Mr. Arnold Dillon:

I thank the committee for the opportunity to set out some of the views and concerns of business on this crucial issue. As members know, IBEC is the country’s largest business organisation and the voice of Irish business on a domestic, European and international level. We are working to support member companies across the country and in all sectors as they manage the immediate risks of Brexit and plan for disruption into the future.

The IBEC approach to Brexit is threefold. We are working at a domestic level to ensure the Government and relevant State agencies respond swiftly and decisively to support businesses during this period of uncertainty. We need to take immediate action in areas under our control. IBEC has set out its key proposals in a position paper which I have forwarded to the committee. We are working at a national, UK and EU level to ensure Irish interests are protected in the exit negotiations and in the new trading relationship that the UK will have to forge with Europe. Business comes with new ideas and a constructive approach and IBEC will be setting out detailed proposals over the coming weeks. We are working to support member companies as they navigate the challenges of Brexit. A new IBEC guide to Brexit looks at the potential impact on key sectors, as well as at how Brexit may affect currency transactions, supply chains, contracts, financing and the labour force, among other issues. I have sent a digital copy to the committee and have brought hard copies with me.

Preliminary estimates show that the economy grew by 5.2% last year, making Ireland the fastest growing country in the EU for the third year in a row. While growth is very strong, certain components showed some worrying trends as growth in both consumer spending and exports slowed compared with previous years. In 2016, export growth slowed to 2.4%, the joint lowest growth rate since 2008. Growth in goods exports was slightly higher at 4.6%. This was driven by strong growth in exports of electrical equipment and chemicals. As a large proportion of these goods are exported to the US, the strong dollar was a factor. Overall exports excluding these two sectors fell by 4.6% year on year, revealing a weakening for the indigenous export sectors. Goods exports to the UK fell by 3.4% last year mainly as a result of the weak position of sterling. Food exports, of which 44% go to the UK, fell substantially, down 5.2% on the previous year. The weakness in sterling faded a little toward the end of last year. This has given a welcome break to some exporters but there is likely to be further volatility as the year progresses.

Of course, there are potentially bigger challenges ahead. Unless there is a major rethink on the part of the UK, some form of customs border between the Republic and Northern Ireland, and between Ireland and Britain, seems unavoidable. This presents the potential for major economic disruption along with massive logistical headaches. In a worst-case scenario, under current World Trade Organization rules, some meat cuts would attract over 50% tariffs, with dairy tariffs of more than 30%. Although Irish indigenous exporters, two thirds of which are in the food sector, make up just 10% of our exports, they employ more and spend more in the domestic economy than the entire multinational sector. While our reaction has been to promote market diversification, this takes time and is expensive and difficult. It is cheaper to find a new plant than a new market. Little attention has been paid so far to the prospect of Irish food companies moving operations to the UK to avoid tariffs.

What, then, can we do? In the first instance, we must focus on what is within our control. This includes introducing targeted aid for affected companies. To achieve this, we will need the support of our European partners. European fiscal and state aid rules must not become a hindrance to our efforts. An intense focus on cost competitiveness is also required. Brexit will increase the competitive pressures on many businesses. We need to avoid runaway increases in labour costs and to take strategic decisions which could avoid increasing energy, regulatory and insurance costs. As we look to the medium term, and some of the opportunities which may come our way, we need to ramp up public investment far beyond current plans and put in place the quality transport network, education system and housing needed to attract new investment and compete in a post-Brexit world. The regions that are most exposed need particular attention. My colleague Mr. Gerard Brady from the IBEC economics team will be happy to talk through some of the specifics in more detail.

As negotiations begin, Ireland must continue to play a central, collaborative and constructive role in what we can already see will be a fraught process. It is critical that the UK retains as close a relationship as possible to the EU. We need to support these efforts in negotiations. The political settlement in the North must be afforded special attention, along with a continued commitment to the development of the all-island economy. The common travel area between the UK and Ireland must be preserved. The EU-UK divorce bill debate is a minor distraction in economic terms compared with what is ultimately at stake. It is vital that rapid progress is made on exit arrangements in order that meaningful trade talks can begin. Unfortunately, a massive and dangerous gap exists between current UK objectives and what is realistically possible within the parameters of the EU guidelines. It is vital that the shared economic interests of the EU and the UK begin to inform the mood and timetable of negotiations. A far-reaching free trade deal with minimal trade barriers is the goal, while fair competition must, of course, also underpin any new relationship. I thank the members for their time and we look forward to answering any questions.