Exporters suffer as pound appreciates

 

THE recent rise in the pound against the deutschmark and other core European currencies has had a devastating impact on many Ireland's exporters.

Companies ranging from multinational subsidiaries to Irish firms which took the Government's advice and expanded their markets away from the UK are being squeezed.

Mr Colum MacDonnell, chief executive of the Irish Exporters' Association, has warned that many firms are facing short time weeks, layoffs and in at least one case a factory closure.

The Irish Times has talked to a broad range of exporters, ranging from an international consultancy to a textile company and a firm supplying the motor industry. All are worried.

One textile company which employs over 400 people is under severe competitive pressure. "Even without a currency squeeze we are competing against countries with high technology and very low labour costs."

For this company at least, this is the worst time since the currency crisis. It deals in sterling, deutschmarks, francs, lire and pesetas. On a basket basis, it has managed to hold all the currencies within a 1 per cent decline or appreciation since March 1993.

Until, that is, the last two months of 1996. Sterling went up dramatically, which helped a little. But the others slipped so much that the company lost out by 4 per cent on a basket basis.

"We were told to stop complaining about the weakness of sterling and go and get other markets," the managing director said. "Now we've lost 4 per cent on currency appreciation which makes it extremely difficult for us to compete. That is a huge erosion of margins in a very competitive business."

The finance director of a motor industry supplier, which is the subsidiary of a large multinational, said the rise in the pound against the deutschmark was costing the company about £2 million off the bottom line.

"The big worry is that our owner could move us or part of our operations because we are dearer than our continental friends and we always were dearer than the east Europeans. We could have done without this, it is putting us to the wall."

The chief executive of an engineering firm, which is also facing difficulties, said his European business took off about three years after attending a large trade show.

"When we went into Europe with a price list we had to price in marks," he said. "At that time we couldn't take any forward cover as we had no idea of how much business we were likely to do. Because we had to give generous credit terms, most the money was due at the end of last year. We have lost at least £200,000, or 14 per cent of our turnover."

This company is planning to hold on to the deutschmarks in a special account. "We think it can't get much worse and will have to come back," he said. "The banks are advising us to sell but we're still hoping for the best."

All the exporters who trade in Europe feel that few are taking any notice of their plight. When sterling depreciated and the small indigenous firms were hit everyone was very aware. This time round there is very little noise.

While they all recognise there is little the Central Bank can do to alleviate their situation, they still call for some sort of move. "The Bank should do whatever it can to avoid volatility," one executive said.

"We can't continue to ignore sterling and ignore what is happening elsewhere," said another. "There is also the serious point that we could be faced with a higher entry point to the single currency, which would not do anyone any favours."