, based on investment in new products delivered from an efficient cost base.
Economic growth may be affected but Irish business is resilient and with the right policies and supports we can recover lost ground. It should be our goal that Britain is as important in five years to the food and drink industry as it is now and in the meantime we will have increased our market diversification.
The Government has been successful to date in getting our European partners to understand our unique relationship with the UK. It must ensure that Ireland remains competitive whilst seeking the most favourable trading deal possible.
This sector needs access to long-term, low-cost and flexible finance tools, which are already available to our EU competitors, to enable investment in long term competitiveness, market positions and growth.
Michael Costello, Managing Partner, BDO
Brexit will undoubtedly present challenges and opportunities for Irish businesses, determined by factors such as industry sector, scale and how well prepared a business is. The impact on food and agricultural businesses will be greater than on financial services and in general larger businesses will be better able to capitalise on the opportunities than smaller businesses.
The majority of Irish businesses have expressed concerns but less than 4pc have actually started to plan for it or sought advice. For most businesses the immediate reaction to the Brexit vote was to focus on Treasury and FX management following the drop in sterling but they urgently need to review supply and distribution chains. Our economy — and in particular our private sector — have proven flexible and adaptable in the past and I expect this will continue. Government should review all incentives and tax measures to ensure the best possible environment in which to scale a successful business.
Ireland offers key benefits for international financial services including English language, common law, EU passporting and a critical mass of successful companies. Government, the financial services industry, the Central Bank and professional service providers should be much more co-ordinated and aggressive in targeting new entrants.
Aaron Forde chief executive, Aurivo
For our sector of Food and Agribusiness, Brexit means more challenges. Tariff barriers, bureaucracy, and with the need to explore new markets and new products at pace will all contribute to the challenges of Brexit.
The questions for us are how we adapt to the likely changes, input into the evolving changes, secure as much knowledge, funding and capability to minimise the impact.
Our team in Aurivo have done fantastic work on this so far and will continue to do so.
There is a school of thought that the boost in FDI will offset the impact on indigenous Irish businesses. I think that’s optimistic.
The Government should continue the good work they are doing on the special impact Brexit will have on Ireland, at a European level. They must secure the maximum possible assistance for transitioning through it.
Brexit is going to happen, be prepared! Or is it?
Sunday Indo Business