Irish exporters need a new business model to prosper

The fallout from the referendum will cast a shadow over Ireland’s business community for the weeks, months, and years ahead.

The most clear-cut fallout will be the end of the traditional business model for Irish exporters, which will start with the UK and once proven there move on to the wider EU, the US and global markets.

The exact pathway in exiting the EU has yet to be negotiated and already there is much jockeying for position amongst other EU member states.

Negotiations will be fraught and it is crucial that the government develops clear plans to safeguard the future of Ireland’s exporters and is very vocal in protecting these as the EU decisions are reached.

Exporters, of necessity, will have to put in place new business models to reflect the exit of a major trading partner from their free trade zone, but the nuances of the trading model will depend on what shape the UK exit takes and its relationship with the EU.

Exports of goods and services to the UK amounted to €35.7bn last year. Increased tariffs are likely on certain Irish goods entering the UK, which would make them more expensive and less competitive.

Tariff issues aside, once out of the single market the UK could potentially replace Irish goods with cheaper imports from other non-EU markets.

In particular, agri-food exports to the UK worth €4.5bn annually would decline as imports from cheaper beef and dairy markets such as South America and New Zealand, currently restricted under EU rules, gain market share.

Early action by government promotion agencies in support of agri-food exporters expanding sales in the Middle East, African and Asian markets as well as the Eurozone, will be essential to prevent those heavily reliant on the UK market from collapse.

However, the Brexit decision is not all bad news and like the curates egg may be good in spots.

England’s problems could once again be Ireland’s opportunity. The vote to leave spells regulatory uncertainty for UK drug companies, with the London-based European Medicines Agency (EMA), which approves treatments for all EU countries, expected to have to relocate.

The EMA, with a full-time staff of more than 600, is the largest EU body in Britain and has overseen pan-European drug approvals since 1995 from its headquarters in London’s Canary Wharf.

Drug companies and healthcare officials in Sweden, Denmark, Italy and Germany have all expressed interest in hosting the EMA instead of London since firms in these countries are keen to be located close to the region’s key regulator.

The Irish government needs to get itself into the game and put options for locating to Ireland as a logical choice given the English language nature of the industry and Ireland’s strong pharma industry.

The pharmaceutical industry in Ireland, with many major manufacturing companies — including nine of the 10 largest in the world, is the largest net exporter of pharmaceuticals in the EU.

As the centre of the European financial system, and with UK banks holding around one-quarter of all EU banking assets, the impact of a Brexit upon the City of London and the country’s financial services sector as a whole is likely to be meaningful. Its status as a global financial centre will very likely diminish.

Brexit has generated significant uncertainty surrounding the positions of non-EU and non-UK headquartered banks that have set up in London in order to do business in the EU.

Foreign bank branch assets represent around 30% of total UK bank assets. According to the Financial Times, the big US banks — JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley with large operations employing tens of thousands of people in the UK — are now preparing to shift some of this work to cities such as Dublin, Paris and Frankfurt.

For financial services in general, the Brexit impact on Ireland could vary widely for each type of service, and the EU’s response to the UK’s exit and the eventual deal reached between both parties will be critical.

The danger to the UK’s financial services sector was highlighted in comments on Saturday morning from France’s central bank governor who warned that banks would lose ‘passporting’ rights to operate in the EU if Britain leaves the single market.

One of the big attractions to insurers of operating via London, Lloyd’s is that it has ‘passporting’ rights into the EU. Many of the insurers who do business there say that after Brexit they will simply shift some of their business to subsidiaries within the EU, bypassing the Lloyd’s market in the process.

The London insurance market is currently the largest global hub for commercial and specialty risk — controlling more than £60bn of gross written premium.

Currently, Dublin-based global insurers write approximately one tenth of this, a situation which could change dramatically with global insurers concerned with the accessibility of the EU Single Market, which is the world’s largest insurance market with premium worth €1.4 trillion.

The foreign exchange trading market offers Ireland further opportunity in the aftermath of Brexit.

London has cemented its status as the world’s foreign exchange trading capital in recent decades and has become the biggest centre for euro trading in the world; a position it is now unlikely to retain.

Dublin would have significant advantages over other would-be claimants to the FX trading throne, including the English language and a globally convenient time zone.

However, other Eurozone countries will be pushing their case also, with a spread of the market moving to Paris and Düsseldorf, as well as Dublin.

Looking beyond the next two years of negotiation, the best outcome for the Irish export industry will likely come from the UK agreeing a deal similar to that of Norway and gain open access to the Single Market, which would mean trade in goods would be unaffected.

However, this would not apply to the financial services industry and hence the Irish financial services centre could well gain from the City of London‘s EU fall out.