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01 June 2016

How Brexit Could Affect Irish Exports

Posted By: AIB Business
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How would Brexit affect the international logistics industry? At this stage, it’s difficult to predict every potential implication for Irish business, but what we can state with some confidence is that Britain operating outside the EU would add complications and costs to the supply chain and inhibit movement of goods across our borders, writes Alison Moore from DHL Express Ireland.

Given its position as Ireland’s most important trading partner, if the UK was to exit the EU the very strong likelihood is that there will be a very negative impact on trade flows between the two countries. The ESRI has estimated that the negative impact on trade between the two countries could be as high as 20%, which would have a significant impact on both economies – most especially on the Irish economy. How this would, in turn, affect individual companies would of course vary. It is reasonable to suggest that small and medium sized enterprises (SMEs) with a higher proportion of their trade with the UK would be more severely impacted than larger companies that tend to have a more diverse range of export markets and are therefore less dependent on the UK as a destination.

 

Certain Sectors Susceptible to Brexit

The severity of the consequences of Brexit is also likely to differ by industry sector. For example, the pharmaceutical and medical devices sectors, which historically have a significant FDI investment, have a wide range of both EU and non-EU export markets. In contrast, the agriculture and food & drink sectors are more dependent on the UK as a market, so the impact of a Brexit on these sectors would be much more significant. According to a study by IBEC, the UK accounts for over half of all meat exports, valued at close to €2 billion and 30% of Irish dairy exports, valued at close to €1 billion. The UK is also an important market for ingredients and prepared consumer foods, accounting for 70% of exports in this area. However, even if the UK decides to leave the EU, it’s still likely to be an important market as businesses tend to sell perishable goods to nearby markets. Irish firms will still have to apply EU regulations but may also have to shoulder the cost of applying separate UK regulations as well. Regardless of the type of new arrangement it reaches with the EU, if the UK votes to leave the EU, customs and other procedures are likely to become more onerous for exporters to the UK in comparison to the current trade agreements.

 

Some Silver Linings Amongst the Clouds?

It could be argued that British exports to the EU would decline in light of a Brexit and this represents an opportunity for Irish companies to provide similar, substitute products. A recent article in The Guardian in the UK suggests that trade concerns are minimal due to the fact that, should Brexit actually proceed, the most likely outcome would be that the UK would negotiate a free trade agreement. It points out that the UK is the largest export market for the EU and, in that context, it has a strong negotiating position. However, many British business leaders are sceptical about their negotiating power and they point out that while the UK may have 65 million or so consumers, the EU represents 500 million and therefore has significantly more clout.

For Irish businesses that are currently relying heavily on the UK as a market, it may be an opportunity to delve into other international markets. If the UK exits the EU, then the likelihood is that the value of Sterling will decline against the Euro. This will have some implications for Irish exporters to the UK, potentially making their prices less competitive to UK consumers or retailers. A drop in the value of Sterling, along with some potential additional trade barriers, could put some Irish businesses at risk. To mitigate this risk, Irish companies (in particular SMEs that have less product market diversity) should really look to expand their market base to destinations further afield.

For exporters trading exclusively with the UK, the EU is a logical next step in terms of expansion. Operating as a single market, the 28 countries that make up the EU represent a major world trading power. With just 7% of the world’s population, the EU nonetheless accounts for 20% of global exports and imports. Furthermore, 18 of the 28 countries operate within the Eurozone, so there’s no exchange rate risk to these countries. And remember the EU operates as a single market so, for the vast majority of goods and services, there are no customs or regulatory restrictions. That means Irish exporters have unfettered access to the 500 million consumers that make up the EU.

A research paper issued by the Economist Intelligence Unit (EIU), Breaking Borders, highlighted a large number of barriers standing in the way of global expansion for companies surveyed. Infrastructure problems, prohibitive costs of establishing operations and networks abroad, bureaucracy, corruption and political instability were all cited as reasons for not entering overseas markets.

At the same time, despite the difficulties experienced, the paper still revealed a positive outlook. Most of the SMEs surveyed intend to generate over 50% of their revenue from outside their home market within five years. So how do SMEs go global without the financial “muscle” and manpower of bigger companies? Breaking Borders reveals that it takes resourcefulness, partnerships, a robust supply chain and the ability to make your size work in your favour.

Irish businesses may have to learn to compete in different ways outside of the UK market and to make best use of all resources available to them in order to hold their own on the world stage. However, with good planning, a well-designed supply chain, a clear understanding of their competitive strengths and the right mind-set, Irish companies can mitigate the potential risks associated with a yes vote in Britain on 23rdJune.  

 

 

Written by: Alison Moore, Brand, Communications and Marketing Manager, DHL Express Ireland – the leading global brand in the logistics industry

 

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Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland. Copyright Allied Irish Banks, p.l.c. 1995.

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