News & Events

Ireland to Compete for Brexit Investment

03 Oct 2016

March 2017 will see the British Parliament introduce the Repeal Act, which will be the key piece of legislation to reverse the European Union Act which brought the United Kingdom into the EU. In turn, the British Government will invoke Article 50 of the European Union Treaty. This process was outlined by the British Prime Minister Ms Theresa May at the Tory Party Conference on October 2nd 2016. 

Under the proposed Repeal Act, EU laws will be initially transposed into British Law. It will come into force after Britain leaves the EU and the British Parliament can then decide which of the EU laws it wants to retain and which ones it prefers to dispense with or amend. 

Once Article 50 is invoked, the timing of leaving will be a strict two years. The likelihood now is that the United Kingdom (including Northern Ireland, Scotland and Wales) will no longer be a member of the EU after March 2019. 

The exit of the UK under Article 50 will be the first time this process has been used. Hence there is a lot of uncertainty as to how the ensuing negotiations with the EU will play out. 

Significance of the UK exit from the EU

During the negotiation period up until Spring 2019, businesses will be open to trade under the current norm and there will be freedom for EU citizens to travel in and out of the UK as currently enforced. This may change under the newly negotiated procedures, and the UK may introduce a “hard border”. 

The Single Market and freedom of movement of goods will be the subject of tough negotiations. Undoubtedly, the priority of the EU will be to keep the remaining 27 countries together as one unified entity. All of the 27 countries will retain full access rights to the European Union Single Market. 

Once the UK has exited from the EU, Ireland will be the only English-speaking member country and Dublin will be the sole capital with English as its mother tongue.

This is very significant in terms of Ireland’s evolving role in the EU, as it will also be;

  • The only country with a land border with the UK.
  • The leading country in the EU with a common law legal system closely aligned with the UK.
  • The country best positioned to passport into the EU market.

Once Article 50 of the Lisbon Treaty is triggered, thus giving formal notice that the UK is leaving the EU, the following two years of negotiations with the EU will have to deal with a myriad of issues. These will include the framework for trading, importing and exporting goods and services. Individual items such as customs procedures, regulations pertaining to health, safety and the environment, as well as border controls, will also have to be dealt with.

Since the establishment of the Irish Free State there has been a Common Travel Area arrangement in place, which allows free movement between Ireland and the UK. The arrangement is well developed and no doubt will be the subject of intensive work between both jurisdictions to ensure its preservation. At present, there is a British Irish Visa Scheme (BIVS) which may be amended to reflect revised migration arrangements between the UK and Ireland. From the current British Government’s stance, controlling immigration would appear to be a primary concern.

Boardroom Concern and Risk Management

  • UK Market and Currency Exchange rate exposure - Since the UK referendum in June, currency exchange rates have moved significantly such that companies supplying products and services into the UK market have lost their competiveness, whilst exporters are now better positioned in their export markets.

Imported raw materials are now much more expensive and there is risk of inflationary pressures in the UK.

Longer term, as negotiations to exit proceed, exchange rates are likely to show further volatility.

How exposed companies are to, and dependent on, the UK market is a key question.

Mitigation strategies could include market-based consolidation within the UK market and/or diversification into wider markets.

Strategic acquisitions within the market will no doubt be an avenue pursued by some companies.

  • Boardrooms need to consider their own situations under the headings of the Four Freedoms: Capital; Labour; Goods; Freedom of Services and; Freedom of Establishment.

The implications of these will vary from company to company.

  • Companies, where they have operations in the UK, will need to review their recruitment and personnel policies to ensure compliance with any prospective changes in Employment laws.

Those companies with a substantial UK presence will no doubt review their options to consider where best to locate resources.

Ireland’s compelling offering in terms of it being a source of skilled talent and its track record from a return on investment viewpoint will ensure that it features in all Boardroom considerations.

Ease of doing business in Ireland, together with its pro-enterprise policies and access to EU markets, will come to the fore in decision-making. Within the EU, Ireland is viewed as having a stable and transparent taxation regime. This includes its 12.5% Corporation Tax, which is not under any pressure from the EU.

Ireland has worked on honing its intrinsic advantages and on improving its relative competitiveness. These initiatives should now pay dividends as Boardrooms are inclined to make investment decisions.

Ultimately there are two timelines in place here – the commercial one and the political one. Businesses need to manage risk and create certainty for themselves. Even with a March 2017 deadline now flagged by the British Government, the political timeline will not move quickly enough for many businesses and Ireland will be a logical location to move their investment.

 

Barry O’Dowd is Global Head of two of IDA Ireland's most dynamic Divisions, Emerging Business and New Forms of Investment. IDA Ireland is Ireland's inward investment promotion agency, and is a non-commercial semi-state body promoting Foreign Direct Investment into Ireland through a wide range of services. Barry completed his Masters programme in Trinity College, Dublin in Strategic Management and is a Barrister of Law.

The views expressed in the posts and comments of this blog do not necessarily reflect the views of the Institute of Directors in Ireland. They should be understood as the personal opinions of the author. The content of this blog is for information purposes only and the Institute of Directors in Ireland is not responsible for the accuracy of any of the information supplied.