Irish exporters feeling pressure of long term Brexit uncertainty

Irish exporters feeling pressure of long term Brexit uncertainty 21st September 2017: The Irish Exporters Association (IEA), the voice of Irish exporters, today released results of its most recent survey, the ‘IEA Export Eye,’ conducted with members regarding Irish exporters’ sentiments on critical issues that have both direct and indirect impacts on business. The areas members were surveyed on include: 'Brexit' and its impact on business; entrepreneurship and the current Irish business environment; cost competitiveness; diversification of export markets; and the skills shortage in Ireland. The IEA collated these findings to supplement its Pre-Budget Submission 2018 which was issued to the Department of Finance last week detailing key recommendations ahead of this year’s Budget. A copy of this submission can be viewed at the following link: http://www.irishexporters.ie/wpcontent/uploads/2017/08/PreBudgetSubmission2018.pdf Simon McKeever, Chief Executive of the Irish Exporters Association commented: “The IEA regularly survey our members so that we can effectively lobby Government for the key supports that Irish exporters need to operate in a business friendly, competitive landscape. Our key recommendations to Government for Budget 2018 included: state aid to provide subvention/compensation for companies overly exposed to sterling fluctuations; significant and strategic investment in Irish regional infrastructure including road networks and broadband connectivity to retain and grow investment, jobs and population regionally; more and faster direct services to continental Europe; restructuring the National Training Fund to increase training opportunities for those in employment and increasing awareness of apprenticeships in Ireland; more resources in high-growth markets and rapidly developing markets that support international trade; and increasing the cap of the Earned Income Tax credit and the ceiling of Capital Gains Tax to compete with the UK. It is critical for the Government to recognise how vital Irish exporters are to our nation’s economic growth and use this year’s budget to maximise the opportunities that arise from an increase in global demand. We are now one year on from the UK voting to leave the EU and the prognosis for the Irish export industry shows that the impact will be severe. Our latest survey results are showing exporters are over-reliant on trade with the UK and some members are reporting their exports to the UK are decreasing. The extended period of uncertainty and the impact that this is having on sterling is hitting them hard. Only 3% of IEA members surveyed feel that the Irish taxation system is supportive of the selfemployed and poor regional infrastructure in roads and broadband is affecting businesses around the country. Investments need to be made strategically to maintain long-term growth and sustainability and in particular to help industry deal with Brexit. This will not only encourage and grow indigenous Irish business but grow investment and pragmatically encourage FDI throughout the country.” Key findings from the survey include (see below for full output and graphical breakdown): 

Brexit o 93% do business with, or export to, the UK o 47% of exporters surveyed export more than 25% of goods or services directly to the UK (7% export more than 75%) o Since the UK Referendum in June last year 21% of IEA members surveyed have said that their exports to the UK have decreased (6% have decreased more than 20%). 17% have increased and 62% have remained at the same level. A further 12% plan to decrease their level of trade over the next 6 months.

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Having done an impact assessment on the impact of Brexit to business, 79% see negative implications resulting from exchange rate fluctuations, 89% from customs procedures and 84% from border controls o 55% of those dealing in sterling have 0% of the next 12 months £GBP receipts hedged Entrepreneurship / business environment o Members thought that the Irish residential market (68%), poor broadband (61%), skills shortage (53%) and poor regional road networks (51%) would dissuade companies from investing in or relocating to Ireland o 83% predominantly use Dublin sea port and 81% use Dublin airport but members have said that if there were more frequent sailings/flights, road networks were improved or ports/airports were upgraded they would consider using an alternative Cost Competitiveness o 65% of members say that their cost base has increased in the last 6 monthsMembers have identified price increases in the cost of labour (72%), insurance (70%), exchange rates (63%) and raw materials (55%) o Only 3% of IEA members surveyed feel that the Irish taxation system is supportive of the self-employed o 35% of IEA members surveyed stated that their fixed broadband or Wi-Fi connection was not of a sufficient speed or quality to meet their business needs. It is worth noting that of those members whose main Irish operation was located in a rural area, 57% said that their fixed broadband or Wi-Fi connection was not of a sufficient speed or quality to meet their business needs Diversification of export markets o The IEA are seeing growing interest from members planning to diversify export markets to China (9%), USA (9%), India (8%), Germany (7%), South America (7%) and Canada (6%) Skills shortage / war for talent o 66% stated that there were vacancies in the company in the last 6 months for which there was difficulty experienced in trying to find candidates that met the minimum criteria for the positions. Of these, the most difficult positions to fill included: engineering (20%), sales & marketing (19%), transport logistics (16%), supply chain (15%), operations (14%), quality control (14%), process & manufacturing (11%), administration (10%) o The difficulties experienced in recruiting or retaining staff included: meeting salary expectations (41%), lack of available talent in Ireland (40%), competition in Ireland from other companies (25%), meeting benefits expectations (17%), cost of living in Ireland (16%), availability of affordable housing (15%), and income tax levels not attractive (11%) o 43% are you planning to increase the number of employees in their company in the next 6 months

For Further information contact: Fiona Burke, Communications, Events & Public Affairs Officer, Irish Exporters Association T: 01 6424171 / 087 142 3310 E: [email protected]

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About the Irish Exporters Association: The Irish Exporters Association (IEA) assists its members to grow their exports to world markets. We drive and support the growth and development of all exporting businesses based in Ireland by:  Representation – leading the export agenda as the voice of Irish exporters  Member development – enhancing the export knowledge and skillset of members through a range of training services and export development programmes  Networking & Connectivity – connecting our members with government and business stakeholders domestically and in market  Export Services – enabling our members with practical assistance and critical support services The IEA represent the whole spectrum of companies within the export industry including SME’s who are beginning to think about exporting for the first time right through to global multinational companies who are already extensively exporting from Ireland. It is the connecting force for Irish exporters, providing practical knowledge and support across the Island of Ireland and in foreign markets. About the report: This survey has been issued to members of the Irish Exporters Association. This survey is strictly anonymous, answers provided by members are only looked at in aggregate form and are in no way attributable to specific organisations.

IEA Export Eye – September 2017 Brexit   

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93% do business with, or export to, the UK 47% of exporters surveyed export more than 25% of goods or services directly to the UK (7% export more than 75%) (fig. 5) Since the UK Referendum in June last year 21% of IEA members surveyed have said that their exports to the UK have decreased (6% have decreased more than 20%). 17% have increased and 62% have remained at the same level (fig. 6, inconsistency in graph due to rounding error) 22% plan to increase, 12% decrease and 66% maintain level of trade with the UK, in the next 6 months Since the Brexit referendum, members have altered their business operations in the following ways: locate more staff in the UK (6%); shift some production to the UK (4%); reduce staffing levels in UK (2%); shift some production from the UK to Ireland (2%); relocate staff from UK to another country (other than Ireland) (1%) (fig. 7) Of those surveyed who had done an impact assessment on the effect of Brexit on their business (fig. 8): o 79% foresee negative implications of exchange rate fluctuations (45% ‘very negative’ effect, 34% ‘negative’) and a further 16% foresee ‘minor’ implications o 84% foresee negative implications of border controls (40% ‘very negative’ effect, 44% ‘negative’) and a further 11% foresee ‘minor’ implications o 89% foresee negative implications of customs procedures (38% ‘very negative’ effect, 51% ‘negative’) and a further 6% foresee ‘minor’ implications o 76% foresee negative implications of dual regulation (33% ‘very negative’ effect, 43% ‘negative’) and a further 21% foresee ‘minor’ implications o 87% foresee negative implications of tariffs (31% ‘very negative’ effect, 56% ‘negative’) and a further 10% foresee ‘minor’ implications

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51% foresee negative implications of increased competition in the UK market (23% ‘very negative’ effect, 28% ‘negative’) and a further 45% foresee ‘minor’ implications o 55% foresee negative implications of employee’s status in the UK (22% ‘very negative’ effect, 33% ‘negative’) and a further 38% foresee ‘minor’ implications 55% of those dealing in sterling have 0% of the next 12 months £GBP receipts hedged, 23% have hedged up to 25%, 14% from 26% to 50% and 8% from 51% to 75% (fig. 9) 63.5% of IEA members surveyed import products from the UK Since the Brexit referendum, members have altered their supply chain in the following ways: sourced more supply needs from EU (8%); imported more from UK (6%); sourced more supply needs from outside EU (6%); imported less from UK (4%); and sourced more supply needs from Ireland (3%)

Entrepreneurship / business environment 

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Of those surveyed who use sea ports, 83% use Dublin port predominantly as their primary route to ship goods out of Ireland (fig. 10). 24% said that this was not the closest port geographically. Members surveyed said that they would use a different Irish sea port as their primary route to ship goods from Ireland if: o There were more frequent sailings/crossings from another port – 56% o Road networks between primary distribution centre and another port were improved – 21% o Another port was upgraded – 19% Of those surveyed who use airports, 81% use Dublin airport predominantly as their primary route to ship goods out of Ireland (fig. 11). 15% said that this was not the closest airport geographically. Members surveyed said that they would use a different Irish airport as their primary route to ship goods from Ireland if: o There were more frequent flights from another airport - 36% o Road networks between primary distribution centre and another airport were improved – 23% o Another airport was upgraded – 14% Members thought that the following would dissuade companies from investing in or relocating to Ireland (fig. 12): o Irish residential market 68% o Poor regional infrastructure (broadband) 61% o Staff availability / skills shortage 53% o Poor regional infrastructure (roads) 51% o Commercial property prices 44% o Other 7% 56% are planning to increase, 1% decrease and 43% maintain the level of investment in their company in the next 6 months

Cost Competitiveness   

In the last 6 months, 51% of members’ exports have increased, 11% decreased and 38% stayed the same (fig. 13, inconsistency in graph due to rounding error) In the next 6 months, 61% of members expect their exports to increase, 9% decrease and 30% stay the same (fig. 14, inconsistency in graph due to rounding error) 6% of members have experienced difficulties in obtaining credit / loans from bank or financial institution in the last 6 months

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The most frequently used type of trade finance is (fig. 15): o Short term loan 25% o Long term loan 17% o Factoring 17% o Letter of credit 9% o Bank guarantee 9% 14% thought that the cost of bank loans increased, 5% thought it had decreased and 81% viewed it had stayed the same in the last 6 months 67% say that access to finance is important to their business (fig. 16) 65% say that their cost base has increased, 5% decreased and 30% stayed the same in the last 6 months (fig. 17, inconsistency in graph due to rounding error) In the last 6 months, surveyed members found the following fluctuations in business expenses (fig. 18): o Labour 72% increased, 1% decreased and 27% stayed the same o Insurance 70% increased, 3% decreased and 27% stayed the same o Exchange rates 63% increased, 20% decreased and 17% stayed the same o Raw materials 55% increased, 4% decreased and 41% stayed the same o Travel 53% increased, 3% decreased and 44% stayed the same o Transport 52% increased, 4% decreased and 44% stayed the same o Regulatory burdens 48% increased, 0% decreased and 52% stayed the same o Banking charges 39% increased, 3% decreased and 57% stayed the same o Legal costs 38% increased, 2% decreased and 60% stayed the same o Rent and office rates 35% increased, 2% decreased and 63% stayed the same o Energy costs 33% increased, 16% decreased and 52% stayed the same o Local Gov. charges 32% increased, 2% decreased and 66% stayed the same o ICT 29% increased, 1% decreased and 69% stayed the same o Interest rates 24% increased, 9% decreased and 68% stayed the same o Broadband 19% increased, 7% decreased and 73% stayed the same Only 3% of IEA members surveyed feel that the Irish taxation system (e.g. USC, CGT, income tax, etc.) is supportive of the self-employed (66% said that it was not supportive and 31% didn’t know) 35% of IEA members surveyed stated that their fixed broadband or Wi-Fi connection was not of a sufficient speed or quality to meet their business needs. It is worth noting that of those members whose main Irish operation was located in a rural area, 57% said that their fixed broadband or Wi-Fi connection was not of a sufficient speed or quality to meet their business needs

Diversification of export markets 

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The top 5 countries members are currently exporting to (fig. 19): o United Kingdom 85% o Germany o USA 63% o Belgium o France 60% The top new markets members planning to export to in next 6 months: o China 9% o South America 7% o o USA 9% o Canada 6% o o India 8% o Russia 6% o o Germany 7% o Spain 6%

57% 50%

Sweden 6% France 5% Saudi Arabia 5%

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Skills shortage / war for talent 

66% of IEA members surveyed stated that there were vacancies in the company in the last 6 months for which there was difficulty experienced in trying to find candidates that met the minimum criteria for the positions. Of these, the most difficult positions to fill included: engineering (20%), sales & marketing (19%), transport logistics (16%), supply chain (15%), operations (14%), quality control (14%), process & manufacturing (11%), administration (10%) The difficulties experienced in recruiting or retaining staff included: meeting salary expectations (41%), lack of available talent in Ireland (40%), competition in Ireland from other companies (25%), meeting benefits expectations (17%), cost of living in Ireland (16%), availability of affordable housing (15%), and income tax levels not attractive (11%) 43% are you planning to increase the number of employees in their company in the next 6 months, 1% decrease and 56% maintain current levels 65% are aware of their data protection obligations under the EU General Data Protection Regulations, due to come into effect from May next year

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Fig. 2

Company type

Company size* 28%

30% 25% 20% 15% 10% 5% 0%

28%

27%

16%

Fig. 3

70% 60% 50% 40% 30% 20% 10% 0%

58%

Fig. 4

18%

18%

60% 50% 40% 30% 20% 10% 0%

13%

55%

22%

19% 4%

Fig. 5

% turnover dependent on exports* 30% 25% 20% 15% 10% 5% 0%

Location of main Irish operations

28% 21% 14% 2%

21% 13%

% of total exports to UK* 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

47%

25% 15% 7%

0%

5% Less than Between Between Between 24% 25% and 50% and 75% and 49% 74% 99%

2% 100%

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Fig. 6

Fig. 7

UK exports flucuation since June 2016* 70% 60% 50% 40% 30% 20% 10% 0%

Operational changes since June 2016 62%

7% 6%

0% 2% 2%

8% 5% 6% 2% 1%

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

87%

6%

4%

2%

2%

Locate Shift some Reduce Shift some more staff production staffing production in the UK to the UK levels in from the UK UK to Ireland

1% Relocate None of staff from the above UK to another country

Fig. 8

Impact assessment on effect of Brexit on business 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

0% 5% 16%

34%

1% 3% 11%

5% 1% 6%

44%

51%

4% 0% 10%

2% 1% 21%

40%

38%

Exchange rate Border controls Customs fluctuations procedures Very negative

33%

31%

Dual regulation

Tariffs

Negative

Minor

Fig. 9

Positive

7%

0%

45%

38%

28%

33%

23%

22%

Increased Employee’s competition in status in the UK the UK market Very positive

Fig. 10

Irish sea port predominantly used*

% of next 12 months £GBP hedged 60%

1%

56%

43%

45%

3%

55% 100% 80% 60% 40% 20% 0%

40% 23% 14%

20%

8%

83% 4% 2% 2% 1% 1% 1% 5%

0% 0% 0%

1% - 25%

26% - 50% 51% - 75% 76% - 100%

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Fig. 11

Fig. 12

Irish airport predominantly used* 100%

81%

80% 60% 40% 11%

20%

4%

1%

2%

0%

Issues that dissuade investment in Ireland 80% 70% 60% 50% 40% 30% 20% 10% 0%

68%

61%

53%

51%

44%

7% Irish Poor regional Staff Poor regional Commercial residential infrastructure availability / infrastructure property market (broadband) skills (roads) prices shortage

Fig. 13

Other

Fig. 14

Variation in exports, previous 6 months*

Export projection, next 6 months

45% 38% 40% 35% 30% 25% 21% 18% 20% 15% 7% 7% 10% 2% 2% 1% 0% 0% 3% 5% 0%

35% 30% 30% 25% 25% 16% 20% 15% 9% 7% 10% 5% 3% 3% 5% 0% 1% 0% 0%

Fig. 15

Trade finance usually used* 30% 25% 25% 17% 17% 20% 15% 9% 9% 10% 6% 6% 4% 4% 4% 5% 0%

Fig. 16

Importance of access to finance* 27% 30% 22% 25% 19% 18% 20% 13% 15% 10% 5% 0%

Fig. 17

Cost base variation, previous 6 months* 35% 30% 25% 20% 15% 10% 5% 0%

33%

30%

21% 8% 0%

2%

4%

1% 0% 0% 0%

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Fig. 18

Fig. 19

Countries currently trading with United Kingdom USA France Germany Belgium Netherlands Italy Spain Poland Canada Sweden Portugal Denmark Australia Turkey Switzerland Czech Republic China Norway Finland South Africa Singapore Japan Austria Israel Greece Russia South Korea Saudi Arabia Mexico Hungary South America Romania Luxembourg India Brazil Thailand Taiwan Malaysia ASEAN Member States Nigeria Other

85% 63% 60% 57% 50% 47% 47% 46% 40% 38% 37% 37% 36% 33% 31% 31% 31% 31% 30% 28% 27% 27% 27% 27% 26% 23% 22% 21% 21% 21% 20% 18% 18% 18% 18% 17% 16% 16% 16% 12% 10% 15% 0%

10%

20%

30%

*Inconsistency due to rounding error.

40%

50%

60%

70%

80%

90%

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