Brexit not the only concern for exporters in 2019

Brexit not the only concern for exporters in 2019

This year opens with what now seems the perennial gift of uncertainty for exporters plying their trade across world markets that are increasingly sanctions-hit and politically ostracised, writes John Whelan.

In recent years, businesses have come to accept the oxymoronic qualities of the unpredictable and the unexpected, and 2019’s variant looks like being a real stinker.

Without dwelling too much on it, the Brexit debacle comes top of the list of uncharted waters. As well as bringing unpredictable and uncertain issues for exporters and importers alike, it will create a hole in the EU market — one that will not be easily filled.

European markets look set to become more uncertain in 2019 as Angela Merkel’s influence wains through her long farewell as German chancellor and prime influencer in EU politics.

There is always uncertainty when a new political leader steps up, but when that means a new head of state within the largest market in Europe, the vibrations tend to push off the Richter scale.

In France, the unexpected emergence of the riotous Gilets Jaunes and the plummeting of president Emmanuel Macron’s authority will not help the rising instability in Europe.

Managing trade relationships and sanctions are likely to be sporadic at best. The old question from Henry Kissinger — “Who do I call if I want to speak to Europe?” — will become more relevant this year.

Chinese, US, and Canadian, relations, which, post the G20 meeting in Argentina, had improved, have been dragged to an all-time low by the arrest in Canada of Huawei chief financial officer Meng Wanzhou for her role in alleged Iran sanctions violations.

In the US, the investigation into Russian interference in the 2016 presidential election appears to be reaching a crucial phase which may fatally damage the Trump administration. Whatever else may be its fallout, further trade sanctions are certainly a likelihood.

Despite the trade wars with the US, the wider Asian market is expected to expand by around 5.5%, accounting for nearly two-thirds of global growth, and holding its position as the world’s most dynamic region.

Latin America looks somewhat more stable following the election of Jair Bolsonaro, the right-wing candidate in Brazil. However, Nicaraguan politicians now join their Venezuela counterparts on US sanctions’ lists.

North African markets are showing stable growth again, as is the sub-Saharan region, especially Nigeria.

An overview from economists at the World Trade Organisation, the OECD and the IMF, all point to a slowdown in global economic growth in the year ahead.

However, the slowdown is estimated to be in the region of 0.2%, which still leaves a healthy global growth rate of 3.6%.

The global economy is becoming increasingly digitalised, and some of the emerging technologies have the potential to be truly transformative, even as they pose new challenges.

So, what should Irish businesses watch for in 2019? First, the cost of trade seems certain to increase this year.

Why? Because interest rates are rising. Wages are also on the rise in Ireland and are expected to accelerate during the year. Oil prices are slowly but surely rising.

Secondly, protectionism is disrupting established trading partners and their transport routes.

This has fuelled the push to local market buying or near-shoring, as some multinationals close down overseas facilities in favour of local production.

On the one hand, this could assist indigenous Irish companies, but on the other hand, it may lead to a decrease in foreign direct investment particularly among US corporates which face death by tweet from Donald Trump, as well as fewer reasons to invest funds abroad under the new regime of lower corporate taxation.

Brexit not the only concern for exporters in 2019

Thirdly, currency volatility arising from Brexit decisions, but also from concerns that Europe is not yet stable and individual countries are still capable of creating economic shocks.

Adding to this, the trade tension between the EU and US, and we have the conditions for high volatility.

There are positives, however. The current low value of the euro against the dollar makes exports to the US and many Asian countries which trade in dollars more competitive.

Lastly, swotting up on tariffs, and strategic means of getting round their impact, will be a key management activity for the year ahead.

A little inventiveness can enable high tariffs to be circumvented. This is sometimes called ‘tariff engineering’, by restructuring your products to try to get favourable duty treatment.

For this to work, businesses need to allow enough time for their product development and design teams to re-invent their new product specifications before exporting to tariff-affected markets.

This year looks increasingly like the curate’s egg, good in spots. In the face of growing trade threats and political risks, including that of Brexit, multinationals have started to focus on secured trade routes, with a politically neutral stance, offering competitive trade hubs that are not subject to protectionist measures from major economies.

In Europe, Ireland and Poland are the best positioned to take advantage of these diversion effects.

Finally, the continuing trend towards global growth of the services sector will play to Ireland’s strength in the sector.

This is leading to new consumer need, which in turn is fostered by continued digitalisation.

This enlarges opportunities for Irish corporates which have excelled at developing new trading platforms and a better offering of online services.

John Whelan is managing partner of international trade consultancy The Linkage-Partnership

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