Professor Michael Curran
By Professor Michael Curran
Brexit has created unprecedented market uncertainty and potential trade tariffs have corporations in the UK looking for an exit strategy.
For many, that exit has come closer than many expected – just on the other side of the Irish Sea in the Republic of Ireland.
Companies are seeking to move operations and jobs South, from Northern Ireland, or west, from mainland UK to Ireland to access to the single market of the European Union.
Sign up to The Irish Echo Newsletter
An educated, English speaking workforce has attracted multi-national companies to Ireland over the last decade, proving Ireland to be a fertile, stable business environment.
In fact, right now, economic policy uncertainty in the UK is currently twice as high as it is in Ireland.
According to Manufacturing Northern Ireland, more than 100,000 UK businesses have registered companies in Ireland since the Brexit vote last year – a first step toward moving business operations.
Much of this upheaval is felt in the financial services sector. Many of the institutions who have helped establish London as a global financial center are contemplating moving to Ireland.
Just last year, Credit Suisse established an office in Dublin and is now considering applying for a full bank license in Ireland, so it can transfer jobs from London, in order to maintain access to EU clients and markets.
In the days after Prime Minister Theresa May formally triggered the mechanism to leave the EU, JP Morgan subsequently began talks to acquire office space for over 1,000 workers in Dublin.
This trend extends beyond just financial services. One of the largest pharmaceutical manufacturers in Northern Ireland, Almac Group, which employs 2,600 workers, decided to build a new factory in the Republic of Ireland two weeks after the Brexit vote.
But the news isn’t all good for the Irish economy. Market volatility and political uncertainty are curbing the potential boon for Ireland.
Many Irish industries, particularly agriculture, stand to suffer with the UK no longer in the EU. If the negotiations with the EU go poorly, trade with the UK will be subject to the World Trade Organization’s Most Favored Nation rule. In this case, the future may be bleak for some companies.
One Irish company that may lose from a hard Brexit is Dairygold, the dominant Irish exporter of cheddar cheese to the UK.
Approximately one third of the 1.2 billion liters of milk Dairygold collects is used to produce cheddar cheese for the UK market.
With the World Trade Organization’s rule, the tariff on dairy exports to the UK will jump to 16 cent per liter, making trade unprofitable with the UK.
As Dairygold is only sold within Ireland and the UK, this could spell doom for one of Ireland’s premier cheese mongers.
While the election of Emmanuel Macron in France has provided needed stability in the EU and the euro area, political jockeying and the minority government in the Republic of Ireland prevent it from fully preparing for Brexit and taking advantage of the influx of potential businesses and jobs.
To ensure Ireland has the best shot and attracting the maximum number of corporations fleeing the post Brexit UK, both the public and private sector must act.
It is vital the Irish government withstand pressure to increase public spending and reduce taxes too drastically during this period of economic growth.
By planning for the future in this way, Ireland can help maintain a buffer and insure the country against the likelihood, strength and duration of the next economic downturn.
This signals Ireland is bolstering its business environment for the long term, making it an even more attractive prospect.
Further, Ireland must prepare its business and government agencies for post-Brexit markets. This is particularly important as only one in ten companies were found to be prepared for Brexit in a recent poll.
By establishing public/private teams to conduct Brexit risk assessments across and within industries Ireland can further demonstrate to business that it is ready and willing to take on this new mantle in a post-Brexit world.
If Ireland can act now to take full advantage of Brexit, the future of the Irish economy could reach new heights. While the UK continues to look inward, the Republic stands to take on a newfound leadership role in the EU and global marketplace, leading to a more prosperous and influential Ireland.
- Michael Curran is an assistant professor of economics at Villanova University