This guest post is courtesy of Lucinda Creighton, former Irish Minister for European Affairs and founder of Vulcan Conuslting an advisory company which provides in-depth analysis of the changing regulatory environment for business, flagging major changes and providing expert strategic advice to companies on how to anticipate and influence change in the European Union.
Brexit and the future implications
Many theses and books will be written about Brexit in the coming years. It is, quite literally, the largest self-inflicted political and economic shock experienced in Europe since the Second World War. Unfortunately for us on the Emerald Isle, we are affected more than any other EU memberstate, with the obvious exception of the United Kingdom.
The main problem for the foreseeable future is that the only certainty facing the UK and by extension the Irish economy, is uncertainty. The process of negotiating the UK’s way out of the Union will not even begin until next year. New Prime Minister Theresa May, and her newly appointed ‘Minister for Brexit’, David Davis, have both said they do not intend to trigger the Article 50 process to leave until the end of the year. In reality, it is unlikely that this will happen until the autumn of 2017 (if ever), due to domestic political challenges, most particularly in Scotland and Northern Ireland, which so far have received very little attention in Whitehall.
Preparing for a new trading relationship with the UK
The difficulty for Irish businesses which are trading with UK based companies is that the nature of any new trading relationship between the United Kingdom and the European Union (and by extension Ireland) will not become clear for a minimum of three years, and in all probability, for a much longer period than that. In the meantime, all that Irish companies can do is brace themselves and prepare for currency volatility, while building into their future plans the possibility of new tariffs,and the potential cost of added customs controls and bureaucracy.
The prudent thing that every company exporting to the UK must do now is establish their level of sterling exposure and how it impacts on their overall balance sheet. This will require a detailed review of sterling contracts and how they are affected by different exchange rate levels. Companies should also weigh up future contracts in sterling. All possible means of scenario planning for different currency exchange rates is essential.
In addition, it is advisable to begin evaluating routes to market and the potential impact of trade barriers, as well as the impact of new customs admin and cost implications. If currency exposure is likely to impact on your company then cost cutting will be necessary. In that instance, management should focus on production, distribution and sales for efficiencies. Companies with production plants located elsewhere in the EU may consider locating production plants in the UK for the UK market. They may also consider buying from UK suppliers rather than other EU suppliers in order to lower costs.
Depending on the nature and scale of Irish of businesses trading with the UK, other issues will need to be considered. For example, if the UK exits the EU fully, the UK and Ireland Common Travel Area will no longer exist, unless the UK accepts Free Movement of People. This would have implications for recruitment of UK talent – work permits will be required etc.
Implications for regulation
Another issue which is becoming increasingly important for Irish business is data protection. 2018 will see the introduction of EU General Data Protection Regulation (GDPR). The UK may not now participate in the new Regulation. This could present a real risk for Irish companies with data stored in the UK, in which case it would be advisable for Irish companies to pursue risk mitigation plans for stored data – perhaps looking to Irish data centres as an alternative
As time goes on, and Irish businesses become more familiar with the many issues that arise from the potential exit of the UK from the EU, inevitably more legal, regulatory and cost issues will come to light.
Companies should make use of all state resources available to them, for example Enterprise Ireland have expertise and are willing to help Irish companies identify and access new markets so as to reduce their heavy dependence on the UK market. Seeking advice on all of the challenges that lie ahead is the smart thing to do.
Lucinda will be speaking in more depth about Brexit as part of our expert panel at this year’s EXIM Summit, for more information on the summit and tickets please visit – www.eximsummit.com