Exporters holding their breath as Britain goes to polls for Brexit vote
Whether you think remaining in or leaving the EU is the right thing for the UK, an exit outcome of the referendum is likely to impact heavily on Ireland’s exports not just to the UK but across the EU and beyond.
The impact on the sterling/euro exchange rate, in the event of the UK exiting, seems to be well understood and most exporters have taken the sensible option of locking in their sterling requirements at current rates with their banks, using forward contracts.
International financier George Soros, speaking with the UK media on Monday, said: “Sterling is almost certain to fall steeply and quickly if ‘Leave’ wins the referendum.
“I would expect this devaluation to be bigger and also more disruptive than the 15% devaluation that occurred in September 1992, when I was fortunate enough to make a substantial profit for my hedge fund investors at the expense of the Bank of England and the British Government.”
But the issue for exporters is not so much what the market will do, but what way the UK Government will react.
Back in 1992 when the UK left the ERM (the precursor of the euro), Britain had a larger current account deficit and interest rates were cut from 10% to 5.5%. But with the official borrowing costs today so low at 0.5%, there is little the Bank of England could do if Brexit caused a recession.
Irish exporters to the UK would feel the impact once their forward currency contracts had run out and, as happened back in the 1990s, many exporters would be priced out of the UK market.
Importers could, of course, have a windfall currency gain, but this is likely to be more than offset by the re-introduction of all the customs import procedures associated with imports from places like Asia, which would apply.
One example demonstrates the wide impact on importers of a Brexit — the motor industry which imports large volumes of cars from the UK, even the Japanese and other Asian models from the UK plants, would now be faced with an added 10% import tariff duty.
Speaking with colleagues in Revenue’s customs branch who have been studying the impacts on monitoring trade flows if the UK exits, there are clear indicators that customs procedures would have to change substantially including the return of Vat at the point of entry into the UK and, similarly, for imports into Ireland.
But perhaps the most disruptive aspect will be the re-introduction of transit documentation for all goods going through the UK. Currently, under EU customs agreements, large volumes of exported goods go by truck across the UK and onward to Europe with no import, export or transit documentation delays.
Airfreight goods, similarly, transit the UK on what are termed air-trucks, for loading straight onto aircraft heading across the Middle East, Asia and Africa under the EC Transit agreement.
The Single Administrative Document (SAD) which electronically clears goods between EC member states would be replaced with the detailed customs tariff and excise and transit documentation.
Additional staffing of all customs officials would be inevitable and, with the best intentions on their part, exporters would face some nightmarish scenarios.
In terms of trading with the rest of Europe, a vote to leave the EU is likely to cause a degree of panic and fear among investors and delay further the return to normal growth in our main export markets.
Simply put, Brexit would cause the outlook for the UK and Europe to be more uncertain than it already is, which could cause consumer and investor sentiment to come under more pressure.
A relatively high degree of volatility seems likely, which has the potential to cause consumer and investor panic of an even greater extent than seen after the Lehman collapse and financial crises of 2008.
Exporters are holding their breath while the UK goes to the polls, dreading the consequences of an exit vote, and hoping that the remain vote triumphs.
CONNECT WITH US TODAY
Be the first to know the latest news and updates
