Sunday 24 February 2019

James Treacy: 'Irish businesses preparing for worst-case Brexit'

James Treacy: Uncertainty is causing confusion but Brexit holds opportunities for Ireland
James Treacy: Uncertainty is causing confusion but Brexit holds opportunities for Ireland

James Treacy

AS the clock ticks ominously down to B-Day, Friday 29th of March, almost half of Irish businesses have already begun implementing Brexit contingency plans in the absence of any coherent agreement.

This week, in conjunction with the Sunday Independent, we at Stubbs Gazette got a revealing insight into the current state of business health on both sides of the border in an exclusive survey sent to a cross-section of Irish companies.

We asked which of the four challenges - Brexit, Trump's tariffs, technology, or other - posed the greatest threat to business.

Not surprisingly Brexit was perceived to be the biggest threat at 59pc. Technological disruption came in a distant second on 22pc.

On the other side of the Atlantic, the mercurial and unpredictable mood swings by President Donald Trump are not causing our businesses any anxiety. A mere 1.2pc of respondents reported that they fear his tariffs regime will negatively impact their business. In aggregate, 82pc of respondents said that they expect Brexit to impact their business in some way, even though only 27pc of the companies surveyed are exporters.

While planning for Brexit is extremely difficult in the prevailing climate of uncertainty and confusion, 46pc of businesses report that they have drawn up contingency plans. The vast majority of firms, 39pc, have started to implement those plans.

One business reflected the confusion and frustration out there: "It is hard to plan for something that's not agreed on (soft/hard/no-Brexit), tariffs, taxes, customs fees and delays; shock to the currency market and economy with no decision."

Of the three contingency plans identified by respondents - re-routing of inbound orders, re-routing of outbound deliveries, or stockpiling - the majority, 53pc, said they are re-routing inbound orders while only 16pc plan to re-route outbound deliveries. Around a third of the companies, 31pc, said they are stockpiling goods in anticipation of a hard border. One company noted: "We have commenced our Brexit plan along with our clients by transferring contacts and communication from the UK to other countries within the EU."

While this is heartening, and reflects very well on State agencies such as Enterprise Ireland, we should not lose sight of the fact that a hard Brexit will have a detrimental impact on many Irish businesses, with 50pc of respondents reporting that WTO tariffs will have a medium to severe effect on their purchases and sales.

Unsurprisingly the majority of respondents lay the blame for the state of uncertainty and lack of leadership with the UK. "British politicians do not know what they want. We are in limbo until they decide what to do," is representative of views.

The Stubbs survey illustrates that the looming Brexit is not all doom, gloom and fear, with several companies expressing optimism that the new socio-economic post-Brexit world will create a land of opportunity. One company reported they are already benefiting from the Brexit effect: "Our business is increasing as a result of Brexit and GDPR". Another predicts that Ireland will gain from Britain's loss with an increase in employment: "Big impact on employment in this country due to loss of competitiveness in the UK market".

The area where the new market reality will be felt most acutely will be in the crucial food and drinks sector which in 2018 accounted for €4.5bn of sales to the UK, while we imported €3.5bn from the UK.

Experts are forecasting that these exports will be hit severely, to the tune of €1.5bn in WTO tariffs, thus representing a third of the overall value of Irish exports to the UK.

But herein lays Ireland's opportunity at the expense of Britain's bungling. Excluding Ireland, the UK currently exports around €10bn worth of food and drink products to the EU27 which, in the event of a no-deal Brexit, will incur extra EU tariffs, not to mention the additional logistics and bureaucratic costs under WTO rules.

In the event of a no-deal post-Brexit EU, Irish companies will emerge more competitive than their UK counterparts as they will not be subject to EU tariffs and thus, with proper strategic planning, there is a golden opportunity for Irish producers to fill the trading vacuum by stepping in to replace a good proportion of UK food and drink exports to the EU 26.

We also posed preferred solutions to the current Brexit impasse would be, and the results were quite surprising considering the Government and the EU's entrenched position on the backstop.

Almost 26pc of businesses surveyed would be prepared to accept an agreement with a compromise over the backstop. The most-preferred option was for a rerun of a referendum, 56pc, and the least popular options were to delay Brexit, 12pc, and for another UK election at 6pc.

Companies hate uncertainty more than anything else, and this is the defining feature of the Brexit crisis. But so far there doesn't appear to be any panic and Irish businesses are quietly preparing for the worst. Let's hope it does not come to that.

  • James Treacy is CEO of Stubbs Gazette.

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