Johnny Hanna, KPMG’s Belfast based Head of Tax, outlines the unique challenges facing Northern Ireland as a result of Brexit.
The impact of Brexit on Northern Ireland is hugely significant both politically and economically. The issues related to the land border and close economic ties with the Republic have focused the minds of the Northern Ireland business community and their Southern counterparts.
According to Johnny Hanna, KPMG’s Belfast based Head of Tax; “It isn’t just about customs tariffs – businesses North and South are also very concerned about the possibility of a ‘hard’ Border leading to delays and costs linked to conventional customs clearance processes.” To illustrate the point, he refers to an OECD estimate of trade costs which suggest that inefficiencies around border clearances alone could add costs of up to 10% of the value of goods traded. Then there is the issue of staff needing to be trained and or hired to deal with these new requirements.
Northern Ireland’s costs are competitive, product quality is excellent and the exchange rate is favourable,” says Hanna. However margins are tight, competition is intense and any material cost increases arising from Brexit will be a concern.
There are also worries for example of perishable goods supplied across Border by a NI business being delayed by customs requirements, especially within the food and drink sector.”
While Hanna welcomes the UK governments desire to achieve as frictionless an EU/UK border as possible he feels we should not underestimate the efforts which will required to achieve this, once the UK leaves the EU single market and customs union. He believes some form of customs border (on or around the island) will be inevitable - not least to address the risks and concerns for the EU27 around the origin of goods coming from NI and GB businesses.
North/South trade has doubled since 1995 and evidence suggests that about 56 per cent of Northern Ireland’s goods and services exports go to the EU – with two-thirds of that heading across the Border. In that context, Hanna highlights the issue of supply chain clarity and the business imperative of not delaying in assessing existing supply chains whilst using technology where possible to “better understand the issues and identify solutions.”
While the mood music in recent weeks offers some hope that a transitional arrangement will be reached (so as to avoid a dreaded “cliff edge” in March 2019), the clock is ticking and businesses need to at least plan for the worst which would most likely mean World Trade Organisation (WTO) tariffs. In such a scenario, highly vulnerable sectors such as agribusinesses could be subject to tariffs as high as 60 per cent in some cases.
Northern Irish agribusiness also depends significantly on EU supports, and whilst the UK government has committed to stepping into the breach in the short term, there remains deep uncertainty as to how this funding can be secured in the future. Unlike the rest of the UK, Agribusiness accounts for over half of cross-border trade for NI businesses – highlighting why business and policy makers are, according to Hanna in constant dialogue about “how to mitigate and plan for Brexit now.”
Currency movements are also playing their part – making Northern goods more competitive but also pushing up input costs. Johnny Hanna notes that certain sectors such as tourism are benefiting as a result of the weakness of Sterling, with strong occupancy levels supporting a high quality tourism product. However, industry representatives have also pointed out that around 20% of the staffing levels in the Northern tourism sector are accounted for by EU nationals from outside Northern Ireland. According to Hanna; “The people issues around Brexit are also significant with cross border mobility concerns relevant not just to hospitality, but also to sectors such as food and agribusiness.”
Preservation of the Common Travel Area is absolutely critical. This is not just to ensure that the many thousands of workers who commute to work daily across the border from North to South and vice versa will continue to do so unimpeded but also those travelling across the border to schools and hospitals. There is also the issue around the rights of non-Irish/UK EU nationals currently living and working in N. Ireland who are unlikely to benefit from a preserved CTA.
“Northern Ireland needs both trade and inward investment,” believes Hanna, who argues that it is imperative that “Barrier-free trade is a key component of any deal struck with the EU.” He concludes by emphasising the advantages of doing business in Northern Ireland and the need for a frictionless border in helping local business maintain its success and deliver on its potential for further growth and employment.
This article was originally published in The Sunday Business Post on 30 April 2017 and is reproduced here with their kind permission.