Majority of SMEs unprepared for Brexit, says AIB

The vast majority of small and medium enterprises (SME) across the island of Ireland have no formal Brexit plans as negativity remains high in the manufacturing, hospitality and tourism sectors.

According to AIB’s fourth quarter 2017 Brexit Sentiment Index, just 6 per cent of SMEs in the Republic have a formal plan in place to deal with the fallout from Brexit, while only 2 per cent of SMEs in the North have a similar plan.

The lack of preparation comes as one fifth of export focused SMEs in the Republic plot ways to reduce their exposure to the UK market and expand into Europe or beyond.

AIB’s index finds that of the 36 per cent of SMEs in the Republic that had planned to invest in their businesses before the UK voted to leave the EU, 10 per cent are reviewing those plans, while 8 per cent have cancelled or postponed them indefinitely. The case in the North is somewhat worse as, of the 44 per cent of SMEs who had plans to invest, 23 per cent have cancelled those plans.

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Depreciation of sterling

In his commentary on the report, the bank's chief economist, Oliver Mangan, noted it was still the sharp depreciation of sterling that was most impacting businesses.

"It is particularly acute in Northern Ireland, where sterling's weakness has increased the costs of sales for 62 per cent of SMEs. Higher inflation and import costs as a result of a weak sterling are the main factors at work here.

“In the Republic, adverse currency movements have been identified as being by far the main negative impact on business to date of Brexit, which is hardly surprising given the reliance on the UK market for those SME firms that do export.”

Confidence

Aside from currency fluctuations, Mr Mangan reported that falling consumer confidence and spending combined with a degree of uncertainty is also impacting business.

While mostly negative, AIB's head of business banking, Catherine Moroney highlighted that it was promising that one in five SME exporters in the Republic were considering international markets, "with France and Germany topping the list of destinations", she said.

In sectoral terms, sentiment in manufacturing dipped to -49 while sentiment in hospitality and tourism fell to -40. The Brexit sentiment index baseline is zero, with a potential range from -100 to +100.

AIB’s quarterly Brexit sentiment index was conducted by Ipsos MRBI among more than 700 SMEs in the Republic and the North.