At this stage, it’s difficult to predict the potential impact for Irish business but what we can state with some confidence is that the UK operating outside the EU would add complications and costs to the supply chain, and inhibit movement of goods across our borders.
The ESRI has estimated that the negative impact on trade between the UK and Ireland could be as high as 20%, which would have a significant impact on both economies – especially on the Irish economy.
Small and Medium Enterprises (SMEs) with a higher proportion of trade with the UK would feel a greater impact than larger companies, who tend to have a more diverse range of export markets, and are therefore less dependent on the UK as a destination.
The severity of the consequences of Brexit is also likely to differ by industry. For example, the pharmaceutical and medical devices sectors, who historically have a significant Foreign Direct Investment (FDI) are not as reliant on the UK as they have a wide range of both EU and non-EU export markets.
In contrast, the Agriculture and Food & Drink sectors – are more dependent on the UK as a market, so the impact of a Brexit on these sectors would be much more significant.
According to a study by IBEC, the UK accounts for over half of all meat exports, valued at close to €2 billion and 30% of Irish dairy exports, valued at close to €1 billion. The UK is also an important market for ingredients and prepared consumer foods, accounting for 70% of exports in this sector.
A UK exit would mean Irish businesses would need to apply EU regulations but may also have to shoulder the cost of applying separate UK regulations. Customs and other procedures are also likely to become more onerous for exporters to the UK in comparison to current trade agreements.
Opportunities for Irish business if the UK leaves the EU
British exports to the EU could see a decline, which would provide a potential opportunity for Irish companies to offer similar substitute products.
A UK exit could see the value of the pound against the euro decline. This will have some implications for Irish exporters to the UK, potentially making their prices less competitive to UK consumers or retailers. A drop in the value of sterling, along with additional trade barriers, could put some Irish businesses at risk. In order to mitigate this risk, Irish businesses (in particular SMEs who have less product market diversity) should look to expand their market base to international markets.
Trading exclusively with the UK?
The EU would be the next logical step in terms of expansion. Operating as a single market, the 28 countries that make up the EU represent a major world trading power. With just 7% of the world’s population, the EU accounts for 20% of global exports and imports. 18 of the 28 EU countries operate within the Eurozone, so there’s no exchange rate risk.
Also, don’t forget the EU operates as a single market, so for the vast majority of goods and services there are no Customs or regulatory restrictions. Irish exporters therefore have unfettered access to the 500 million consumers within the EU.
Irish businesses may have to learn to compete in different ways outside of the UK market and to make best use of all resources available to them in order to hold their own on the world stage. However, with good planning, a well-designed supply chain, a clear understanding of their competitive strengths, and the right mind-set, Irish companies can mitigate the potential risks associated with the UK leaving the EU. Voting will take place on June 23June 2016.
For more information on DHL Express Ireland, visit www.dhl.ie/express