As British prime minister Theresa May formally triggers Article 50 of the Lisbon Treaty today to begin Britain’s exit from the European Union, we have asked major Irish stakeholders their view as to the likely impact on them and on the Irish economy.
From builders to business owners, from farmers to shopkeepers, we have also asked them their views as to what Enda Kenny’s government should be doing to properly prepare and ready the country for Brexit. Some are gloomy, others are more upbeat, but all are agreed, Brexit poses the single greatest economic challenge in recent history.
Construction Industry Federation (CIF)
The positive connection between investing in productive infrastructure and economic growth is well established.
The late, great TK Whitaker made infrastructure investment a centrepiece of the plan that led to the modern Irish economy. Indeed, as the UK makes its first step into the unknown, the chancellor has committed over £500bn (€575bn) in infrastructure investment over the next five years. There is great certainty in the delivery of roads, rail, broadband, schools, and hospitals.
CIF analysis shows that every €1bn invested in infrastructure generates around €1bn in the economy through the construction phase alone.
In addition, that €1bn will also generate and sustain 12,000 direct and indirect jobs in the economy.
This is before you calculate the social, economic, and personal benefits of better hospitals, water networks, connectivity through broadband, better public transport, and reduced commuting times.
Unencumbered by the EU’s fiscal budgetary constraints, the UK’s infrastructure fund includes infrastructure investments of over £2.6bn to improve transport networks; a multimillion-pound package to accelerate the future of broadband, and £7.2bn to support the construction of new homes. This is the UK’s attempt to stimulate the economy to offset the potential economic dip from Brexit.
Unfortunately, CIF analysis shows that the proportion of Ireland’s existing spend is devoted to covering repairs and maintenance of existing roads, rail, and water infrastructure is increasing. This leaves less for new strategic infrastructure projects like the potentially transformative M20 Cork/Limerick motorway.
CIF’s specific concerns in relation to construction centre on skills demand. We have already identified potential demand for an additional 110,000 construction employees up to 2020 to deliver the Government’s commitments on housing, social housing, and infrastructure.
At the same time, we understand that the UK construction industry is experiencing a major skills shortage. This has the potential to lead to a war for talent between the two industries.
Finally, depending on sterling fluctuations, and combined with any loss of competitiveness in Ireland, it could mean an increase in imports as large UK construction companies may enter the Irish market and as construction products are likely to be a low-tariff category in any EU/UK trade negotiation initially.
Retail Grocery Dairy & Allied Trades Association (RGDATA)
The Government response to Brexit is being closely watched by thousands of family-owned grocery/convenience shops and supermarkets throughout the State.
Retailers operating closest to the border are used to dealing with the vagaries of sterling exchange rates and cross-border shopping, but the UK decision poses a wide range of concerns for retail businesses and is already having a significant impact on shoppers.
Shop owners are rightly concerned about any negative impact on consumer spending and consumer sentiment. This impacts on retail sales, and many shops in rural towns are still struggling from the mauling they got during the recession.
Local independent shops are the best supporters of Irish producers and suppliers so how local food producers adapt to Britain being outside the EU, their markets in the UK coming under threat, and sustained competition from imports from the US, Canada, South America, and New Zealand will be vital for independent shops.
Irish producers must continue to receive support in their home market to maintain the pricing and quality of their goods. More than ever, Irish shoppers will have to be constantly reminded of the huge community benefits of buying locally produced goods in a locally owned shop.
Given all the uncertainty regarding how Brexit will eventually pan out, what local retailers want now is action from Government to reduce business costs, revitalise town centres, cut unnecessary regulation and red tape, and letting them get on with making sure their businesses are in the best shape possible.
Currently, independent retailers are under significant pressure with high insurance costs and excessive levels of personal injury claims, many are operating in ailing town centres where they are facing increased commercial rates charges and are not seeing any improvement in local government services.
These are concrete issues that the Government can address now. Positive action will allow Irish and family-owned shops greater scope to respond and adapt to the challenges that Brexit throws up.
Irish Farmers’ Association (IFA)
It is clear from our engagements with Government that it has a solid understanding of the threat Brexit poses to farming and the agri-food sector, and the implications of this threat for the wider economy.
With exit negotiations about to begin, following the triggering of Article 50, the Irish Government needs to step up, turn plans into action, and launch a major diplomatic offensive at EU level to place agriculture issues at the heart of the negotiations.
The UK leaving the EU poses the most significant threat to the farming and food sector in the history of the State. With 40% of our food exports going to the UK, no other sector is as vulnerable to the outcome of Brexit negotiations as agriculture.
The Government has to make the case that if the UK exits the single market and customs union, a comprehensive free trade agreement between the EU and UK must be negotiated, which would include tariff-free trade for agricultural products and food maintenance of equivalent standards on food safety, animal health, welfare, and the environment; and application of the common external tariff for agriculture and food imports to both the EU and UK.
As a net contributor to the EU budget of €10.5bn, Brexit places uncertainty over the CAP budget after 2020. Our Government must make a strong case that EU solidarity with farmers requires that there is no reduction in the CAP budget arising from the UK exit.
We need the Government to secure a place for farming and food at the top of the Brexit agenda at EU level. With 12m farmers and 40m related jobs overall across the EU, there is a wider strategic objective here to maximise the future value of the EU farming and food sector.
IFA’s policy position on Brexit, launched earlier this month, has been well received by Government and we will be holding a major event on April 24 to reinforce the message to all politicians that farming must come first in Brexit.
Irish Road Hauliers Association (IRHA)
For the IRHA and its members, Brexit will be the biggest challenge of our time. Our industry is built on free movement and unfortunately now all legislation to do with the tachograph (drivers’ hours rules) would be outdated in this regard.
It is of the utmost importance that the Government is informed and has a clear understanding of the impact of Brexit and hard borders means as it will, if not managed, have a detrimental effect.
In essence, time is money and that means a cost that will be levelled at this sector which, at this point in time, does not have the capability financially to allow for costs caused by Brexit.
We operate off very low profit margins because of competition factors and we need to keep our customers as competitive through the whole process so that they don’t suffer — the result being a drop in productivity or activity equally causing problems for us.
How can this be achieved? First and foremost, government departments need to understand the practicality of the road haulage sector.
We are the transport and logistic operators that move 95% of goods by road. To date, representatives of the IRHA have attended every Brexit forum arranged by each individual department and informed the meetings of the anticipated problems that may ensue and what we need to plan for.
But are they hearing us and understanding the issues? Unfortunately not, in some cases. We attended the Department of Jobs, Enterprise, and Industry’s Brexit meeting, expressing the concern we have regarding the status of non-EU workers in Britian once Brexit occurs and the requirement to put the HGV driver sector on the eligibility list for such permits so we can plan for employees exiting the markets as an adverse effect of Brexit.
However, there has been no affirmation of same. The officials in the Department of Transport are certainly very proactive and though appear to be steering a rudderless ship are doing a good job.
However, it is vital they come to their senses and accept the derogation for carrying 42 tonnes on five axles must be restored by Transport Minister Shane Ross as it has made us anti-competitive.
Therefore, we expect that the Government will continue to engage and use our skills and knowledge to protect the people of Ireland and our sector with a plan to sustain us — which they have started by accepting us as members of the customs consultative committee.
Small Firms Association (SFA)
The UK is a key marketplace for our small exporting companies, with 43% of exports from all indigenous exporters.
It is a learning ground when they’re starting up, and it is not easy to diversify into other markets further afield without significant resources, and in the food sector, differing tastes also acts as a barrier.
Equally, the UK is our biggest market for tourists, which has an impact on local economies right around the country. The threat of recession in the UK post-Brexit is very real and we would be very concerned about the knock-on implications of that for our entire domestic economy, given our interconnectedness.
A survey of SFA members identified the three most negative impacts of Brexit on small firms as:
1. Exchange rate movements (48%)
2. Cost of exporting to Northern Ireland/Great Britain (39%)
3. Pricing (38%)
Some 41% of SFA members reported in November that Brexit had already had a negative impact on their firms. Some 68% expect a negative impact in the next six months. A minority of 10% think Brexit will be positive for their business.
In the negotiations that will commence shortly, the unique negative implications for Ireland of Brexit must be heard at EU level.
Exemptions must be made to State aid rules to allow our Government to give financial support to those exporting companies that have been decimated by an exchange-rate decline of up to 24%.
A new export-financing offering is an important element of Ireland’s response to Brexit, along with government agency assistance to diversify into new markets, and for innovation.
The maintenance of the common travel area with the UK is essential. Issues affecting the border with Northern Ireland and businesses who operate close to the border must be given the attention and sensitivity that they deserve.
While much of the discussion to date has focused on the exchange-rate volatility and investment confidence, it is important that our Government clearly focuses on issues in our own locus of control.
Going forward, we need Government to become obsessive about our cost-competitiveness and tax-competitiveness vis-a-vis the UK.
Our minimum wage, general labour costs, insurance costs, and interest rates are priority issues for us on the costs side, while creating a more entrepreneurial friendly tax regime, including reduced CGT and personal tax, and innovative employee share option schemes are priorities in this year’s budget.
Cork Chamber of Commerce
In the fourth quarter of 2016, Cork Chamber members reported the highest ever level of business confidence at 98.7%, yet listed Brexit as their main threat to business. This tells a story of great optimism and opportunity in a time of uncertainty.
At one recent Cork Chamber seminar on Brexit, many businesses voiced their concerns around the impact on the agri-food sector, which exports much of its produce to the UK.
There was also concern relating to the cost of the potential red tape that may be associated with the movement of goods and people into a post-Brexit UK.
Equally, there is opportunity. As Brexit unfolds, many industries such as international financial services (IFS) are looking to relocate various aspects of their business outside of the UK.
As a strong second city with a reputation as the driver of a creative, innovative, and vibrant region, Cork has a lot to offer. The Chamber has been the driver on an initiative called Connecting Cork, to amplify the IFS message in key locations such as London, Boston, and New York.
Cork already has a significant cluster in terms of IFS, including Citco, HedgeServ, Clearstream, Willis Towers Watson, and BNY Mellon who have been here for years.
We know that Cork is a top location for any IFS team and successes in this space have a huge potential benefit for the region in terms of related supply chain and services.
In a survey this month of IFS companies in the Cork area, undertaken by Cork Chamber and Cork University Business School, respondents resoundingly rated Cork’s educational institutions and skilled workforce as good or very good.
They were also certain that Cork has the ability to attract and retain top international talent, and has a superior work-life balance to other locations.
Banking and Payments Federation Ireland (BPFI)
Following feedback from our members, the Federation of International Banks in Ireland, an affiliate of BPFI, has prepared two action plans for 2017 under the IFS2020 strategy, which we have relayed to the Department of Finance for consideration.
As firms undertake strategic reviews in light of Brexit, our proposals recommend that the Central Bank ensure the necessary capacity is available to engage at the appropriate senior level in these discussions.
We have also proposed that the Central Bank establish a Brexit taskforce to provide a platform for engagement with the international banking sector which would deliver:
In addition, we have proposed that an authorisation FAQ committee be formed from the relevant entities involved in the process to ensure that, as firms undertake their initial fact-finding and business case building element of a license authorisation, their queries are addressed in a timely manner.
With regard to both of these proposals, we stressed that in order to capitalise on the opportunities as well as address the challenges posed by Brexit these should be put in place as quickly as possible.
Given the fundamental uncertainties involved, it is appropriate to acknowledge that the Government is preparing well for the impending Brexit negotiations.
Every Government decision now needs to be “Brexit-proofed” — and most are decisions that make sense in any case.
Ireland needs to aggressively confront the UK competitiveness challenge and, at the same time, position Ireland to take full advantage of the inward investment opportunities that will arise.
A major overhaul of our business tax offering is required to bring it in line with the UK. We need a personal income tax system which ensures that nobody faces a marginal tax rate of more than 50%; reform of our entrepreneurs’ capital gains tax regime; and we must also improve incentives for investment, innovation, and upskilling in SMEs.
An intense focus on cost-competitiveness is needed but we also need to ramp up public investment far beyond current plans by putting in place:
We need public services to compete internationally and thrive in a post-Brexit world.
When it comes to negotiations, we need to ensure Irish interests are protected. A fine balance needs to be struck between generous market access, while at the same time not facilitating the UK cherrypicking of EU membership benefits.
Comprehensive transitional arrangements will be needed to avoid a Brexit tariff cliff edge.
The political settlement in the North needs to be afforded a special status, along with a continued commitment to the development of the all-island economy. And the free travel area between the UK and Ireland must be preserved.
Ultimately, Ireland’s unique economic concerns need to be heard and understood and our interests safeguarded in any final agreement.
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