Cork business finds itself on the Brexit frontline
At this stage it would be understandable if Cork businesses were, like the general public, suffering from Brexhaustion.
The deadlines and red lines come and go, but there is a sense now that the UK will leave the EU at Halloween.
The recent Conservative Party leadership campaign has created a situation where Boris Johnson must plough ahead. He has obviously decided that the only way to save his party is to jettison the UK economy to a no-deal Brexit.
A UK general election in the autumn, having delivered Brexit, will neutralise much of the threat from the Brexit Party. In fact, leaving without a deal is probably the best outcome if that is the British Prime Minister’s strategy.
There will be more and more speculation and analysis of the political tactics and schemes as the October 31 deadline looms closer. While the slow moving Brexit train wreck holds a morbid fascination, Cork businesses are facing the bitter reality of the UK’s disappearance behind tariff barriers.
While we lack detailed information on the composition of business sectors in the Cork region, the concentration of agri-food and tourism businesses suggest that many Cork businesses are on the Brexit frontline.
Even Cork-based multinationals and indigenous high-technology manufacturing businesses will not be immune to the impact of UK trade barriers. The degree of their exposure will depend on the nature of the supply chains of which they are members.
International trade is far more complex than the simple view put forward by Brexiteers. Often intermediate products are exported between countries, processed and imported back to the original country as finished goods. Brexit poses risks to those supply chains.
The introduction of tariffs will raise the cost of intermediate inputs sourced from the UK, reducing the competitiveness of finished products from Ireland in all of its export markets.
In addition, as was spelled out in the UK government’s Yellowhammer report on Brexit plans, supply chains are likely to suffer substantial delays where they rely on the UK land bridge. This report highlighted that disruption to channel crossings will last at least three months, with delays for trucks of over two days at ports.
There are reports of warehousing in Cork, and elsewhere in Ireland, being full to capacity with stock in anticipation of supply chain disruption.
In addition to higher costs and disruption to supply chains, the weakness of sterling will also push up the cost of intermediate supplies from the UK, increasing the cost of final goods.
There is scope for sterling to weaken even further from the current record low levels against the euro. Indeed, a weaker sterling is one of the best hopes for the UK economy to avoid a prolonged deep recession.
Irish exporters can only hope that a no-deal Brexit is already priced into the exchange rate, and that the steady move towards parity stalls.
Sterling has fallen in value by about 10% since May. Considering a longer period it is clear that Irish exporters to the UK have been struggling for some time. At the end of 2015, months before the Brexit vote, one euro bought 70p sterling. Since then the pound has weakened to trade now at over 90p.
In practical terms that means that Irish businesses’ revenue from UK sales has fallen by almost a third in value in under four years, simply due to currency changes.
A further collapse in sterling after a no-deal Brexit would put unbearable pressure on many Irish exporters to the UK.
These exporters are typically small and medium-sized businesses in agriculture and food sectors or in basic manufacturing. Such businesses are well represented in the Cork region. These businesses tend to be narrow margin businesses and rely on the UK market because of a lack of resources to strike out in more distant markets.
The decline in sterling also has implications for the tourism sector, which is an important employer in the Cork region. According to Bord Fáilte, Britain accounted for just under 30% of tourists to the south-west region, which represents close to 700,000 visitors.
The number of visitors from the UK to Ireland has not grown in recent years. The decline in the value of sterling is a contributor to this as holidaymakers see the money in their pockets not going as far.
Hopefully for Irish businesses, once the UK leaves the EU and a general election provides some stability in government there will be an early attempt to secure a trade deal. Such a deal will not be easy and will first need to resolve the issues that seem intractable now.
But it will happen sooner or later. The risk for Cork businesses is that the damage done by Brexit in the meantime will be hard to undo.
