Markets & Companies

Ireland’s Thriving Pharma and Chemicals Producers Optimistic about Brexit

This Outlook Is Not One Being Shared by Other Parts of the Irish Economy

24.11.2017 -

Of the remaining post-Brexit 27 member states of the European Union, Ireland looks likely to suffer the most economically, and also possibly politically, as a result of the UK’s withdrawal from the EU in March, 2019.

But its thriving pharmaceuticals and chemicals sectors could come through Brexit relatively unscathed. In fact they might actually gain from Brexit because of the strong possibility that companies outside the British Isles considering putting money into UK projects in pharmaceuticals and chemicals will instead switch their investment to Ireland.

However this seemingly bright outlook is not one being shared by other parts of the Irish economy, except in areas like financial services. Brexit could seriously impact the Irish economy as a whole, which could cause difficulties for pharmaceutical and chemical producers in the country.

Among the EU member states, Ireland is the closest geographically since it is the only one with an UK-EU land border, which divides it from the UK region of Northern Ireland.

It also has close cultural ties, symbolized by the fact that after Brexit it will be the only English-speaking country left in the EU. Since Ireland gained its independence in the early 1920s after centuries of British rule, the two countries have had a Common Travel Area (CTA) so that travelers between the two do not need passports. The Dublin-London air route is the busiest in Europe and the second busiest in the world.

Economically Ireland has had a history of dependence on the UK. When Ireland and the UK joined what was then the European Economic Community (EEC) in 1973, it was sending over half of its exports to the UK. This has since dropped sharply to around 13-14%.

Nonetheless with a population of only 4.5 million and a 1.6% share of the EU’s GDP against the UK’s 13.8%, it still has a high degree of economic reliance on its much larger neighbor.

Predicted Fall in Ireland-UK Trade

The UK remains Ireland’s biggest trading partner in the EU while Ireland is also among the top three for the UK along with Germany and Netherlands. In fact the UK’s trade with Ireland is higher than its total trade with the BRIC states of Brazil, Russia, India and China combined.

In 2015 while the UK accounted for just under 14% of Irish exports, a lot of them pharmaceuticals and chemicals, it also had a 26% share of Irish imports, according to figures from Ireland’s Central Statistics Office.

Some economists are predicting that after Brexit there could be a fall in Ireland-UK trade of over 20%, although this will be in line with expected worse-outcome decreases in trade with other EU countries. A few are even warning that if Brexit goes really badly for the country its GDP could fall, even by as much as 7%.

The British-Irish Chamber of Commerce has warned about a potentially serious impact of Brexit on Irish SMEs for whom the UK can account for as much as 40% of exports.

“Despite the assertions of some commentators there are very few, if any, positives to be gained for Ireland (from Brexit),” said Neale Richmond, chairman of the Irish Senate’s select committee on the UK withdrawal from the EU, which issued a report on the implications of Brexit in June.

“Minimizing and managing the impact on Ireland of this decision will be arguably the most significant challenge the (Irish) State has faced in its short history,” he added in a comment on the report.

Pharmaceuticals Leading Force

However Ireland’s flourishing pharmaceuticals and chemicals producers remain comparatively optimistic about the effects of Brexit on their sector.

Ireland’s pharmaceutical industry has been built up as part of an economic diversification strategy since the 1960s to become a leading force in medicines and active pharmaceutical ingredient (APIs) production not only in Europe but also globally. Its success has boosted the Irish chemical sector, a majority of whose business is in supplying raw materials and intermediates to pharmaceutical producers in the country and in making APIs.

“A major concern about Brexit for us is how our supply chains for pharmaceuticals and chemicals will be affected,” said Matt Moran, director of Biopharmachem Ireland, a business association representing the country’s pharmaceuticals, biopharmaceuticals and chemicals producers, and which is part of Irish Business and Employers Confederation (IBEC), Ireland’s main business representative organization.

“We have a land bridge across the UK which is used to transport our exports and imports into the UK itself and to continental Europe,” he continued. “There is a danger that that part of our supply chain may get disrupted if trade barriers are put up between the UK and the EU.”

Under the worse case scenario for Brexit which is a No Deal after negotiations between the UK and the EU on a Brexit agreement break down, the UK would have to trade with Ireland and the rest of the EU under the rules of the World Trade Organization (WTO). There would also be no transitional period of at least two years during which the details of an UK-EU free trade agreement (FTA) would be negotiated and UK-EU trading arrangements would continue much as at present.

Fast Growing Medical Devices

The application of WTO tariffs could be as high as 50% on sales to the UK of some food products which after pharmaceuticals is Ireland’s biggest export. But under WTO rules no tariffs are imposed on pharmaceuticals.

On the other hand tariffs may be placed on other Irish-made products from sectors, such as medical devices, which are customers of chemical producers in Ireland and are growing in importance to the Irish economy. The medical devices segment has been one of Ireland’s fastest growing exporters.

Much of the impetus behind the expansion of the pharmaceutical industry and its chemicals suppliers has come from the country’s Industrial Development Agency (IDA). It has helped persuade nine of the world’s 10 large pharmaceutical companies to invest in manufacturing facilities in Ireland.

Around $8 billion in capital investment has been put into new pharmaceutical production facilities in Ireland, most of it in the last 10 years. Around 120 overseas pharmaceutical companies now operate in Ireland.

Ireland is the largest net exporter of pharmaceuticals in the EU, according to the Irish Pharmaceutical Healthcare Association (IPHA). Last year its exports totaled around €30 billion, which when combined with those of organic chemicals, most of them APIs or other pharmaceutical materials, account for over 40% of the country’s total overseas sales.

The industry started in Ireland as a bulk products manufacturer but has since moved into the higher end of the market. It has helped establish an R&D platform in the country in pharmaceutical, biotechnology and chemistry in which the industry works closely with Ireland’s universities and research institutes.

This broad-based structure should help attract investment which without Brexit would have been destined for the UK or will come from UK-based companies wanting to have a continued presence within the EU.

Broadening Chemicals Appeal

For businesses relocating from the UK, Ireland would have the familiarity of a similar business culture, language, laws and regulatory environment. At 12.5% it also has one of the lowest corporate tax rates in the EU.

IDA has been forging new Brexit-driven marketing strategies and allocating increased resources to promoting Ireland’s suitability for UK-based companies looking to maintain easy EU market access.

The Irish government usually targets, through the IDA, the US and EU countries for foreign direct investment (FDI). But recently there has been greater focus on Asia, especially Japan.

Also IDA is wanting to appeal to a wider range of chemical companies, especially those needing R&D capacity for new technologies.

Henkel announced in October (2017) an additives manufacturing or 3D printing project in Tallaght, Dublin, where it already has a manufacturing and R&D operation in adhesive technologies for the global market. It will be employing scientists and engineers to develop new advanced materials for use in precision manufacturing industries, such as medical devices, automotive and aerospace.

“Additive manufacturing will be a significant disruptor to future manufacturing methodologies and it is important for the team in Ireland to help shape this change,” said Matthew Holloway, Henkel Technology center director. “Henkel recognizes the strength of relationships with the research community in Ireland.”

A key issue with Brexit, both economically and politically, is the future of the Irish-Northern Ireland border. It has become so open that it is virtually invisible, which is mainly a result of the peace process triggered by the 1998 Good Friday Agreement which ended years of conflict between Irish nationalist and pro-UK paramilitary groups.

If the necessity for a post-Brexit “hard” border with customs, passport and other controls leads to new inter-communal tensions, then even the pharmaceutical and chemicals sectors may not avoid the economical and political consequences.


Chemical Market Reporter

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