Businesses can take steps to minimise impact of Brexit uncertainties

With the right strategy and help, businesses will emerge stronger than before, writes Feargal O’Rourke

The UK electorate has voted to leave the European Union. Time will tell as to the full extent of the turmoil and uncertainties that will emerge. Many Irish businesses will need to deal with a new set of circumstances in the years ahead in terms of economic, political and social relations with the UK.

Irish businesses need to consider the implications of Brexit and plan accordingly. Any assessment of the potential implications needs to reflect the uncertainties created by the vote, but in the context that Ireland remains part of the EU with direct access to the huge market that this presents Irish businesses. Our economy is performing at well over the average eurozone GDP growth rate and the majority of Irish CEOs have recently confirmed to us in our 2016 CEO Pulse Survey that they plan to grow revenues in the year ahead.

It is important to remember that the terms of both the exit negotiations and the UK’s future relationship with the EU are likely to take several years to reach a resolution.

In the meantime, businesses should continue with their growth plans while developing strategies to manage the range of uncertainties that are expected.

The exact nature of the consequences of the vote and the length of time it will take to fully understand the shape of a new European trade landscape is unclear. What is clear as a result of the Leave vote is that many businesses will need to consider a range of issues and take steps to minimise the impact of the following uncertainties:

  • Sterling volatility and its impact on their cost base, especially in the short to medium term.
  • Regulatory changes with consequences around regulatory capital and costs, primarily in the financial services sector.
  • Changes in business models, for example, location, branches and subsidiaries.
  • Customs and trade and new administration, for example, new customs requirements.
  • Supply chain arrangements, physical and virtual including routes to market. For example, sourcing alternative suppliers and / or importing from other states.
  • Tax and legal entity structures across the UK and other European locations.
  • Taxation changes across corporation tax, VAT and duties, as well as cash flow implications of upfront VAT payable at point of importation of goods from the UK.
  • Legal issues — for example, invalid contract clauses.
  • Intellectual property and data privacy are also areas that may be impacted.

In the longer term, workforce mobility and freedom of movement of people, including work permits and educational qualifications, may also be impacted. A bilateral agreement with Britain giving Irish citizens special status in the UK is by no means certain and would need approval of the European Union.

Business systems may also have to change — or at least to be capable of coping with change. This is because continued trading with the UK, once the exit negotiations have been agreed, will require businesses to manage new administrative requirements when either importing or exporting goods or services from/to the UK. If the existing systems are not likely to be adaptable for those changes, plans and budgets for further capital expenditure may be needed.

But many questions may remain unanswered for a long time such as what will the new trade arrangements look like? What new tariffs or borders will apply? Will Irish educational qualifications be recognised in the UK? What new administrative burdens will result? How will Irish regulated financial services businesses conduct operations in the UK?

The UK will cease to be part of the European Union following what is expected to be a lengthy period of negotiation.

While article 50 of the Treaty of Lisbon provides for a two- year period at the end of which the UK (or any other departing member state) would leave the European Union, it also provides for an extension to the negotiation period which most commentators believe will be necessary.

It is likely that a separate parallel negotiating track will be used to establish a new relationship between the UK and the EU and the UK and Ireland. Any prolonged negotiations will cause uncertainty for businesses and for Ireland’s economy. And as one of Ireland’s largest trading partners, Irish businesses have very particular strategic, economic, and political interests in the outcome of these negotiations.

We have been supporting our clients with their readiness plans for an exit and will continue to work with them to ensure relevant steps are taken.

Businesses should plan for every scenario and be prepared to manage new operational models and the systemic changes that may occur. PwC will continue to work with its clients to help minimise the risks and inevitable disruption the vote will bring to ensure they continue to have successful businesses into the future.

Irish people have faced numerous challenges since independence and we have shown a fortitude to respond to adversity. The response to Brexit should be no different. Twenty years hence it is possible to imagine Irish companies having fully embraced the innovation and entrepreneurial spirit already evident in our recovering economy and significantly adapted business models. Ireland will continue to establish itself as a tech and fintech (financial technology) hub and a European gateway for US business.

Irish businesses will continue to trade with the UK. International businesses will also continue to seek out new markets with Ireland acting as a strategic single staging post for Asian and Middle-Eastern business seeking to enter both the US and EU markets.

Many Irish businesses have come through the worst recession in decades and have shown great resilience. I have no doubt that, with the right strategy and help, Irish businesses will navigate these uncertain waters and emerge stronger than before.

Feargal O’Rourke is the managing partner of PwC Ireland

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