The media is awash with scare-stories on the impending doom for the Irish economy in the wake of the UK electorate’s vote to leave the EU. There are constant reminders of the €1bn of trade that is carried out between the two countries every week. But it should be remembered this sum is not the amount that Ireland earns – it is the value of mutual exchange. Trade barriers between Ireland and the UK will result in losses to both sides.
Ireland saw growth in exports to the UK decline from 12% in 2015 to just 2% last year as a result of Brexit. This was mainly due to a drop in demand for food products driven by currency pressures. Brexit saw a weakening of sterling against the euro, making euro-denominated imports more expensive. However, the UK gets one-third of its food supply from Ireland so domestic industry cannot suddenly step in to plug shortages.
Numbers don’t lie
We are repeatedly told the UK is Ireland’s main trading partner, but what does this mean? Data from the Central Statistics Office (CSO) shows the value of exports to the EU is actually far larger. And that is only accounting for goods, not services. Even breaking the bloc down by country, the value of our exports to Belgium is broadly similar to those with the UK. In March 2017, for example, the value of goods exported to the UK was €1,129m compared to €4,180m for the rest of the EU, including €1,388m for Belgium alone. These are official figures but they are rarely reported.
Now, you may be wondering how Ireland can do €1bn in trade with the UK a week but only sell goods worth €1,129m a month? As I stressed above, the €1bn represents the value of transactions between Ireland and the UK. And this includes services, which many commentators deride because they may have less value for the indigenous market than ‘hard’ goods. The €1,129m specifically refers to the value of goods Ireland sells to the UK, including food.
However, Ireland gets about a third of its total imports through the UK. Part of the explanation for this is that Ireland imports a sizeable amount of machinery and vehicles, which are brought in via Britain. So instead of avoiding transaction costs as part of the Eurozone, Ireland actually suffers a double-hit when our imports are converted from euro to sterling to euro. This is due to legacy issues whereby Ireland partnered with the UK on import deals made with other countries. Brexit should be an incentive for Ireland to negotiate its own import contracts and reduce transaction fees.
The chart below describes the shift in Ireland’s imports and exports in goods since 1973:
EU sales drive
One government agency that is taking a proactive approach to Brexit is Enterprise Ireland. It has committed to helping its members diversify away from the UK by growing export sales in the rest of the EU by 50% within three years. The agency’s CEO Julie Sinnamon said: “The fact that the growth of exports to the UK has slowed suggests that the impact of Brexit on Irish companies has already started.
“Companies cannot afford to wait until the Brexit negotiations conclude – they must act now. While diversifying from the UK might have been a desirable objective for Irish companies in the past, Brexit means that it is now an urgent imperative”.
Sinnamon’s basic point is that Ireland has been lazy about expanding its horizons – at least, perceptually. In reality, Ireland has been successful in propelling itself from a poor Western European economy into one of the wealthiest in the developed world since joining the EU in 1973.
Where we have failed to diversify is in agriculture. We have retained a post-colonial grip on the only industry the UK ever really relied on us for. Now we have an opportunity to uproot that dependence and forge opportunities across the EU and the rest of the world. And the government has already been quietly progressive in pushing Irish beef into the Chinese market.
Anyone for Apple?
The election of Emmanuel Macron as French president will raise pressure on harmonising corporate tax rates across the EU. However, European Commission president Jean-Claude Juncker is strongly opposed since his own country, Luxembourg, runs a similar approach to Ireland. But the corporate tax rate policy is targeted at US multinationals. And it is hard to quantify the value this has added to Ireland.
When official data showed the country’s GDP exploded by about 26% in 2015, due to corporate tax inversions, Nobel prize-winning economist Paul Krugman described this as ‘leprechaun economics’. Countries only experience such exponential growth if they are recovering from a war or are incredibly poor. Put simply, this so-called growth in GDP did not find its way into Irish pockets, but the coffers of Apple are looking good.
The importance of the UK market has been overstated in recent decades. And there is still huge potential for Ireland to grow its opportunities across the EU, and the rest of the world, if it can get over its historical hang-up with Britain. The population of the EU is over half a billion, whereas the UK population is 65m. Why would Ireland forgo access to the biggest single market in the world to recreate a dependence on a country in which Irish citizens repeatedly complain of an 800-year struggle to break free from? The figures already show that Ireland is thriving in markets beyond the UK. Brexit will only drive this point home.