Guest Feature

Guest Article: Ireland’s SMEs continue to think positive for 2019, as Brexit and other challenges loom

By Business & Finance
12 May 2019

Ireland is the fastest-growing country in Europe – will Brexit and other challenges affect that?

How you see Ireland’s economic prospects may depend on whether you are a glass half full or half empty kind of person. The latest CSO numbers put GDP growth for 2018 at 6.7 per cent, which is greater than that of China, and enough to make Ireland the fastest-growing EU country for the fifth year running. Equally, the ESRI expects Ireland’s economy to grow by 3 per cent in 2019 – although a no-deal Brexit would see this tumble to 1 per cent. It’s clear then that while there’s plenty to be bullish about, warning signs have begun to flash in recent months as we brace for Brexit and a global slowdown.

Our research shows that almost half of Irish SMEs expect to see either a slight (37% of SMEs) or significant (12% SMEs) increase in sales in Q2 of 2019, despite the increasing uncertainty regarding the outcome of Brexit. A further 38 per cent expect their sales to remain steady.

However, the research found that Brexit was still having a negative effect on SMEs’ confidence, with sales expectations trending downwards since Q3 of 2018, when two thirds of SMEs anticipated an increase in sales.

Brexit and Irish SMEs

In the run-up to the original 29 March Brexit deadline, 80 per cent of SMEs have been investing in their business. Finding and retaining talent can be a frustrating activity for SMEs, with high employment creating a difficult environment for sourcing the right staff, so it’s perhaps no surprise that more than half (53%) of SMEs are choosing to put money into developing the talent they already have, up from 42 per cent the previous quarter. This has meant that direct recruitment has remained flat, with over a quarter (28%) planning to invest in this area in Q2 2019, compared to 26 per cent in Q1 2019.

According to the Central Bank, Ireland is expected to reach full employment in 2019, while record low unemployment rates are changing the landscape for both employers and recruiters. Employers are having to compete for a smaller pool of skilled and talented candidates, and this is encouraging them to offer higher wages or extra workplace benefits as hiring incentives.

Complicating the matter further, candidates also have the luxury of choice in the jobs market. This means they can pick and choose either long-term positions, or pursue short-term contractor or temporary roles.

As there is anxiety in Ireland around the UK’s future and Brexit threatens to exacerbate the current skills shortage, many businesses are thinking on their feet when it comes to higher employment, and broadening their search to include candidates with different skill sets.

For example, in some sectors like construction, skills can be nurtured and learnt on the job provided candidates are attracted to the roles on offer.

Invest in SMEs

Investment of this nature is crucial for generating growth not for SME businesses but also for the wider economy. Growth does not come from sitting on cash or waiting for things to get better, and so conversely even as costs are rising, SMEs should look at their spending for the year and set aside capital to invest in their people, products and plans.

The economic and political uncertainty surrounding Brexit is a constant in our news cycle since the referendum in the UK in 2016, and there is little sign of the uncertainty dissipating. The Central Bank of Ireland has estimated that there could be a reduction of up to 10 per cent in the trade of goods between Ireland and the UK. This would be a significant shock to the Irish economy and the SME sector, but is unsurprising given the close trade and business links between the two countries.

There is no doubt that Brexit, whatever its final form, will impact small and medium sized businesses, but the impact is and will be different for different businesses, its impact has already been felt on the value of sterling, with knock-on effects for Irish imports and exports.

More than half of SME owners cited the UK’s exit from the EU as the single biggest challenge they face and preventing them from investing in their business. Additional causes of concern include domestic economic uncertainty (38%), cash flow issues (36%) and rising cost (31%).

With many trying to navigate in an uncertain business environment, there is also continued dissatisfaction with the amount of state support provided for SMEs ahead of Brexit.

Almost two-thirds (63%) of SMEs feel the government should be providing them with more support, in the form of tax breaks (71%), a lower VAT rate (70%) and assistance in mentoring and growing their company (58%).

Additional risks and challenges

As a highly open economy, Ireland is also particularly exposed to changes in the international taxation and trade environment. Brexit isn’t the only external risk to the Irish economy, as risks to global growth tilt to the downside. The U.S. is the most important export destination for Irish goods, and its economy is decelerating with fears rising of an outright recession in the next 18 months.

The Eurozone economy is back at crawl speed, with a few of its larger economies in, or close to, recession. China is becoming an increasingly important export destination, having recorded its weakest year of economic growth in three decades in 2018 and it is expected to slow further.

Clearly, as reflected in the high concerns about geopolitical risks, Brexit is a key disruptor. With the ongoing developments in the UK and Brussels, businesses still lack clarity on Brexit and the risk of a disorderly exit has increased. Irish businesses need to intensify their no-deal contingency planning, as a hard Brexit scenario would likely lead to a credit crunch for those businesses that do not have sufficient credit lines and funding in place, at the same time as they are readjusting to alternative trading relationships.

Mark O’Rourke is Managing Director at Bibby Financial Services Ireland, a leading provider of financial support and funding solutions to Irish SMEs.