Impact of economic uncertainty on Ireland's SMEs


By Mark O'Rourke, Managing Director, Ireland

07 Jan 2019

Mark O’Rourke, Managing Director, Bibby Financial Services investigates the impact of economic uncertainty on Irish SMEs

The Irish economy is currently in a strong position, with low unemployment levels and increased growth across a number of sectors. Despite this, there is a high level of uncertainty among Irish SMEs, limiting investment and enthusiasm for the coming year. Brexit is undoubtedly the key factor driving this uncertainty. While its final form is as yet unknown, its impact has already been felt on the value of Sterling, and the knock-on effects this has for Irish imports and exports.

Indeed, a recent survey of SME owners found that more than a third (36%) cited the uncertain economic environment as preventing them investing in their business, with 20% saying the UK’s departure from the EU was the single biggest challenge they currently faced. Additional causes of concern include cash flows (36%), rising costs (36%) and the uncertain economic environment within Europe (23%).

While the withdrawal agreement’s fate is currently being decided, discussions on the nature of any future trading relationship between the UK and EU have yet to be decided. Irish SMEs will continue to face a high degree of uncertainty until agreement on this relationship is finalised, while changes to US tax and trade policies will also leave them exposed and subject to collateral damage.

SMEs will pin their hopes on the continued strength of Ireland’s buoyant services exports, following a shift in focus from the export of goods, which contributed to a strong overall export performance for Irish businesses in 2017 and into this year. In addition, strong domestic demand may well contribute to increased growth in imports well into 2019.

Despite being dogged by uncertainty, then, it’s clear that there are significant opportunities for SMEs to overcome these challenges and enjoy sustained growth. To do so, however, the necessary financial supports will need to be in place. At a recent appearance before the Oireachtas Finance Committee, for instance, Mario Draghi, head of the European Central Bank, pointed to the dominance of Ireland’s two largest banks as distorting the mortgage market and increasing costs. At the same even, Philip Lane, governor of the Irish Central Bank, highlighted how the financial crash had led several banks to exit the market, reducing the range of financing options available to smaller Irish firms.

However, SMEs are often unaware of the financing options available to them outside of the major banks. Alternative lending solutions can also offer a range of benefits above and beyond access to finance, including in-depth specialist market knowledge and strong client relationships. There is also typically greater scope to take into account an SME’s existing and future needs when looking to secure finance, as well as factors such as supply pressure payment cycles, currency fluctuations and complex international commercial terms.

All of this allows SMEs to tailor the financing they receive to the needs of their business – allowing them to plan with greater precision and reducing their exposure to economic uncertainty. Lastly, the process of securing suitable cashflow is greatly accelerated when compared with the main lenders, whose own processes are typically slow and complicated.

A failure to cast the net more widely and embrace alternative lenders will only lead Irish SMEs to be more reliant on the same banks, making it more difficult to access favourable rates and fulfil their potential. Going forwards, this will in turn undermine growth in the number of SMEs in Ireland, as well as the country’s wider economic prosperity.

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