Forfas urges firms to prepare for sterling swings after EMU

State agency, Forfas, has urged Irish companies to take action to improve their competitive position to cope with sterling swings…

State agency, Forfas, has urged Irish companies to take action to improve their competitive position to cope with sterling swings after we join European Monetary Union (EMU).

As part of its national information programme on EMU, the agency has issued recommendations on how firms can best reduce the competitive impact of sterling exchange rate fluctuations on their business.

In its What About Sterling? document, it advises Irish companies to consider a range of measures, including invoicing customers in euros and forging joint-venture agreements in less price-sensitive markets, to lessen the effect of a rapid fall in sterling.

The agency's recommendations are based on the findings of a study commissioned by Forfas and carried out by Ernst & Young management consultants which looked at a worst-case scenario, where the exchange rate depreciated by between 5 per cent and 15 per cent and was sustained over a two- to three-year period. It estimates that depending on the degree of sterling depreciation, between 10,000 and 40,000 jobs could be at risk.

READ MORE

Companies most exposed to such fluctuations tend to be in the traditional industries such as clothing, textiles, leather, confectionary and prepared consumer foods.

Forfas suggests that a firm which exports to Britain may be able to invoice its customers in euros, thus transferring the risk and any possible gain from sterling fluctuations to its British customers. as has urged that exporting firms should establish the acceptability of this form of invoicing with its customers as early as possible. Another option firms should consider is holding sterling bank accounts. This would allow firms exporting to the British market to offset purchases and sales made in that currency. The document also recommends that Irish firms should take out hedging instruments to guard against possible exposure, putting forward cover or foreign exchange option contracts in place.

Companies should look to developing closer relationships with their client base with a view to being part of any preferred supplier arrangement which could provide beneficial opportunities.

The document also mentions the possible advantages of joint ventures in other European markets. "The UK will remain an important market for the traditional sectors. And while that's not going to change overnight, there are opportunities for diversification throughout Europe," according to Forfas chief executive, Mr John Travers.