WHAT DOES BREXIT MEAN FOR THE NI ECONOMY?
06 June 2018
Ulster Business and Osborne King gathered together some top experts to examine what’s around the corner for post-Brexit Northern Ireland, what will happen to investment and the commercial property market here.
(Managing director, Osborne King)
(Director, Osborne King)
Ciaran McLaughlin, corporate banking manager
(Director of public policy and tax, Chartered Accountants Ireland)
(Editor, Ulster Business)
John Mulgrew: Let’s kick off with a general one. What are the key stumbling blocks for Northern Ireland business at this stage with the impending UK exit from the European Union?
Brian Keegan: The really interesting point about your question is with less than one year away to Brexit we don’t know it’s less than a year away to Brexit. We don’t know whether Brexit is actually going to happen on March 29, we don’t know whether it’s actually going to happen at the end of December 2020, all bets are still off. The fact of the matter is there is no hard and fast contract that says the UK leaves on March 2019 or in December 2020, and that just adds a level of uncertainty. I seethat as the main stumbling block. If we actually knew what the effective departure date was going to be that would be a help.
Paul Henry: The biggest challenge to my mind is that uncertainty. Businesses are quite capable to plan and to put in place the right actions to get there but if you’re not sure what you’re planning for then I think, particularly in Northern Ireland, you know, businesses have been reluctant to invest time into scenario planning because they’re not sure what scenario to plan. The whole spectrum is open to them and I think that’s probably one of the biggest challenges.
Ciaran McLaughlin: Touching on some of the points that Paul has made, when you’re speaking to senior management teams who have gone through a Brexit planning process, you get three key issues coming up. That includes people, regulation and maybe slanted towards banking - the foreign exchange impact that it’s had over the last 12 months and what’s going to happen going forward.
Brian Keegan: But why hasn’t that happened prior to Brexit? I think we kind of need to filter back and see exactly what Brexit is changing, it’s not changing foreign exchange per se.
Michael McAllister: I think that people have recognised the foreign exchange issue very early on and have planned for it, I mean businesses are not stupid and they’ve donethat. The reality is on the other points there is no point in navel-gazing...frankly we’re no closer, we’ve no more information. Regardless of everything else it’s when people aren’t planning, or can’t plan for what it’s going to look like. What they are doing is saying right I'm not holding my business back for three years simply because nobody can tell me what’s happening.
Martin McDowell: There’s another concerning factor. Businesses that are planning for where they’re going and property businesses and investment businesses that are doing nothing because the uncertainty means they’d be better to do nothing until they know what’s happening. So actually on the investment side, and maybe even getting into the construction side why would you invest money to build a large facility in Belfast when you’re not 100% sure exactly how this is going to pan out at the moment.
John Mulgrew: And what does Brexit mean for commercial property, in particular, across Ireland?
Martin McDowell: The dream scenario is suddenly Northern Ireland in effect becomes a little mini staging post and an opportunity between the UK and Ireland to be the point at which everything transfers through because we maintain an open border, we maintain some form of customs union, we do all of those things.
Paul Henry: And financial passporting would also be a real win/win for commercial property.
Martin McDowell: That would be fantastic for us and that’s the dream scenario. However, and to raise a political point, one of the things that would annoy me most, if you have a political party who’ve spent 50% of their arguments with Westminster over the last 35 years saying we are a special case, suddenly saying, ah, no, we don’t want to be a special case, we want to be treated like everything else in the UK, I'm going we are missing a golden opportunity to actually be the point at which if the UK is leaving and Ireland has some concerns as well, why does Northern Ireland not become the point through which, everything flows. This would be fantastic for Northern Ireland. It just appears to be unacceptable for too many people.
John Mulgrew: Ciaran, from your perspective in the bank, what’s the feedback been from customers?
Ciaran McLaughlin: I would deal with it on a day-to-day basis both local investors and international investors. I think it’s fair to say that a number of the large transactions that took place last year were international investors for some of the reasons Paul mentioned in terms of it being in effect a discount, but to touch on Martin’s point then there is just an uncertainty. And notwithstanding all the very valid points you’ve raised you know sometimes people will just latch onto uncertainty and deploy capital elsewhere where there is not that question-mark hanging over it. You know the overall impression I get particularly from most international investors is they like the fundamentals of what we have, but why deploy capital now when you can wait for six, or 12 or 18 months and do it with clarity.
John Mulgrew: And are there particular areas which are being impacted? Is it property investment, is it investing in companies?
Paul Henry: Fundamentally commercial property investment. Indigenous SMEs and corporates that are continuing to invest that are going to be based here, they’ve got workforces here and have grown here. They will continue to invest locally and internationally to fulfil their growth aspirations, but it’s that foreign capital coming into investment property and developing it out and bringing the skills and expertise that they have, which we’re missing out on.
Michael McAllister: And I think that Dublin has somehow captured that and is very attractive because if you travel to Dublin there are 60 or 70 cranes moving across the skyline of the city, today.
John Mulgrew: To flip it now on its head, what opportunities or benefits could Brexit bring?Martin McDowell: I think there are definite potential opportunities. Most businessmen wouldn’t actually continue in business in Northern Ireland if they weren’t optimists. In terms of how Brexit could work positively, if it was working effectively and this was in effect the bridge into the UK market in some respects, there’s a real opportunity for people to have facilities in the south and in the north and go between them, and that’s the bridge that keeps you connected into the post-UK departure from Brexit. You actually stay connected to Europe in that way.
Michael McAllister: Yes, there are people making more money than they were pre-Brexit but even those businesses, and some of them are ones that I would know very well, would almost forgive, I can’t believe I'm saying this, but they would almost give away some of that profit if they had more kind of the ability to see what the medium term position of their business was going to be because they can see that there’s the possibility of that short-term gain, and perhaps medium-term gain.
John Mulgrew: Paul, which areas in the commercial property sector could see an increase in demand?
Paul Henry: I would see the opportunity for commercial property would be probably centred around the major capital Belfast and potentially Derry as well, where the population is. And again it would be to support I suppose Dublin and the Celtic Tiger that’s beginning to come back, and I think that’s the opportunity. Perhaps on a smaller scale there could be some sort of staging, with companies looking at warehousing, distribution, on both sides of the border.
John Mulgrew: Companies in Northern Ireland looking south and vice versa?
Paul Henry: Yes, and vice versa. Depending on the time delay I suppose coming through whatever type of border checks will inevitably have to be put in place. It’s just probably that stocking, and holding that stock will create property opportunities.
Brian Keegan: Yes, I think that’s a factor but I think as well that we have to separate what Brexit actually affects and what Brexit doesn’t affect. Traditionally businesses both north and south of the border have membership of the European Union, access to the European single market, and that’s been an enormous advantage, but from the context of foreign investment, what happens to the likes of Northern Ireland post-Brexit? You’re still speaking English, which is a colossal advantage if you’re dealing with anything west beyond the Atlantic. You’ve still got common law system, again a colossal advantage that distinguishes the UK and Northern Ireland from Europe and that is becoming an increasing issue.John Mulgrew: On the impasse at Stormont, are we lacking a voice in the Brexit negotiations?
Brian Keegan: We received a briefing from the UK Cabinet office some weeks back on the involvement of the devolved Governments in the Brexit negotiation process and they kept speaking about the Welsh Government and the Scottish Government and I stuck my hand up at the back of the room and said what about the Northern Ireland Executive? And their point was, there is no Northern Ireland Executive, there is no political input into the Brexit process. And that worries me greatly.
John Mulgrew: And is it difficult for businesses who have no minister to raise issues with?
Ciaran McLaughlin: I was speaking to a managing director of a top 50 company recently who told me a very similar tale, that they had been speaking to an elected politician, not sitting, but they’ve taken comfort out of that meeting and the engagement. And what was going to come out of it now? I didn’t drill into it to the extent where I was able to get any detail on that, but they clearly had taken some comfort that dialogue between politicians and the business community is ongoing.
Paul Henry: I think there’s nothing like being in the room. If somebody is negotiating Iwant to be at the table, I want to negotiate for myself. I think it’s very risky letting, and delegating, or assuming that somebody’s going to represent your position correctly.
John Mulgrew: Retrospectively, do you think after Brexit, some will be saying, why did we let this, or that, element happen?
Martin McDowell: That’s when the excuses start. I'm still loving the phrase that having no political input to the process is ‘suboptimal’. Suboptimal is such a nice way of phrasing the words like outrageous, disgraceful, how ridiculous. Are we saying that Northern Ireland bluntly doesn’t have a clear political involvement in all of this because remember Northern Ireland as a region wanted to stay in the EU. Our vote was to stay. The only people that are supposedly talking to central government about this for us are the one party who flat out said we need to leave. This is outrageous. I’ll be blunt, I voted to stay in the EU not because I like everything about it, and a number of the other things, but because I understood what we were in as opposed to voting for something that’s just completely outside.
Michael McAllister: We were involved in various Brexit debates and we certainly struggled to find many in business (which supported Leave).
Paul Henry: One of the allies we do have is actually the southern Government because it is so significant in the trade of the south that they want to make sure it’s right because it would damage the southern economy to a large extent if it doesn’t work.
Brian Keegan: The key issue, for example, the customs union, the 26 other EU member states will have a lot to say to Ireland if a customs border, a credible customs border between the UK and Europe is not enforced if the UK leaves the customs union.
John Mulgrew: How will the Northern Ireland market be viewed by, especially FDI, post-Brexit, in terms of an area to invest in?
Ciaran McLaughlin: I think as we said earlier the fundamentals haven’t changed over the last two or three years and decisions are being put on hold because of uncertainty, so if you get certainty of an outcome, whether it be positive or negative, it removes that excuse not to make a decision and you should start to see transactions return because the labour force is here and the universities are here.
Paul Henry: And I think the growth opportunity for Northern Ireland is in that knowledge economy, in that global service centre side of supporting business. I think we’ve moved away from very heavy manufacturing, heavy production industry, to a softer service centred industry.
Brian Keegan: The key is services. I keep coming back to what is actually changing with Brexit? The least affected area of the economy under EU law at the moment is the service industry. So that’s what you’ve got to monopolise on and look at the really positive things.
John Mulgrew: Finally, what’s the best case scenario and worst case for Northern Ireland on the other side of Brexit?
Paul Henry: I suppose the best case I would see would be a set of circumstances that allows Northern Ireland to effectively become the Hong Kong of Europe, where we have free trade, we become a major trading port and area. Worst case I think is just uncertainty leading to lack of investment and a lack of opportunities for our young people.
Ciaran McLaughlin: I suppose the best case is, as Paul has mentioned, is Northern Ireland having obviously a gateway status. Worst case is a hard Brexit where we end up with tariffs and an impact on business supply chains and labour availability which really stunts business growth.
Martin McDowell: Worst case scenario is that the brain drain that happened in the 70s and 80s happens again if we don’t actually have a Brexit that actually keeps us very much in the ability to move forward and the various other things. Best case scenario is that we become a really strong trading hub that we can actually support some of the overflow from Dublin.
Michael McAllister: Best case scenario first of all? With the new economy, the knowledge economy is a real big opportunity, and we were moving ahead on that opportunity and I think that best case scenario is that we can put the sort of investment into that. Worst case scenario is we see an awful lot of jobs moving, simply because they cannot staff the opportunities.
Brian Keegan: At the risk of being overly pragmatic, Northern Ireland is never going to be a gateway to the EU. I think there are opportunities there for the promotion of the skill-sets here and I take your point about needing to develop those further. I think there’s huge opportunities for promoting, despite all the naysayers, the stable legal systems, the common law system, English speaking, more than 80% of all the data in the world is in English and that gives the UK and Northern Ireland a particular competitive advantage. The worst case scenario is a hard border between Northern Ireland and the Republic and everything that goes with that.