A new survey – Export Market Watch – has found that since the Brexit vote, nearly half (45%) of Enterprise Ireland construction firms have reduced their exposure to the UK, with almost seven in 10 firms surveyed now viewing the Eurozone as providing key opportunities for growth.

The new publication by Enterprise Ireland, in conjunction with Investec, is designed to help support the global ambitions of Irish firms by providing insights into developments across the country’s major export markets, as well as the outlook for exchange rates, to support their diversification plans.  In this quarter’s report, Enterprise Ireland and Investec look at the prospects for the Irish construction sector internationally.

Construction sector

Despite 45% of respondents having taken steps to cut their UK exposure since last year’s Brexit referendum, the UK is still identified as the country with the best near-to-medium term opportunities by Irish construction companies.

For those retaining a presence in the UK, currency volatility is a key issue for construction companies looking to price and tender longer-term projects. Respondents indicated that they are increasingly looking to mitigate currency risks through sourcing more UK suppliers, while others have introduced more conventional currency and raw materials hedging tactics. Key opportunity areas identified in the UK are largely around housing, ‘Build to Rent’ schemes and public infrastructure.

New markets, particularly the Eurozone, will grow in terms of importance in the next few years for companies who provide specialist data centre and pharmaceutical plant construction expertise.  While 52% of firms currently do business with the Eurozone, 69% view it as offering attractive opportunities for them.  However, only one in three companies believe that they currently have sufficient resources in place to expand into new markets and market knowledge is cited as the highest barrier to entry.

Other challenges identified as being among the key barriers to entry to new markets include:

  • adequate staffing;
  • customer targeting;
  • regulatory uncertainty.

Stephen Hughes, Head of Construction at Enterprise Ireland said: “From an export perspective, construction exports by Enterprise Ireland clients are at an all-time high and many construction companies that diversified during the downturn, are now well positioned to capitalise on global growth in key markets.

“We can see that the constraints of moving into a new market identified by our respondents are multifaceted.  Equipping construction firms with the skills to overcome these challenges will likely deliver tangible benefits, with 72% of respondents saying that they would increase their employee numbers if they move into new markets.  Enterprise Ireland has developed its Eurozone Strategy, and is providing Building Information Modelling (BIM) training, to help equip such companies to build scale and expand their reach in this important marketplace.”

Global construction markets

The findings of the Export Market Watch reveal that further momentum in the US residential construction market and strong consumer confidence in Ireland, Germany and the Netherlands are the key areas of opportunity for the construction industry.  However, there are also clear signs that the UK construction activity has lost momentum with construction activity just +0.9% higher year-on-year.

Stephen added: “There are a number of areas of particular strength in the Eurozone at this time, including: data centres; pharmaceutical facilities and healthcare infrastructure.  Positively, these are all segments that Irish firms have expertise in so establishing and maintaining local relationships is a must for new entrants to these markets.

“We have also noticed Irish firms taking more interest in expanding in the US market in the wake of the Brexit vote. This marketplace offers plentiful opportunities, particularly in residential property, data centre construction and healthcare.”

Market outlook for exchange rates

Investec said that with most of the key scheduled political events of 2017 now behind us, the focus on FX markets is shifting back to economic fundamentals from political developments.  A combination of the diminution of perceptions of political risks and a brighter economic growth outlook for the Eurozone have contributed to a strengthening of the single currency.

Export and exchange rate performance

Irish exports have made a very strong start to 2017, with nominal goods exports increasing 7% year-on-year in the year to June 2017, according to the CSO.  Helped by this momentum, the trade surplus has widened by 16% year-on-year to €25.1 billion in the same period.

Philip O’Sullivan, Chief Economist with Investec commented: “With eight successive above-50 readings, the export component of the Investec Services PMI report for Ireland suggests that, similar to goods, the strong momentum in this area should continue.  The progress is particularly encouraging given some recent adverse currency movements from an Irish perspective, most notably from sterling”.