The past few weeks have felt like months. The CSO reported that in February the Live Register stood at 182,500. In March, some 513,350 people were in receipt of Covid-19-related payments and on the Live Register.
There is no doubt that we are living through an unprecedented crisis. In February, the Irish Exporters’ Association sent a clear signal to Government that financial support would be required at both company and personal level to offset the impact of Covid-19.
The manner and speed in which schemes have been rolled out is commendable. However, I would warn that supports will have to be rolled out beyond 12 weeks and would wonder how the public purse will fund a longer rollout. But it is necessary.
One of my biggest concerns now is how, as a nation, we will restart the economy and when? Do we have the right competence in key parts of the economy to take the leap of faith that will be required and the corporate trust to do this properly? It is crucial that we prepare for this now.
An in-depth understanding of the economic impact on each sector must be the basis for any national targeted strategy. The overall potential impact on the Irish economy has been forecast by the Economic and Social Research Institute, citing a 7.1 per cent decrease in economic activity. We now need to focus on the impact sector by sector and to push back from any sort of economic restart blanket approach.
Above all, liquidity is key to kick-starting the economy. It will be necessary to oil the financial cogs of the entire inbound and outbound supply and value chains. For example, businesses that have shut in the past few weeks will require raw materials and inventory before commencing production. This will need to be financed, and if a lot of this sourcing is imported, that adds another layer of complexity.
Operating costs
Wages and normal operating costs will need support before products are completed, and then there is the question of getting paid. Members have spoken of their fears of exporting to a customer who either may not be able to pay or may ultimately have gone out of business by the time the goods reach their destination.
They talk of the possible need for them to provide in-house credit to their customers in order for those customers to be able to pay for their products. One approach could be for a financial institution to sit behind these exporters as in the motor industry.
Export credit insurance will play a key part and, as one of the EU countries that does not have a state-backed export credit agency, Ireland is putting itself at a competitive disadvantage. We need to put aside our long-held opposition to such a scheme and make haste now to put one in place.
And then we get to transport and logistics. We see the trucks, trains, ships and planes, but do we ever actually take notice of them? It’s a sector that gets largely taken for granted and yet none of the physical goods we export or import would get to their destination, nor would our weekly groceries, household items or online purchases get to the consumer without the arterial support provided by the logistics and freight industry.
The sector has been designated an essential service by the Government and rightly so. But with its multitude of players of all sizes, with its domestic and international companies, it is going to need support. We are seeing an overall reduction in volume in transit, which will inevitably lead to diminished capacity and increased rates, and unfortunately potentially fewer players in this sector. In a restart, we will need this industry and all its component parts.
Bank empathy
A pulse of accessible credit from a trusted source is what businesses will ultimately need to recover and continue. While an immediate place to look to for cash is the banks, I have concern about the trust felt by the business community towards the banking sector and the sector’s empathy in the long term.
The approach taken during and after the financial crash is hardwired into memories. I am forever hearing that credit will be available for “viable businesses” but the definition of a viable business, as it applied in December 2019 and as it was applied post the last financial crash, has completely gone out the window.
Will our banking sector have the competence to assess what will constitute businesses’ viability in our brave new world?
A whole new approach to liquidity provision will be required and it will need to be co-ordinated globally and at EU level and then delivered under a national authority. Due to the international nature of our economy, we have tended to benefit from any uptick in our major trading partners.
However, we are particularly prone now as it will take time for pre-Covid-19 international demand and supply to re-establish itself. It is for this reason that a leap of faith will need to be built into any financing and credit models, and that currently is not a core competence of our bankers.
Co-ordinated approach
Exporters know what is required of them in the aftermath of Covid-19, but the right measures and policies must be in place. It is vital that we push for co-ordinated restart activities across the EU, where 48 per cent of our exports went to in 2019 and some 69 per cent of imports came from .
A co-ordinated approach will benefit intra-EU trade and global trade, where Ireland’s top exporting partners include the US (28 per cent in 2018), UK (11 per cent in 2018) and China (3 per cent in 2018). With the UK (22 per cent in 2018), US (18 per cent) and France (12 per cent) being our top three importing partners.
It will require a co-ordinated approach to construct the required financial model to support global trade.
As a final note, it is worth recalling Franklin D Roosevelt’s New Deal in the wake of the 1930s Great Depression. This programme aided economic recovery and bestowed hope on citizens when it was needed.
In the wake of Covid-19, any national restart strategy must encompass both, and particularly needs to keep an eye on at least one of the global megatrends, notably climate change. Within the context of the European Green Deal there could be an opportunity as we rebuild our economy to initiate national projects that will create employment, kick start innovation and ultimately position Ireland as a centre of excellence for responsible sustainable trade and investment.
Simon McKeever is chief executive of the Irish Exporters’ Association
