And now for the good news, if such a thing can exist in relation to Brexit. Irish businesses have probably never been in a better position to withstand such a shock to their collective system.
“We have never had such a strong portfolio of client companies,” says Enterprise Ireland’s Brexit unit manager, Jonathan McMillan. “Many of them have survived the last recession and they are growing, internationalising and innovating. Brexit is catalysing them to move on to another level of development. Their focus is on that and continues to be and they aren’t allowing themselves to be distracted by the political noise. They are focusing on what they need to be doing for their businesses and we are supporting them in that with advice and other measures.”
He says Irish companies have been preparing for Brexit for some time. “They have been engaging with the critical issues. We have definitely seen that over the last six months, and activity has increased in the past few weeks. The tariff announcement by the UK government probably accelerated it. Companies are very aware of the issues and are taking practical steps to deal with them.”
This is not the case for every company, of course. "Some are further forward than others," says McMillan. "And some are now starting have to look at strategic sourcing and customs issues. There is a lot happening with Enterprise Ireland clients. We are working with them on things like customs, sourcing and financial management. The other big piece is about building resilience and strategic strengthening for life in a post-Brexit world. Companies realise that if they want to continue to grow, they will have to be even more competitive."
Export markets
Market diversification is now an important consideration for many companies. “Brexit has really been a catalyst for companies to really think about strength and resilience around export growth.”
But they aren’t about to abandon the UK market either, and many are intending to continue to grow their business there. “We have put more boots on the ground in the UK market and we have opened a new Manchester office.”
Glenn Reynolds, VAT and customs partner with KPMG in Ireland, points out that Brexit still means some quite dramatic changes for many Irish businesses. "A large number of Irish businesses, and particularly those in the SME sector, only trade within the EU single market – many with the UK only – and generally would not have the exposure or experience in trading with third countries and the additional complexities this brings," he says
“Much of the customs infrastructure and corporate knowledge of customs in Ireland gradually disappeared with the introduction of the single market in 1993”, he adds. “Thus, for many trading with the UK there will therefore be a requirement to deal with customs formalities for the first time. Figures from Revenue indicate that over 12,000 Irish businesses export goods to the UK and over 60,000 import goods from the UK. Though increasing, based on latest Revenue figures just over 40,000 businesses are registered for customs purposes with Irish Revenue.”
He advises companies to take steps to understand their supply chains and to engage with supply-chain partners. “Familiarise yourself with general customs compliance requirements and possible VAT rule changes,” he adds.
“Register for a customs Economic Operators Registration and Identification (EORI) number with Irish Revenue; this is the minimum customs requirement for trading with third countries. Understand what tariffs may apply to goods imported into Ireland or exported from Ireland to the UK.”
Newton’s third law
John O'Loughlin, PwC's supply chain and country partner with responsibility for global trade and customs utilises an analogy from physics to describe the impact of the potential customs changes. "It's a bit like Newton's third law of motion: every action has an equal and opposite reaction. When the UK becomes a third country it places obligations on both sides. We have two hard borders with the UK already – at Holyhead and Dublin Port. They have all the facilities in place for trade with third countries."
But those facilities are going to come under severe pressure. “Up until now there have been 1.6 million import and export declarations made each year in the Republic of Ireland,” he says. “It will be more than 20 million post Brexit. For a driver to get out of Dublin Port, they will have to lodge a customs declaration. This comes at a cost. It’s another non-tariff barrier. Once lodged you get a green light to go through, an amber light for a documentary check or a red light for a physical inspection. Only 6 per cent go amber and 2 per cent go red, but they will be percentages of 20 million so you can see the potential for delays.”
Customs duties and tariffs aren’t the only issues, of course. Another key area relates to strategic sourcing, according to McMillan. “Companies need to take a number of steps”, he advises. “They should map their supply chains to see where goods are coming from and what comes from the UK or through it. That’s a really critical piece. They need to start segmenting the supply chain as well. Not every product is absolutely strategic, and delays might not be an issue for some of them. Companies need to identify the potential bottlenecks and strategic critical areas.”
Alternative sources
Once that process is completed, he advises companies to engage with their strategic suppliers to discuss issues such as supply routes and customs classifications. After that, they may have to take strategic decisions to secure alternative sources.
“Companies also have to deal with currency and financial risk,” McMillan adds. “They may experience cash-flow difficulties as a result of customs delays and tariffs. Currency volatility is a big area to focus on. How do you manage currency risk, working capital and cash flow? We have been providing advice on these issues.”
And there is a silver lining at the end of all of this. “The investment companies are making in preparations now could lead to strategic strengthening regardless of what happens in relation to Brexit.”