Pa­tience vi­tal for NI firms as Brexit deal takes shape

Belfast Telegraph - Business Telegraph - - Analysis & Company Report - with John Simp­son @bel­tel_busi­ness

Brexit, when com­pleted, will re­duce the de­gree of in­te­gra­tion be­tween the two Ir­ish economies. For the per­for­mance of the economies, that will mean losses and gains. The out­come of the Brexit ne­go­ti­a­tions ac­cept­able to the UK govern­ment holds no guar­an­tee of a net ben­e­fit to North­ern Ire­land.

The po­ten­tial im­pact of Brexit on the Republic of Ire­land is par­tic­u­larly un­cer­tain. The Ir­ish govern­ment faces a dif­fi­cult, com­plex se­ries of ne­go­ti­a­tions.

From a North­ern Ire­land per­spec­tive, political par­ties with Ir­ish na­tion­al­ism as part of their ethos are, first, in favour of the Republic of Ire­land re­main­ing a full mem­ber of the Euro­pean Union (EU) and, se­cond, in favour of a spe­cial dero­ga­tion or spe­cial sta­tus for re­la­tions be­tween the Republic and North­ern Ire­land to min­imise dis­rup­tion to busi­ness re­la­tion­ships on this is­land or, more am­bi­tiously, a seam­less trad­ing and pay­ments ar­range­ment for Ire­land with the whole of the UK.

Par­ties from the union­ist tra­di­tion want to put the in­tegrity of the UK high in their pri­or­i­ties, but also want to avoid North­ern Ire­land busi­nesses fac­ing the dis­ad­van­tages of dis­tor­tions to fol­low the un­avoid­able bor­der be­tween North­ern Ire­land and its Ir­ish neigh­bour.

The dis­com­fort or dis­tor­tion caused by the changed re­la­tion­ships can­not, yet, be con­fi­dently as­sessed. Suf­fice to say that the ex­ist­ing seam­less customs union will emerge with new seams, min­imised or am­bi­tiously im­per­cep­ti­ble.

The sig­nif­i­cance of the pos­si­ble Brexit deal is well il­lus­trated by a hy­po­thet­i­cal ar­gu­ment, recog­nis­ing the de­gree of in­ter-coun­try trade and pay­ments, which asks whether, if the UK de­ci­sion to leave the EU is now de­fin­i­tive and based on ob­jec­tive rea­son­ing, the Ir­ish Govern­ment should also com­mend an Ir­ish Brexit. How­ever, that idea now gets lit­tle political trac­tion.

The key to the fi­nal Brexit agree­ment (or sep­a­ra­tion based on no agree­ment) is the dis­tri­bu­tional im­pact of the changes.

The as­sess­ment of the cur­rent UK govern­ment rests on ad­van­tages for the UK of ‘ tak­ing con­trol’ of its own de­ci­sion mak­ing and bor­ders. The di­verse and large UK econ­omy hopes to trade more ef­fec­tively with world mar­kets, even if there is some un­wel­come dis­tur­bance to trade within the Sin­gle Mar­ket. In the Ir­ish econ­omy, there are ac­knowl­edged wor­ries that ac­cess to the UK mar­ket, par­tic­u­larly for agri­cul­tural pro­duce and pro­cessed food­stuffs, may be threat­ened by ei­ther a con­tin­u­a­tion of a de­val­ued ster­ling (in re­la­tion to the euro), or moves in the UK to ad­mit greater vol­umes of com­pet­ing prod­ucts from nonEU coun­tries.

Im­plicit to much of the analysis from Ir­ish sources are the strains and stresses ex­pected in the fi­nal Brexit deal.

Around the Dublin re­gion there is a buoy­ant ex­pec­ta­tion. There is grow­ing and cred­i­ble ev­i­dence that some busi­nesses, par­tic­u­larly in the fi­nan­cial and bank­ing sec­tors, are re­ceiv­ing en­quiries from busi­nesses that may re­lo­cate, fully or par­tially, from the Lon­don re­gion.

If the fi­nal agree­ment on Brexit places any doubt on the pass­port­ing rights of UK banks to con­tinue to trade and deal across the EU, then the trickle of de­par­tures from Lon­don to Frank­furt, Paris and Dublin may be­come a sig­nif­i­cant flow.

In con­trast, across the Ir­ish econ­omy, par­tic­u­larly re­lat­ing to farm­ing and food pro­cess­ing, the im­pli­ca­tions of Brexit look for­bid­ding, es­pe­cially if the ster­ling/euro ex­change rate re­mains at close to cur­rent de­pre­ci­ated (for ster­ling) lev­els.

A crit­i­cal un­cer­tainty in the Brexit deal will be the im­pact on flows of FDI (for­eign di­rect in­vest­ment). At this stage, partly af­fected by the pol­i­tics of a dif­fi­cult (or hard) Brexit, the Ir­ish agen­cies see a pos­si­ble ben­e­fit for Ir­ish lo­ca­tions within the EU at­tract­ing a big­ger share of a di­min­ish­ing flow of USA FDI, also in­flu­enced by the Trump Pres­i­dency. The par­al­lel ex­pec­ta­tion that North­ern Ire­land will prove to be a low tax venue for post-brexit in­vest­ment is gain­ing less ev­i­den­tial sup­port.

Brexit ne­go­ti­a­tions will in­evitably bring a ma­jor de­gree of un­cer­tainty. Lo­cal busi­nesses now need pa­tience while politi­cians in Lon­don and Brus­sels play a long game with high stakes.

The UK’S split from Europe will be com­plex

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