When it comes to figuring out the implications of Brexit on cross-border payments, Irish exporters are not alone in finding it hard going.
“There is so much uncertainty around Brexit that it’s very difficult for businesses to respond to it,” says Ruth McCarthy, chief executive of Fexco Corporate Payments. “I think very many businesses are in a state of continuing shock, in both Ireland and Britain.”
Early economic indications are that it has resulted in a fall off in the purchase of big ticket items, both businesses and consumers. “People are holding off, waiting to see will things get better or worse. And unfortunately, nobody has the ability to see into the future.”
One of the earliest casualties was always likely to be the food sector. What surprised McCarthy here was how few food businesses, which have traditionally depended heavily on the UK market, had put in place a strategy to hedge the risk of currency fluctuations in the run up to the Brexit vote.
It’s now too late to achieve the full benefits of such a move: “unfortunately the genie is out of the bottle”.
The problem with putting in place an active currency strategy is that it requires both foresight and commitment from business owners. “For many small businesses the difficulty is the commitment, they like to have discretion over their cash flow, while at the same time, there is always a sense that while they might lose from a downward shift in currency, they could win from a gain.”
Leaving your business open to the vagaries of the currency markets can be a dangerous path however, as the closure of a number of Irish mushroom producers in the immediate aftermath of the Brexit vote attests.
As high volume, low margin purveyors of a commodity product, mushroom farmers faced a particularly challenging set of circumstances. Today however, “any sensible business should now try and hedge at least half of their foreign currency exposure”, says McCarthy.
“A big lesson of the volatility we’ve experienced in the past six months is that it’s a good time for all businesses to think seriously about their ForEx requirements, and not be leaving it to fate,” she says. “But the problem is that small businesses have so many concerns to deal with on a daily basis that currency can fall away down the list.”
Brexit will bring opportunities too, she points out, not least that UK based payments businesses will consider basing themselves here with a view to servicing the EU market. “Unfortunately in overall terms, Brexit’s negatives outweigh any positives.”
And events in the US could have implications for Irish businesses too, she points out. Here equities have risen since the advent of the Trump administration. But in what is an unusual departure from the norm, volatility in the US is currently not driven so much by economic data – such as interest rates or unemployment – but by “political data”, she says.
For those wondering what the knock on impact on the dollar exchange rate might be, this is unusual territory. “ForEx trading is much more sensitive to political data than it was one year ago,” she says.
