Brexit – Are we doing enough to prepare ourselves?
Following David Cameron’s successful return to No.10 Downing Street in the recent UK General Election, the possibility of a UK exit from Europe has been put to the forefront once again with the Prime Minister confirming the Conservative Party’s commitment to an “in/out” referendum on EU membership.
Economic developments in the UK affect Ireland to a greater extent than developments in any other EU state and one could say than in any other country in the world. We are all very aware of the strong ties at a familial and cultural level that exist between our two countries, but most significantly with over €1bn of bilateral trade per week and strong link ups in key sectors like food and drink, financial services and energy, the two economies are unbillically connected.
The importance of the UK as an export market for Ireland cannot be underestimated.
The Irish economy grew by an estimated 5% in 2014, assisted by positive economic growth in two major trading partners, the UK and the US, a competitive euro exchange rate and strong growth in inward foreign investment.
The UK is our largest export market, with goods and services exports totalling €30bn in 2014 – 17% of total Irish exports. The UK ranks as our no.1 market for services exports and no.2 for goods exports at €16.5bn and €13.4bn respectively in 2014.
As a nation of SMEs, the UK is the natural starter market for first time exporters. We have the same language, and a similar business culture and legal system.
As important as the UK market is to Ireland, Ireland is also a significant trading partner to the UK.
But it isn’t all one way. The fact remains that Ireland is the UK’s 5th largest export market for goods. Ireland has been the UK’s top destination for food and drink exports and for fashion clothing and footwear for some time.
The UK is also a nation of SMEs and Ireland is seen within the UK as one of a handful of ideal first step markets for UK exporting companies. This is particularly the case for first time exporters.
Our importance to the UK was underlined by the UK Government’s agreement in 2010 to provide Ireland with a bi-lateral loan of £3.2 billion. The loan was provided because it is in the UK’s national interest that Ireland has a successful economy and a stable banking system.
The potential consequences for both countries
The British prime minister has promised to redraw Britain’s ties with Europe before a referendum by 2017.
The consequences for the UK are potentially enormous, without a separately negotiated trade agreement with the EU, the UK could face increased tariffs, customs and visa controls in trading with the EU. The potential consequences for Ireland without a separately negotiated bilateral trade agreement between the UK and Ireland, which as a member of the EU makes it difficult for us to negotiate unilaterally, are also potentially fairly large. Besides the downside risk to GDP, the mechanics of exporting would become more difficult. A border between Ireland and Northern Ireland, and the imposition of border controls, customs and potential visa controls would inevitably slow business down and increase the cost of doing business.
What can be done?
There are three critical things that we must do.
It is of vital importance that the Irish Government start to develop a plan of action to prepare for the possibility of a so-called “Brexit”. It may not happen but it is of critical national importance that we are prepared for the possibility. Scenarios need to be developed assessing the impact on the Irish economy of a possible UK exit from Europe and appropriate action plans prepared.
It is vital that both governments collaborate to develop a strategy to secure the important bilateral trade between us in the event of “Brexit”. The Joint Statement issued by the Taoiseach and Prime Minister in March 2012 laying out a vision of closer bilateral cooperation between Britain and Ireland over the next ten years has put in place a methodology for closer dialogue between the various respective government departments of each country.
Finally, far be it for one sovereign state to interfere in the politics of another, however there are other ways to have influence. For instance, there are over 45,000 Irish directors of UK companies and a host of Irish and British companies have significant investments, employing hundreds of thousands of people in each country. We must ask ourselves as a business community what we are doing as a shared business diaspora to shape public debate across both islands on what is probably the most economically significant question of our time.
Simon McKeever, Chief Executive, Irish Exporters Association and Former Director of UK Trade & Investment Ireland