A Special Report is content that is edited and produced by the Special Reports unit within The Irish Times Content Studio. It is supported by advertisers who may contribute to the report, but who do not have editorial control.

Brexit poses cross-border trade challenge

Businesses both North and South need to start planning now

Up to 96 per cent of businesses are without a Brexit plan. Photograph: iStock

Up to 96 per cent of businesses are without a Brexit plan. Photograph: iStock

 

The imminent departure of the UK from the EU leaves businesses on both sides of the Northern Ireland border trying to figure out exactly what that will mean for trade.

That no clear picture has as yet emerged is not only down to politics. It is also down to the surprisingly perky economic performance turned in on both sides of the border since the Brexit vote took place.

“The economy has continued to be very buoyant,” says Aidan Gough, strategy and policy director at InterTrade Ireland, the cross-border business development agency set up under the Good Friday agreement.

Challenges, however, are starting to emerge. “Companies in Northern Ireland are starting to see costs increase, both in overheads and through the supply chain, which are indirectly linked to Brexit because sterling has fallen,” he says.

Some sectors, such as food processing and the recycling sector, are beginning to report difficulties attracting and holding on to the European labour on which they depend. Much of that is also down to currency, but uncertainty over the future is an issue for migrant workers too.

Despite this, up to 96 per cent of businesses are without a Brexit plan. “They say how can we plan, when we have no idea what Brexit is going to look like,” says Gough. But if no one as yet has the answers, there are clear questions senior managers need to ask of their business.

Tariff increases

Tariff increases and delays in customs will impact on business costs. InterTrade Ireland predominantly works with small businesses operating on very tight margins – 85 per cent of them on margins of less than 10 per cent.

If a business has to get a Rule of Origin certificate, even at a discounted cost of £24 for Chamber of Commerce members, and does 100 deliveries a day, that works out at £700,000 (€789,325) extra a year in costs, he points out.

“So if you are a small business, you really need to plan for this. If you operate on a just-in-time basis, for example, you need to ask what impact customs delays would have on your business. And you need to ask about VAT. Rates may not change but the speed at which you can get VAT back might change. What impact would that have on your cash flow?”

Brexit poses an existential threat, so it behoves business owners to prepare for all eventualities. He is optimistic they can.

“These are entrepreneurs. In asking the questions they will come up with solutions and even new opportunities,” says Gough.

Gaps in preparedness are emerging too, however. Large companies, particularly PLCs, and those driven by regulation, such as pharma and financial services, are “running scenarios and putting contingency plans in place”, says Johnny Hanna, partner and head of tax for KPMG in Northern Ireland.

Others are considering how long they have before they have to “up sticks and move, to actually push that button,” he says. “There is only so long they can wait, probably as far as March, but businesses need clear timelines.”

Smart companies on both sides of the border are looking around, spotting opportunities, diversifying and opening up new markets, says Hanna.

Currently, some £14.5 billion worth of goods are sold by Northern Ireland into Great Britain each year. That is four times the value of sales from Northern Ireland into the Republic. “But the additional issue is that a significant amount of sales that go from NI to GB, travel across the [Irish] border first, sometimes multiple times, because of how highly integrated the supply chain is here,” says Hanna.

Whatever kind of border emerges, and wherever it is placed, it will cause difficulty for traders on both sides of it. “Most businesses have no memory of dealing with a border, so they have no idea what they are facing into.”

The additional problem for SMEs, which are typically already stretched, is finding the resources – time, money and manpower – it takes to devote to Brexit planning. “There is an understandable inertia. SMEs are sticking to the day job. The big issue facing them is how much time and cash do they devote to a Brexit insurance policy that they hope not to have to put into action. It’s the big conundrum they face.”