No-one fears change, everyone fears loss. We all seek out change if we expect to profit by it, and we enter denial and resistance if we anticipate loss. When change is forced on us, as it is with Brexit (and with COVID-19), we treat it with suspicion, and tend to focus on the inevitable frictional losses caused by the transition. The longer-term picture is often left to evolve, and becomes clear only in hindsight.

Brexit represents a major and permanent change in the way Ireland does business, and the largest economic features of that change are known and predictable, regardless of how some significant aspects are affected by the struggling negotiations between UK and EU. The immediate impact is going to be overwhelmingly negative for the existing structures, supply chains and costs of the Irish economy. The very permanence of the change however, with a full border between the UK and Ireland/EU, makes it certain that Ireland will adjust. Looking at the experience of countries divided by borders across the World lets us foresee what an adjusted Ireland could or might look like, and particularly to identify certain aspects of economic activity that might benefit and grow.

Ireland’s trade

Looking first at the makeup of Ireland’s trade – Ireland is a trading nation. We rank 31^st in the WTO value of total trade, 39^th in UN GDP value, and 127^th in population. There is no question of our benefit from trade. But we are not a nation of international traders. Our trade has boomed since 1992 in two main directions – general trade within the EU Single Market, and specialised trade by Multi-National Corporations situated in Ireland. The removal of borders in Europe has been of great benefit, but our traders didn’t need to learn to deal with customs or different legal and regulatory systems. Trading with Italy is almost as easy as trade with the next town. The specialised trade, largely with USA, Canada and latterly China has been conducted by very large corporations with all of the skills required to cope with the complexities. Overall, the result is that nine percent of the companies reporting trade to CSO (of which more later) account for 82 percent of the value of all trade excluding the UK. In trade with the UK, smaller traders have a larger share, and the top nine percent account for only 63 percent of reported trade value.

The CSO reports a total of about 35,000 businesses trading with the UK, but this is necessarily an incomplete picture. In fact, there is no completely reliable data on the volume of trade with the UK because there is so much casual and informal trade. One indicator is that Revenue has recently written to some 90,000 businesses that they estimate are involved.

The picture that emerges is that Ireland has developed a very important international trade in niche sectors through its FDI policy, but that the great volume of trade by Irish business is conducted internally in the Single Market. Specifically, the UK is still our major source of goods for wholesale and retail, and our major market for many “traditional” products such as food. Even for goods we produce, many are dependent on inputs from the UK, or part-processing in the UK. In essence, we have become an integral part of the UK market, with a large and growing integration also into the continental EU market. Integration is reflected not just in imports and exports, but also in the number of UK businesses operating branches in Ireland, notably for retail and services. Almost every shopping centre constructed in the last 30 years seems to depend on UK-based anchor tenants. Dropping a full-blown border into the middle of a market like that has immediate and far-reaching consequences.

The major trading partner of most of our trading businesses will become a “Third Country” requiring all of the formality that would apply in dealing with Japan or the USA. In addition, this “Third Country” sits squarely on the best route for us to reach the rest of our Single Market – crossing the UK by truck. To make matters worse, we have not needed expertise in customs for the past 30 years, so it is in critically short supply, and most of our businesses do not even need to be aware of routine international trading documents like commercial invoices, bills of lading, and formal trading contracts. Quite often, an email or telephone call to a supplier or distributor in the UK or EU will have the goods delivered in a couple of days without fuss or formality. That is all about to change for trade with Great Britain, although at the present time we assume that the Northern Ireland Protocol will effectively preserve the present ease of trade with Northern Ireland.

Is this a disaster?

Sadly, the answer is yes for many. Small businesses that depend on free access to the UK, with goods and services being delivered “just-in-time” with no preparation time or formality will find it difficult to adapt, and some will find the extra costs an unbearable burden. Others will succeed, either by developing a competence to deal with the new reality, or by finding new and alternative opportunities created by the additional burden being placed on UK businesses. We can get a sense of what might happen by looking at mature relationships between other countries divided by borders.

Looking at interactions such as Norway and Sweden, Canada and the USA, or even the EU and Russia highlights some changes that will occur between Ireland and GB (we assume no change with NI). Internationally, where borders exist, the countries on both sides tend to have more self-sufficiency than is the case between Ireland and GB. What this is likely to mean is: -

The volume of goods traffic will reduce, and the average value per load will increase, to reduce the per-unit cost. The use of LGVs travelling by ferry is likely to fall sharply. Overall value of trade may also decline, but this will be due to a combination of factors and will happen slowly.

Shopping trips, both personal and by micro retailers, will become much less attractive.

Online shopping in GB will entail the same caveats that apply to shopping in USA, and is likely to become less attractive both to purchaser and seller.

Delivery of services across the Irish Sea will be more complex, and hence costly. Regular trips of technicians and engineers for maintenance etc. are likely to become less common.

Distribution franchises for “UK & Ireland” will become problematic, and Ireland-only (or island of Ireland) franchises will become legally simpler and hence more attractive.

The cost of sourcing goods and services in GB will rise relative to those sourced from continental EU, or locally produced.

The current practice, where GB is often the landing point in the EU for goods (especially airfreight) destined for Ireland, is unlikely to continue.

What does this mean for Ireland 2025?

As Ireland adjusts to the new, and permanent, reality of commercial division from GB, there will be activities that become newly viable. First of course is the ability to deal with customs – including the ability of even the smallest trader to discuss the intricacies of international trade as they negotiate deals. Because of our reliance on trade, we will rapidly acquire a working knowledge, and develop practices and conventions accordingly. By 2025, I believe we will be a “nation of traders”, where even our smallest businesses will be comfortable doing business anywhere. Expect significant growth in foreign trade by small companies. This will be accompanied by a very well-developed customs and trade advice and support industry – well beyond what would be normal for a country of our size.

Distribution and supply chain management will develop significantly as we will no longer rely on GB to provide those services. Already we have a well-developed logistics industry because of our location at the edge of Europe. This is likely to grow further in sophistication as businesses find alternative sources of supply in continental Europe and elsewhere.

Manufacturing and retail businesses in Ireland will have a small but significant improvement in their competitiveness. It will be costly, and may not be attractive, for GB companies to commit the extra resources needed to protect their Irish market share. This opens opportunities for Irish companies either to compete for the market, or to offer the services of importer/distributor to large GB companies.

Online shopping is huge in Ireland, and is likely to continue so. There will be a need to provide alternatives to the GB hubs for handling the goods involved.

Overall, Ireland 2025 is likely to have a more diverse economy, with stronger small business and industry, focused on all of the EU (and beyond), and with a greater breadth of products and services produced in Ireland. While the short-term after Brexit will bring much pain, it is not clear whether, in the longer term, Brexit will turn out to be bad or good for us – perhaps that is up to us?

Tony Buckley is the Programme Lead on the Chartered Accountants Ireland Certificate in Customs and Trade. Tony was previously Head of Customs Division and Corporate Affairs Division at the Revenue, leading on issues of customs policy, legislation, and procedures, as well as corporate governance, communications, risk and economic and statistical analysis. He previously managed the South West integrated Revenue Region, responsible for 800 staff dealing with tax compliance, customer relations, customs and excise. Email address: anthonybuckleyltd@gmail.com