The change in formula for calculating how EU countries are compensated for economic loss due to Brexit could have passed as an April Fool’s Day gag.
nstead of providing funding from a central EU Brexit fund to the countries most affected, a late intervention by France saw a change to the formula which now favours bigger countries like, you guessed it, France.
Ireland looks set to lose an initial battle to retain its €1bn share of the EU’s €5bn Brexit compensation fund. It is estimated that the criteria change will see Ireland receive around €200m less.
France received backing from countries such as Italy and Spain. MEP Barry Andrews said the move was completely unfair and promised we would “fight this as hard as we can”.
There are several reasons why it happened. Firstly, there is a diplomatic and political context, in which our representatives haven’t tried hard enough to win support, or have simply dropped the ball.
Secondly, there was a report out from the Central Bank of Ireland during the week, suggesting the Irish economy would grow by a staggering 5.9pc this year – despite the lockdown and Brexit.
Thirdly, Minister for Public Expenditure Michael McGrath made a very truthful comment during the week that other EU countries look on at Ireland’s success in foreign direct investment with a degree of “envy”.
He was talking about tax policies rather than Brexit compensation funds, but he is probably right.
How do you sell a tale of economic carnage caused by Brexit to an economy that continues to pump out announcements about FDI jobs and economic growth?
The answer is that they represent two completely different economic realities.
Our GDP figures, driven by foreign direct investment and intellectual property, are moving the headlines further away from the reality in other sectors and in other parts of the country.
Brexit will hit the food sector and many medium-sized exporters the hardest. Their economic reality is a million miles away from another 2,500 jobs for the east coast between Intel and Stripe.
Within that FDI economic lens, through which Ireland was one of only two EU countries to grow exports during 2020, everything continues to go well.
But other parts of the economy will be directly affected by Brexit.
Smaller exporters will suffer. Bigger food exporting firms, such as in meat processing, will do okay – but they are unlikely to create much new employment. The big players will shift more capacity, processing and meat purchases to the UK.
The fishing sector is preparing for a negative impact. Additional costs for importers will see price hikes for consumers. This in turn could bring about some business casualties.
But this is a hard story to tell to fellow EU members who, on the one hand, stood solidly behind Ireland on the Brexit border issue – but who are increasingly frustrated at aspects of our tax policy and the success of our multinational sector.
The Central Bank prediction of 5.9pc growth is 2pc more than it predicted at the start of the year. Its forecast for Modified Domestic Demand (which attempts to strip out the impact of multinationals) is actually down a little to 2.8pc.
From a broad economic perspective, this could be offset by the higher growth in exports – but that is of little comfort if your job is with a company that is plugged into domestic demand.
The other factor in all of this is how much the State is spending on Covid supports. The Central Bank estimates that, between 2020 and 2021, the direct and indirect cost of Covid will total about €32bn.
In that context, why not borrow another €200m at very low interest rates to support Brexit-hit businesses?
It seems like a small amount.
However, state aid measures have to be approved in Brussels. The EU Commission has eased the reins considerably during the crisis – but the Brexit fund allows a lot of national governments discretion with where the money is spent.
Our politicians have to clear up the message in European capitals.
Are we a struggling little country coping with Covid, Brexit and high national debt levels, all at once?
Or are we an FDI powerhouse that continues to attract huge investment and grow our exports during a global crisis?
It is not an easy balance to strike.
Tommy Kelly of EShopWorld
Tommy Kelly’s payday
As founder of eShopWorld, Tommy Kelly can expect a big payday very shortly – after selling the remaining stake in the company he started in 2010 to postal joint venture Asendia.
Asendia is owned by La Poste and Swiss Post. It already owned just over 50pc of the company, with the remaining shareholding held by a Tommy Kelly company called Eidervale.
EShopWorld’s day has truly come with the explosion in online shopping and the acceleration of digital commerce driven by Covid. The company connects premium brands such as Nike with consumers in more than 200 countries, through software that makes it easier to sell across borders.
The size of the cheque going to Mr Kelly is an interesting question. The company has targeted sales of €1bn with plans to double that in the coming years.
Accounts for US Direct E-Commerce Holdings Ltd, which owns eShopWorld, show that gross turnover rocketed in 2019 from €137m to €543m. If that pathway of exponential growth has continued in 2020 – and there is every reason to think it has – then turnover could easily have surpassed €1bn.
Reports suggested that the takeover deal placed a valuation on the business of €1bn. Its 2019 accounts show the €543m gross turnover translated into profit after tax of €5.3m, operating profit of €6m and the book value of intangible assets of €25.6m. It also paid out a dividend of €6m for 2019.
Meanwhile, Tommy Kelly’s Eidervale has been in rude financial health all the while. Accounts for Eidervale show at the end of 2019 it had retained earnings of €69m and net assets of €70m, with €14.3m in cash.
The accounts show that in 2017, the year it agreed to sell a further 10pc of the company to Asendia (bringing it to 50pc), Eidervale made a profit of €23.2m. Then it made another €41.4m in 2019 on the “disposal of an investment”.
With that kind of revenue growth eShopWorld and Kelly appear to have been in the right place at the right time in 2020.
A tale of two hotels
Two hotels tell very different stories. One hotelier I recently spoke to along the Wild Atlantic Way said that, when State supports are taken into account, he made a profit in 2020.
He was open for just 20 weeks and admitted to having jacked up prices on all kinds of things, including cocktails. He is gearing up for whatever he can this summer.
But in Dublin it is a different story. One hotelier I spoke to who is keeping his full kitchen services open for a few essential workers in the Capital, told me the kitchen is costing him €10,000 a week just to keep it going. He said good years in the past were supporting that cost for now. He isn’t as excited about the prospects for summer 2021.