Punters get lucky with Irish bounty

As Northern Ireland comes to terms with a loss of trade over the border, the US economy is heading for turmoil

On any weekend as you drive into the Irish Republic, two miles after leaving Derry in Northern Ireland you are faced with a long queue of cars heading into the petrol stations that line the border - on the republic's side. Filling stations on the northern side still have their canopies standing, but they no longer sell petrol. Instead they sell cars and offer car washes; or they refurbish computers, sell groceries or even serve fish and chips; their days as fuel retailers are over.

On any weekend as you drive into the Irish Republic, two miles after leaving Derry in Northern Ireland you are faced with a long queue of cars heading into the petrol stations that line the border - on the republic's side. Filling stations on the northern side still have their canopies standing, but they no longer sell petrol. Instead they sell cars and offer car washes; or they refurbish computers, sell groceries or even serve fish and chips; their days as fuel retailers are over.

Once, five years or so ago, it was the opposite story. The punt was high and the pound low, and it was petrol stations in the north - under UK administration - that benefited from exchange rate peculiarities. Today, though, up and down the border with "euro-land" it's the same story. Seventy Northern Ireland filling stations have closed in the past 14 months and the UK has lost some £308m in fuel trade.

This should cause no surprise when a litre of unleaded petrol in the republic costs 55.3 pence in sterling (and yes, you can pay in sterling), compared with 76.9 pence in the neighbouring filling station in Northern Ireland - a whopping 28 per cent difference.

A petrol retailer in the Irish Republic said that 99 per cent of his customers were from Northern Ireland. Nor is the cross-border fuel trade restricted to car drivers. Lorry drivers, too, fill up in the republic, and many of the surviving Northern Ireland petrol stations are reputedly importing fuel illegally to take advantage of the 25 per cent fall in the value of the euro - and that means the Irish punt - against the pound, together with the lower fuel duty in the south. One tanker of petrol can save a garage owner £5,000.

This phenomenon extends to all retailing. The Northern Irish are increasingly doing not just their high-value purchasing in the republic but their weekly grocery shopping, too. The republic's towns - such as Lifford, Letterkenny, Monaghan, and Dundalk - are gaining the trade that Derry, Strabane, Armagh and Newry are losing.

It is no wonder to those living in the north that Peter Mandelson, the Secretary of State for Northern Ireland, has spoken about the importance of Britain joining the euro. Sterling's over-valuation against the euro-linked punt is costing Northern Irish traders a fortune.

Jerome Mullen, president of Newry's chamber of commerce - which recently told its members to minimise exchange risk by sourcing within the euro zone, outside the UK - says: "It is a serious situation in some industries, like petrol, where they're affected by curr-ency and duty. Companies exporting into the south are badly hit, and a lot are now sourcing from within the euro zone."

Retailers in the north are getting desperate and some now price in punts or offer punt-for-pound deals. Ciaran Gallagher, proprietor of the Boston Golf and Angling Centre in Derry, is one of those who has led the local traders' fightback by pricing in punts. "We lost a lot of trade because of the strong sterling," he says. "I am hoping to attract those customers back again."

The move is certainly working. In the last quarter, under sterling pricing, Mr Gallagher lost 40 per cent of his trade. In the first quarter since the move to punt pricing his turnover has risen by 10 per cent. "That is due to the huge amount of punts we're lifting," Mr Gallagher says, adding that this is despite discounts of between 25 and 30 per cent for paying in sterling.

For Mr Gallagher the move was an economic necessity. But it was easier for him than for some other traders because his supplies come from the republic and, in effect, he is moving most of his business into the Irish economy, while paying lower UK rates of tax.

Stanley Lee, proprietor of the Mandarin Palace restaurant, has been offering punt-for- pound deals for three years. Where some of his competitors have lost 30 per cent of their trade, he has maintained customer volumes, though margins have slipped. "All border towns in Northern Ireland are suffering because there is a two-way drain on the economy," says Mr Lee. "The money is going out of the town because people can change sterling into punts ... they are getting as much as 40 to 45 per cent extra spending power in the south. And people in the south are not coming to Derry because they are put off by the exchange rate."

His says his business had to resort to a punt-for-pound deal just to keep going. "I believe Britain has to join the euro or else devalue. Decisions are made in London, which is fine for London as it's booming, but everywhere else is on its knees."

More traders are making similar offers. This month the My Tiles store in Derry's city centre began punt-for-pound deals. It does not offer discount on sterling and recognises that it will be encouraging Derry people to shop in punts. But so far, the results are favourable.

Last week the Cityman clothing shop in the centre of Derry joined the trend, pricing in punts but offering a 25 per cent discount for payment in sterling. After a constant decline in trade to Donegal, in just two days it was clear to proprietor Colm Doherty that trade was improving. "We'd like to see every shop in Derry work in punts. That would make it unnecessary for people to cross the border except for petrol and cars. We source from the same suppliers as the Donegal traders and we have equal buying power so we can compete. The biggest nightmare for traders in Donegal would be to see headlines saying that shops in Derry are trading in punts."

There's an irony here. Northern Ireland's troubles were partly about whether its future lay in the UK or the republic. Now, just when the peace process lies on the cusp of success, the economic realities of the euro are driving Northern Ireland to closer integration with the south.