The public “don’t always take referenda very seriously, or think about the consequences” – Enda Kenny to David Cameron (Connelly, 2017:13) On the 23rd June 2016 the United Kingdom (UK) voted to leave the European Union (EU) a decision many thought couldn’t happen for sanity reasons and the level of unknowns it presented. The decision by the British public has implications for all of Europe, none more so than Ireland. This essay will begin to unravel this decision in relation to the Irish economy. Coming out of a decade long recession Ireland simply can’t take the hit with the level of National debt possessed and when our recovery depended on both Ireland and the UK being in the EU single market according to Connelly (2017).
Following almost a decade-long recession the Irish economy has recovered well, albeit not completely unscathed, Ireland was recently announced as 8th best-performing economy moving into 2018 (World Economic Forum, 2018). The report attributes success and growth in Ireland’s strong performance in Growth and Development which includes overall GDP, employment and healthy life expectancy. Ireland also performs above average on Intergenerational Equity and Sustainability, driven by relatively low carbon emissions, strong human capital investment, and low levels of environmental damage. This follows a decade long recession from the indulgence of the Celtic Tiger. A favourable business climate now, coupled with tax increases in the form of levies, pension payment and a moratorium on employment in the recession means Ireland has drastically decreased its public-debt level by 43% in five years, this has also lent a hand to the recovery speed of Ireland (World Economic Forum, 2018). Despite a large reduction in disposal income from varying tax deductions in the recession, the Irish Governments’ borrowings to continue public spending throughout the recession meant money was flowing through the economy, even if at a much lower rate. Nevertheless, and despite growth, prosperity and a steady economy, Brexit is a massive threat to Ireland. While the Irish economy is experiencing strong growth, it is at a critical crossroad with the challenges of Brexit presenting far reaching implications for Ireland across a range of policy areas including trade, investment, the labour market, and energy (National Competitiveness Council, 2017).
The impact also extends into the imminent structural shift in the UK’s trading relations with the EU, even if the border issue is resolved between Ireland and the UK in negotiations through the Good Friday Agreement, the border between the Republic and Northern Ireland will remain a border between the EU and Britain (Connelly, 2017). Chaos, collapse, recession and increased unemployment by 800,000 was predicted post Brexit but hasn’t presented itself. Yes Britain has slipped down the GDP ranking tables with the United Kingdom placing 21st among advanced countries in this year’s IDI, but still not to the extent that was predicted. (World Economic Forum, 2018) According to The Economist (2018) this can be attributed to a number of factors, the uncertainty that preceded the Brexit vote has fizzled out as the leave voters got what they wanted in leaving the EU so they believe there is no need to rein in spending, while for remain voters the reality of Brexit is some way off. The vote on Brexit also coincided with an upswing in the global economy that Britain as been swept up in. However as Brexit nears closer the uncertainty may rare its head again. In the words of political commentator Johnny Fallon “The less Brexit harms Britain the better for Ireland”.
(The Economist, 2017c) While some in Europe would like to see Britain fail following Brexit, for Ireland that would be too detrimental a sour grape to wish for. Analysts believe the damage of Brexit to Irelands food and agribusinesses far outweigh any positive impacts on high-tech FDI. Following Brexit the FTSE 100 went into freefall immediately, plummeting 8 per cent wiping £120 billion off the value of the 100 biggest UK companies, as a result shares in Irish stock market were 9 per cent lower highlighting the sensitivity of the Irish economy to Brexit. The relationship between the UK and Ireland in the EU goes beyond a single market relationship and into a membership decision-making level. On a number of issues the UK and Ireland have a consensus opinion which has formed a voting block.
Without the large influence of the UK in European Union votes Ireland may lose out. This reared it head on 31st August 2016 when Ireland’s relationship with the European Union was thrown into the spotlight with the announcement that Apple had benefited on a tax deal to the sum of €13 billion explores Connelly (2017). Ireland and the UK were extremely close on key issues involving the single market and taxation, the exposure of the Apple deal left many in Brussels turning a headlight on Ireland Corporate taxation rate and level of multinational Headquarters. This also left Britain rubbing its hand together with a clear example of the control that EU is trying to have over individual sovereign nation’s governments control. According to O’Gorman and Cooney (2007) throughout history the two key features of Irelands industrial development were the significance on Foreign Direct Investment (FDI) and secondly the high exports ratio among foreign owned companies in Ireland. The European Union is shining a light on the foundation of the Irish economy and Ireland no longer has its British counterpart, or its voting block.
The Economist (2017a) describes Irelands dual-economy as a ‘modern’ capital powered by Foreign Direct Investment and ‘traditional’ food businesses that looks to the British market. While the entire Irish economy will be impacted by Brexit, some industries and sectors are more exposed than others. Taylor (2017) states that the five industries impacted the most by Brexit in Ireland are pharmachem, food and beverage, traditional manufacturing, materials manufacturing and electrical equipment. According to a special analysis undertaken by the Department of Finance these most exposed sectors employ 94,000 people. This essay will focus on two industries that will be impacted in the long-term and short-term that fall into both categories; our ‘traditional’ food products of Food, Beverages and Agriculture, and secondly our ‘modern’ capital of the financial and tech services industry.
Both industries are affected due to a number of fundamentals factors but Connelly (2017:83) states that while many sectors would enter the Brexit debate with the UK, the sector that would dominate the debate would be the food sector. Firstly the food, beverages and agricultural industry is mostly concentrated outside Dublin in the regions, they are also largely SME’s with low profits which contributes to its sensitivity. At the company level, there are some additional attributes that seem likely to be associated with high degrees of exposure to Brexit. Companies with particularly high levels of export or import-dependency in the UK market relation to their competitors are likely to be hardest hit. Annual exports in goods and services with the UK amount to about €34 billion, or 17 per cent of Irish exports, thus the UK remains the biggest single market for Irish exporters.
Net Exports in the Food, beverages and agri business is a two-fold issue, on the one hand there is a massive issue with imports and exports purely in relation to land and secondly in relation to currency fluctuations. This was immediately evidenced by the loss of 70 jobs in one Tipperary mushroom plant, followed by four other mushroom producers in seven months (Connelly 2017). With contracts negotiated in sterling the stronger the British pound the better for exporters, however crippled with the already small profit margins of these mushroom growers and the drop in sterling, small margins were slashed to the point of business closures. Another factor possibly overlooked in many respects in relation to the food sectors with the majority of the debate circling around the strong emphasis on import-export and the exposure to currency fluctuations, is food standards. As a result of devastating scandals in animal-health including foot and mouth, horse-meat turning up in burgers and bird flu, the food standards across the EU have tightened up drastically (Connelly, 2017). As it currently stands within the single market of Ireland and Britain, all food products must comply with the same rules and standards, however post-brexit the UK will have their own standards and regulations, therefore all food produced over the border in Northern Ireland will be checked by Irish Department of Agriculture, Food and the Marine. Any delays may drastically impact on these perishable goods.
Secondly Connelly (2017) explores the threat of cheaper meat products from countries with lower standards. If the UK sign new single trade agreement with other countries with lower standards now, they will be cheaper in prices stance than Irish competitors, also they may not comply with Irish food standards when crossing the border impacting on supermarket chains operating in the whole island of Ireland. The only conciliation may lie with the UK publics confidence in these low standards, although lower prices may overrule. This bilateral trade between Ireland and the United Kingdom is now worth over €1 billion a week, and economies of scale means that its affordable for companies to have two processing plants on the island (Department of Foreign Affairs and Trade, 2017). This fact resonates especially for Ireland’s most famous product – Guinness. Although the Guinness brewed at the St James’s Gate brewery in Dublin is shipped all over the world, its first point of call a transportation to Northern Ireland in tankers that have become known as “silver bullets”, to be canned and bottled in East Belfast before returning to Dublin for export. Diageo, the multinational company that owns Guinness, says that these silver bullets make some 13,000 border crossings a year. In company own estimates, even a short delay for theses customs checks by Irish Department of Agriculture, Food and the Marine could add €100 to the expense of each trip, costing somewhere close to €1.
3m a year (The Economist, 2017b).As shown the impact of Brexit to the Irish food, beverages and agri-sector is astronomical for both SME’s and some of Ireland largest companies, and employers, across all supply-chain actions, currency and border controls. Much of the post-Brexit exports talks have focused on the goods sector, not to be overlooked is the €23.5 billion services exported in 2015 to the UK market from Ireland (Connelly, 2017). As shown earlier, O’Gorman and Cooney (2007) looked at Ireland reliance and emphasis on FDI, this service industry has now become a massive employer in Ireland and contributor to our GDP.
We are staring at uncertainty in trading with London, international multinationals and Europe in an sector we rely heavily in our ‘modern’ capital. As stated earlier we lose a voting partner in one of our biggest attractions to these large corporations, our corporate tax. Our membership with the European Union has also opted Ireland into the new Net neutrality laws which will govern the single digital market, under EU law, the blocking or throttling of traffic by ISPs is prohibited, subject to reasonable traffic management.
A Deloitte (2017) report states that in some scenarios, EU law on net neutrality could cease to apply in the UK, allowing the UK government to adopt different rules. This also extends to intellectual property were UK’s obligation to adopt and comply with that legislation will cease on a Brexit. This bring up more uncertainty in another sector of importance. Again Brexit renders uncertainty on the Irish Community and Voluntary Sector for which employed. Finlay (2016) expresses the challenges of Brexit to the Not-for-Profit sector as two spectrums: on the one hand it presents economic affects to organisations and secondly the social impact that social services need to support and advocate.
Following Britain’s vote to leave the EU many became to questions the success of the leave campaign as the world tried to understand the mindset of leave voters, was it economic or social? In Connelly (2017), Dara Murphy, Ireland’s Minister for European Affairs, recalls an event 10 days before the vote of the 23rd June 2016 where questions and concerned circled around the issue of social exclusion, immigration and access to the workforce of Britain citizens own children. These fears and emotions of social exclusion is the very purpose of social services in the Community and Voluntary Sector as a global movement; Brexit in UK, Trump in USA and the right-wing, anti-immigration Swiss People’s Party (SVP) election in Switzerland, suggest a shift in peoples mind, one that, if ever presented in Ireland, will be addressed through advocacy by social sector. In order to provide these services the Irish Community and Voluntary Sector acquires funding. Brexit may affect not-for-profit financing in relation to donations (individual and corporate) and structural funding.
Kaplan (2011) looked at the blurred lines and new hybrid models of business where companies don;t fit cleanly into convenient sector buckets. We now see for-profit social enterprises and non-for-profits with profit-divisions, time and time again we see these into threat in economic uncertainty. Finlay (2016) states that with the adverse effect on trade, people’s income and ability to donate not-for-profits may be negatively impacted raising concerns for fundraisers. The impacts also extend into structural funds, while there amy be increased opportunity for EU Structural Funds as competition for grants from UK is significantly reduced, many Irish organisations accessing EU funding have British partners. Brexit also means that UK charities are no longer under obligation to adopt Europe’s strict data protection rules putting UK charities at an advantage over Irish charities.
The situation at present is that the EU encourages cross border giving and as long as an organisation meets the requirements to be a registered charity in the jurisdiction where it resides, then it should be able to benefit from tax effective giving across Europe, one that the UK will not be subjected it which may encourage international donations towards the UK. In conclusion….Similar to the many political questions along the way, the economic impact of Brexit on Ireland remains relatively unknown in figures. While it is clear the impact will be significant, almost to all industries and sectors, not simply those referred to in this text. However, overall, in the words of a British Official when questioned on the border and custom union issue after the first meeting with Enda Kenny and Teresa May, for now the many questions on the impact political, socially and economically will continue to respond “We don’t know, We don’t have an answer”.