Patience vital for NI firms as Brexit deal takes shape
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