The economic and political uncertainty surrounding Brexit has been non-stop since the referendum in the UK in 2016 and there is very little sign if any of the uncertainty dissipating anytime soon. Predictions of Brexit trade-related risk exposure are in the region of 10% of GDP. Estimates of this level are not surprising, given our long history of trade and business links to the UK.
There is no doubt that Brexit, whatever its final outcome, will impact small businesses, but the impact is and will be different for different businesses. Businesses that trade with the UK will potentially be affected by currency fluctuations, trade tariffs and new regulations.
For some businesses, supply chains will be affected - for example, businesses that source products, components or services from the UK. Irish small businesses are likely to be disproportionately affected by a shock to supply chains as they comprise the majority of importers in certain sectors.
While some businesses do not have direct links with the UK, they will be affected by any contraction of the Irish economy in the aftermath of Brexit. There is evidence that Irish consumers are already predicting difficult times ahead. The uncertainty caused by Brexit will also be an obstacle for potential start-ups. Exporting to the UK usually serves as a great training ground for new businesses and entrepreneurs.
The uncertainty caused by Brexit is already impacting how small businesses in Ireland do business. Usually, in boom times, businesses invest and expand, but Brexit is already adversely affecting business confidence and investment. As Ireland’s economy continues to grow, some financial bodies are reporting that one in three SME’s have either postponed or cancelled investment plans due to Brexit. Investing in innovation and technology is important for growth, and so delayed investment and barriers to innovative activities in small businesses will have knock-on effects.
The economic impact of Brexit is negative, for both the UK, Ireland and the rest of the EU. For the UK, any trade arrangement reached after Brexit – barring full membership of the EU trading bloc, which the UK has ruled out (for now!)– will be less favourable than current arrangements. Economists have said that any new trade opportunities that the UK agrees elsewhere in the world will not make up for losses in trade with the EU.
For Ireland so far the main short-term impact has been a weaker sterling exchange rate, which is great if you’re going to the UK for a weekend break or to buy import a new car for example but bad if you’re an exporter to the UK market.
The tourism, food and drink and retail sectors are the ones most impacted so far.
To conclude, the three main concerns among businesses in the event of a hard Brexit are that trade with the UK would be less profitable, Irish customers would spend less and there would be a wider economic downturn in Europe.
How did we get here?
The UK voted to leave the EU in June 2016 by a majority of 51.9 to 48.1 per cent. This set the UK on course to leave the EU, but left all the details of its exit still to be decided. The timetable was set the following March, when Theresa May took the formal step of triggering Article 50. Under the two-year process the UK was due to leave the EU on March 29th, 2019 but that date was postponed for a number of weeks following a European Council meeting on March 21st and as a result of the latest Emergency Summit has now been extended again until October 31st
The talks between the UK and EU started in June 2017 and focused on the details of the UK’s withdrawal, which must be set down in a formal, legal agreement. Outline agreement was reached on what the UK will pay the EU after departure – the so-called exit bill or divorce bill – and on the mutual recognition of the rights of UK citizens in the EU and EU citizens in the UK.
In November, agreement was also reached on a backstop for the Irish border, a way to provide a guarantee that there be no hard border on the island of Ireland no matter what future trade arrangements are agreed. This cleared the way for a draft withdrawal agreement and final talks on a political declaration outlining the principles for future negotiations. This draft needs to be ratified politically by both sides. The process was subsequently thrown into crisis after Theresa May failed on a number of occasions to secure support from the House of Commons for her deal. Cross party talks have now begun to try to find a way forward to pass the withdrawal agreement.
If the withdrawal agreement is passed, a so-called transition period, a kind of standstill in current arrangements, would apply from the leaving date until December 2020, or 2022 if it is extended. This is to allow future trade arrangements and the wider on-going relationship between the EU and UK to be negotiated.