This guide written by PWC is very good in looking at the wider economic picture and how Brexit will affect Irish business.
We found it thought-provoking ourselves and from the points made you may see some potential opportunities for your business as well as some threats. Note our conclusion for some thoughts on these.
The guide breaks the economics down into 3 parts:
- Exchange rate
- Foreign direct investment
- People and mobility
You’ll readily recognise, as the guide points out, that this is the most immediate impact from Brexit. Uncertainty means the value of sterling has fallen, which is already affecting Irish business.
Imports become cheaper, which is good news for businesses buying supplies from the UK. But exports become more expensive, so for businesses selling to UK customers this is a challenge.
The guide recognises that sterling has been stabilised by the Bank of England’s reaction and the promise of a low UK corporation tax rate.
Foreign Direct Investment…
This has been widely featured by various commentators as a plus point on Brexit for Ireland. The guide also notes the opportunity that exists with Ireland’s English speaking EU access, sustainable low tax regime and certainty on EU access.
Interestingly, the guide also points out some threats, as follows:
- The UK – Being outside the EU, the UK will be free to make its own policies to attract and retain foreign direct investment.
- Limiting factors within Ireland – a lack of skills and certainly a lack of housing supply. (Anecdotally we’re already aware of large organisations in the Cork area who have offered jobs to professionals from elsewhere. But the job offer has been turned down because of being unable to locate suitable accommodation.)
- Other EU locations – Frankfurt and Paris may have a better infrastructure.
People and mobility…
Here the guide shows the uncertainty because of the issues surrounding UK nationals working in Ireland and Irish nationals working in the UK.
This could have impacts on pension schemes and social security arrangements. Businesses will also need to consider the potential effects of visas and work permits for key staff.
Key areas to think about…
In addition to the 3 areas above, the guide also details some other key areas to think about.
For instance, on the subject of trade it points out that Irish trade is heavily reliant on free access to the UK market. So Brexit will have a significantly negative impact on Ireland’s export market and economy.
One interesting statistic the guide gives is that foreign owned companies only export 11% to the UK, whereas Irish owned companies export 44% to the UK. So Irish owned companies are most at threat from Brexit from a trade point of view. The guide does, however, show that Ireland’s reliance on the UK market has been falling steadily over the last few decades.
Customs changes will have an impact, with tariffs, excise duties and border controls being likely. This is likely to also mean increased administration and compliance costs.
There will be regulatory changes. These are likely to take a long time, but will certainly have a significant impact.
The guide also explains that there could be an overall reduction in procuring goods and services from the UK, and businesses may look to change their business models for how they do business abroad.
In looking at the points made by the guide we recommend using the guide to see what opportunities there could be for you.
For instance, when considering exchange rate movements we think it’s worth keeping in mind that exchange rates can move in both directions. It’s not beyond the realms of possibility that during the course of Brexit the UK may make itself more attractive to investors and sterling rates could rise.
Rather than viewing exchange rate movements for Brexit in isolation, consider it as part of your global exchange rate thinking with Brexit as an additional uncertainty factor. Obviously you should protect yourself from risks, but look to see where opportunities could lie as well.
Foreign direct investment
If there’s going to be an increase in foreign direct investment in Ireland, what could that mean for the value of renting out accommodation?
As the housing market has been recovering, estate agents locally are noting an increase in properties coming to the market. Perhaps properties that were bought in the boom and have been rented out since. But is now the right time to sell? Or could waiting a while mean a more profitable return on your investment?
And just because many organisations seem likely to reduce what they procure from the UK does that mean you should follow suit?
Say that UK businesses become keener to win business and more competitive in their pricing, will that outweigh any tariffs or customs duties?
It’s not in the interests of the UK or the EU to lose the trade that happens between themselves. So it’s not unreasonable to think that the arrangements that will be made will to some degree protect or work with current arrangements.
This doesn’t mean these things can be ignored. But the point is that uncertainty can create a lot of negativity and a tendency to withdraw and try to protect our interests. But this isn’t always the best strategy.
So certainly take any input you can get on board, but don’t be too quick to give undue importance to scaremongering about what might happen.
Instead look for basic principles that will remain certain – such as that businesses and countries want to trade. Consider what’s happening in the light of these and see how you can chart your own course to take advantage of the opportunities that will exist.
Read the guide
To read the guide in full for yourself please click here.