Though the final outcome of the Brexit negotiations is unknown, one certainty is that the UK will remain our major trading partner.
The fifth-largest economy in the world by nominal GDP, with a population of about 65 million, it represents a market 14 times that of Ireland. It is our closest trading partner by geography, shares a language and has a similar business culture. It also has a long tradition of openness to goods and services from Ireland resulting from generations of business, cultural and family relationships.
All this is helping Irish companies seek out new export opportunities, even in the uncertain current environment.
"In 2016 total exports into the UK grew by 2 per cent. If you strip out food, they grew by 6 per cent," says Marina Donohoe, Enterprise Ireland (EI) director UK and northern Europe.
Construction products and services offer particular opportunity. Ireland currently exports about €1.2 billion into the UK in this sector, which covers everything from engineering management to road building.
The UK government’s national infrastructure delivery plan will see a £503 billion (€565 billion) investment in more than 300 infrastructure projects, from schools to high-speed rail. Its Northern Powerhouse initiative, designed to drive economic growth in the north of England, will see the UK government spend £134 billion up until 2021, with opportunities to support initiatives in road, rail, freight and aerospace. The UK also has need of 150,000 new houses per year.
Software solutions
Such activity will opens up opportunities for Irish businesses that provide software solutions to help streamline human resources – everything from hiring people to resolving visa issues. “Talent management, onboarding, recruitment, retention – anything to help manage the talent pool that will be vital in the UK, and EI has very many good client companies in that space,” says Donohoe.
The UK’s much-anticipated industrial strategy will outline further areas of investment likely to be of interest to Irish businesses.
“Our clients are looking to grow their presence in the UK, not pull out,” says Donohoe. “More investment is what we are seeing. At our international markets week event in September, the UK desks booked out first. We have recruited three people to EI’s UK team in the last month alone. There are opportunities in the UK and we have some really great Irish companies ready to capitalise on them.”
In the meantime, any business with low margins has struggled with the fall in the value of sterling. This is particularly true of the food sector, which saw closures in some commodities, such as mushrooms, early on. That was purely a currency issue, however, points out Tara McCarthy, chief executive of Bord Bia, the food exports agency.
It has undertaken extensive research to help identify the full range of challenges food exporters to the UK face.
Currency, unsurprisingly, remains a big issue. “No matter what sector they are in, at 90p, 80 per cent of this industry is under severe pressure,” says McCarthy.
Currency management can be achieved by buying forward, points out Gerry Gallen of Moneycorp. “With businesses operating on single-digit margins, you don’t want to take any chances with ForEx. While many in the past might have taken a ‘swings and roundabout’ view of currency fluctuations, what you want really is the certainty buying forward gives you,” he says.
The complexity of the supply chain also emerged as a major preoccupation in the food sector. “There are very few generalisations in this,” says Tara McCarthy. “it is individual to every company, because it includes everything from ingredients to packaging to transport. How to Brexit-proof every element of their supply chain is a priority.”
Some businesses in the food sector are opting for natural hedging, such as buying some of their packaging in the UK market. “But if you do that, you might be reducing your currency risk, but it can lead to vulnerabilities in your supply chain, so it is very complex,” says McCarthy.
Confident
Regardless of the complexities, Irish food businesses are committed to the UK. “Some 79 per cent of companies interviewed are confident that there is more business to be done in the UK. We are currently engaging with our top UK customers to let them know we are not running away from the market.”
The UK is not self-sufficient in food. “We don’t want to create a vacuum for other competitor countries to fill. And the UK has food deficits in areas where we have food surpluses,” she says.
Ireland currently exports €4 billion in food to the UK and imports about the same. “Commerce doesn’t wait. We don’t want to waste this crisis. We’re not about creating a Brexit strategy so much as creating the correct strategy with a Brexit lens on it.”
Looking to the medium term, there are three channels through which Brexit will affect the agrifood sector, according to Teagasc economist Kevin Hanrahan.
First is the loss of preferential market access. “We will either face tariff barriers post-Brexit or compete with other exporters on the UK market that currently face tariffs, such as Canada, USA, Australia and New Zealand,” he says.
Brexit will lead to the emergence of regulatory based barriers to trade too, and these will be higher in agrifood trade than in merchandise trade in general, he points out.
Finally, there will be the impacts of the UK taking its net contribution to the EU budget with it when it leaves. Right now some 40 per cent of EU spending is on agriculture. “With a smaller EU budget it is likely that spending on agriculture will go down and that support for Irish agriculture from the EU budget in that context is likely to decline. This will have a direct impact on Irish family farm incomes,” he says.
Farm gate prices in many Irish agriculture sectors have already dipped to the fall in sterling. “If the exit of the UK from the EU is a disorderly one, it is possible that there could be a further weakening of GBP versus the euro,” he says.
Financial services
More obvious opportunities may exist in the financial services sector. "It seems increasingly possible that the UK will leave the European Union without retaining passporting rights for financial services. If this turns out to be the case, the UK financial services sector will face extreme pressure," says Dr Julie Byrne, lecturer in banking and finance at the Smurfit Graduate Business School, UCD.
Long before article 50 was triggered, there was already significant evidence to suggest that UK-based financial institutions were seeking alternative European bases for their operations in order to retain the right to provide frictionless financial services across the EU, she says.
“Ireland, as the only English-speaking country remaining in the European Union, coupled with the fact that there is a highly-educated workforce seems well positioned. It is one of the fastest-growing economies in Europe, has a low tax base, is well supported by the IDA and is closest to the UK, as well as being its largest trading partner.”
There are concerns, namely that Ireland is relatively expensive and in need of infrastructural improvements and housing.
As with all times of uncertainty, however, “there is no question that opportunities exist,” says Byrne. “The focus in Ireland should be: how do we exploit such opportunities?”
