Ir­ish firms tak­ing a punt by not pre­par­ing for hard Brexit are do­ing so at their peril

Irish Independent - Business Week - - BUSINESSWEEK -

BRI­TISH Prime Min­is­ter Theresa May greeted this week’s Brexit vote vic­tory in the House of Com­mons as ‘ historic’. The truth is some­what dif­fer­ent. It was widely ex­pected to be passed any­way and the real fight of se­cur­ing amend­ments to the Bill hasn’t even be­gun.

It was like declar­ing a vic­tory at the weigh-in of a box­ing match be­cause you had ac­tu­ally made the weight.

Yet, it acts as a re­minder that for all of the talk in Ire­land now about a soft Brexit or a lengthy tran­si­tion pe­riod af­ter 2019, the Brex­i­teers haven’t gone away.

The real prob­lem for Ir­ish busi­ness­peo­ple up and down this coun­try is that they are now be­ing asked to be­come ex­perts on the machi­na­tions of do­mes­tic pol­i­tics in Bri­tain.

They are mak­ing se­ri­ous busi­ness de­ci­sions or putting off de­ci­sions based on their view or read of how Brexit will play out.

This is not a wise course of ac­tion and it just ex­ac­er­bates the risks that Brexit it­self poses to their busi­nesses.

How do you get the at­ten­tion of a small Ir­ish ex­porter, with a strong UK cus­tomer base, who is pretty sure in his/her own mind that Brexit ei­ther won’t hap­pen for years, or will be so soft that the UK stays in the Cus­toms Union or the sin­gle Euro­pean mar­ket?

It isn’t easy to get that per­son’s at­ten­tion and tell them they have to make de­ci­sions to­day to pre­pare for a much tougher sce­nario.

One way of get­ting their at­ten­tion is if the value of ster­ling keeps fall­ing. When ster­ling fell against the euro last sum­mer af­ter the ref­er­en­dum vote, many Ir­ish busi­ness­peo­ple were shocked and then wor­ried.

A lot of them be­gan to make cur­rency hedges and think about what it all might mean. Then the cur­rency sta­bilised at around 85p or 86p. Theresa May lost her par­lia­men­tary ma­jor­ity in the UK gen­eral elec­tion and there has been a lot more rhetoric about a softer Brexit.

Lib­eral Demo­crat politi­cian Vince Ca­ble has said he still doesn’t be­lieve there will be a real Brexit. Tony Blair is on the pitch mak­ing the case for a sec­ond ref­er­en­dum.

Jeremy Cor­byn has soft­ened the Bri­tish Labour Party’s Brexit stance. Chan­cel­lor of the Ex­che­quer and ‘Re­mainer’ Philip Ham­mond has be­come more in­flu­en­tial at the Bri­tish Cab­i­net and there is now wider Tory agree­ment on the need for a busi­ness-as-usual tran­si­tion pe­riod af­ter 2019.

All of these fac­tors are plant­ing seeds of doubt in the minds of indige­nous Ir­ish ex­porters that Brexit will im­pact them much at all.

The ques­tion is whether that is a rea­son­able gam­ble to take with your busi­ness and the work­ing lives of those who work for you.

The re­cent fur­ther de­cline in the value of ster­ling, where it hit 93p in re­cent weeks, fo­cused the minds a lit­tle bit more.

A sur­vey from the Ir­ish Ex­porters As­so­ci­a­tion found that one-third of its mem­bers had no cur­rency hedg­ing for the next 12 months. They will take a lot of pain when ster­ling falls fur­ther.

En­ter­prise Ire­land launched its In­ter­na­tional Mar­kets Week last week and it was all about help­ing Ir­ish com­pa­nies to find new mar­kets, es­pe­cially in the eu­ro­zone.

The mes­sage was clear – it isn’t easy. It takes time but it can be done. En­ter­prise Ire­land CEO Julie Sin­na­mon re­ported on a sur­vey that found 67pc of client firms cur­rently not ex­port­ing to the eu­ro­zone in­tend do­ing so in the next 12 months.

This was very en­cour­ag­ing for sev­eral rea­sons. Ir­ish firms have never ex­ported enough to the eu­ro­zone and have been too de­pen­dent on Bri­tain in many key sec­tors. The more they spread their busi­ness across dif­fer­ent mar­kets, the more in­su­lated they will be from Brexit.

Per­haps the way to look at the un­cer­tainty is to view it as a chance to build a bet­ter busi­ness by looking at costs – where you buy things, where are you cus­tomers, how you or­gan­ise your busi­ness etc.

There is, in the­ory, a chance to build bet­ter Ir­ish ex­port­ing busi­nesses. I say in the­ory be­cause that will not be the re­al­ity for ev­ery­one. Some com­pa­nies are feel­ing enor­mous financial pain from the cur­rent value of ster­ling. It will hit prof­its first. Then it will cost jobs and then in time it may cost en­tire busi­nesses.

The profit pinch caused by the fall in ster­ling will put many firms on an emer­gency foot­ing. When man­agers are in that frame of mind, it is very dif­fi­cult to think about the five-year slog of get­ting on a plane to Paris or Ber­lin and start­ing to build new mar­kets from scratch.

Some com­pa­nies will do it and the even big­ger at­ten­dance at the En­ter­prise Ire­land In­ter­na­tional Mar­kets Week this year shows that.

The prob­lem will be for the many ex­port­ing firms that weren’t at the En­ter­prise Ire­land event last week be­cause they feel they are fire-fight­ing al­ready, or they sim­ply have their head in the sand about Brexit.

The chal­lenges in some sec­tors are be­com­ing ap­par­ent. So much so that even Fi­nance Min­is­ter Paschal Dono­hoe has said he plans to do some­thing for ex­port­ing firms in next month’s bud­get.

Laud­able as it is to iden­tify the pain for some com­pa­nies, Mr Dono­hoe’s op­tions are very lim­ited. He can­not come up with a ma­jor com­pen­sa­tion or sub­sidy scheme with­out get­ting it cleared in Brus­sels.

Even if he could, he doesn’t have the money in the bud­get to do anything sig­nif­i­cant. He can, and no doubt will, be imag­i­na­tive about some kind of sup­ports for ex­porters to the UK, but any ini­tia­tive will be heav­ily caveated to con­trol its fi­nal cost. The money sim­ply isn’t there.

Mean­while, Bri­tain’s love/hate re­la­tion­ship with the Euro­pean Union con­tin­ues to play out. There are many peo­ple who now be­lieve the UK will end up re­main­ing in the Sin­gle Mar­ket or within the Cus­toms Union at the end of this process.

And even if it doesn’t, there will be a good three­year tran­si­tion pe­riod of no change.

But take the di­vorce metaphor so of­ten used to talk about Brexit. Imag­ine both par­ties in a di­vorce spend two years dis­cussing ev­ery as­pect and ac­ri­mo­nious de­tail of their dif­fi­cult break-up.

Af­ter all of the re­crim­i­na­tions, re­luc­tant com­pro­mises and bravado have played out and been agreed, they then agree to live to­gether for a fur­ther three years as if noth­ing had hap­pened.

It could hap­pen but should Ir­ish busi­ness place a bet on the out­come of any break-up?

This week, the CEO of Dover Port, Tim Wag­gott, re­vealed re­search which found that with­out a new freight tran­sit deal, there could be 17-mile lorry tail­backs on ei­ther side of the port.

One fifth of Bri­tain’s trade goes through that port and the vast ma­jor­ity of Dover’s busi­ness is with the EU. Mr Wag­gott be­lieves if a new tran­sit deal is not done, pro­cess­ing times for trucks would dou­ble from two min­utes to four min­utes. Around 10,000 trucks per day go through Dover.

It is a glimpse of the im­pli­ca­tions that may arise for Dublin Port and for the Bri­tish fan­tasy of a seam­less fric­tion­less bor­der on the is­land of Ire­land.

If the UK stays in the Sin­gle Mar­ket and the Cus­toms Union, none of these things will be a prob­lem. But it would be fool­ish to risk your firm’s liveli­hood on that out­come by not pre­par­ing, es­pe­cially when you may come out with a bet­ter busi­ness any­way.

Pro­test­ers make their way along Pic­cadilly dur­ing a re­cent pro-EU Peo­ple’s March For Europe in Lon­don

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