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Ireland's political and cultural magazine
— December - January
the October edition of Village
magazine denigrated the achievements of the
Irish business sector. This is to under-recognise
the underlying dynamism and pioneering track
record of many small Irish businesses that con-
tributed much to our quality of life over the last
decade. The sector is, however, under threat.
Elsewhere, I have read numerous economic
analyses and forecasts – Central Bank, ESRI, OECD
and many more – but nowhere have I noticed any
discussion of the role of the Enterprise sector in
the revival of the Irish economy. Up to now, the
Government has focused on public finances and
saving the banking system as the two key elements
in our economic recovery. But this is not enough
and, without a strategic action-oriented approach
to sustain and boost the Enterprise economy, our
path to recovery will be more painful and pro-
longed than is necessary..
The revenue forecast by the Department of
Finance in the supplementary budget as recently
as last April will be out by €. billion by the end
of the year. The shortfall reflects a more severe
economic contraction than expected and a faster
deterioration in the enterprise economy. I believe
that Government revenue will continue to fall
short of forecasts unless strategic action is taken
to revive the Enterprise economy. Our economy
continues to decline by an estimated .%-%
this year and we are not in sight of the quarter-to-
quarter increases in economic activity now emerg-
ing in most of our trading partners. I simply do not
understand the basis on which the Department of
Finance in the recent Budget Statement predicts
a return to positive growth within the next six-to-
nine months – by September .
The bubble boom which ended in was
fuelled by property and consumer spending
derived from annual increases of up to % a
year in bank lending.
The contribution of exports to our economic
growth declined as we lost a massive % in our
trade-weighted competitiveness between January
and April - when the current reces-
sion started. The recovery of our economy will
be soundly based and will come quicker if we
take imaginative steps to support the Enterprise
sector.
Cash Flow
There is a chronic lack of cash in the enterprise
sector; lending to the private sector by banks
has gone from a % annual increase to a %
decrease at the last count as State spending at
central and local levels has contracted. Prompt
Payment of Accounts legislation requires pay-
ment of bills in the time specified in a contract,
or otherwise within days of receipt of an
invoice. The State delays by nine months in pay-
ing to firms the rebates of redundancy monies
due to them. By definition, enterprises that have
to make staff redundant are under pressure and
they badly need the rebate of % of the redun-
dancy payments. It is doubly disappointing that
it is the very Department which is charged with
promoting Enterprise in Ireland that is responsi-
ble for processing the redundancy payments.
Credit Flow
We need to get credit flowing again from the
banking system to enterprises, now that NAMA
is due to be in place shortly. The overwhelm-
ing experience of enterprises has been that the
banks have been cutting back on overdrafts and
that it is extremely difficult to get funding for any
new project. This is reflected in the contraction
in overall lending to the private sector implied by
recent bank financial reports. The Irish Small
and Medium Enterprises Association (ISME) has
consistently highlighted discrepancies between
the reported experiences of its members and the
statements of the Bank Groups. I very much wel-
come the decision of the Minister in his recent
Budget statement to use his new powers under
the NAMA legislation to set up an independent
review of credit refusals to SME companies by
banks as well as of the credit policies and prac-
tices for this sector. Significantly, he intends to
publish the results of these reviews. It remains
to be seen how many of the banks not covered
by the NAMA legislation but benefiting from the
Government guarantee will take up the Minister’s
invitation to participate in this credit review.
Cost of Business
The costs of doing business in Ireland need to
be aggressively tackled in a campaign led by
Government. ISME has been to the fore in high-
lighting the adverse impact of our loss of com-
petitiveness on the SME sector. The National
The Economy
Former head of IDA calls for
IFSC-style enterprise-generation
model
p a d r a i c w h i t e
PHOTO: GETTY IMAGES
Competitiveness Council has set out an agenda
for reducing costs in its publication, Costs of
Doing Business in Ireland . The Report
benchmarked Ireland against other countries
competing for trade and investment, and found
the following:
Ireland has the second most expensive
»
electricity costs
waste disposal costs are highest in Ireland »
the cost of an on-site IT service was the
»
second most expensive in Dublin at € per
hour compared with € in Boston and just
over € in Copenhagen
Dublin was the most expensive for legal fees » .
An up-to-date analysis of the competitive issues
facing the Export Sectors – whom we depend
on for real economic recovery – was set out in
the Council’s publication this month entitled
“Driving Export Growth “
Ireland’s export performance this year, in
the words of the ESRI, has been “ remark-
ably resilient by international standards...
in spite of the collapse in world trade”. The
segments of our economy which bring in
foreign revenue – merchandise-exports,
diverse services and tourism – are forecast
to bring € billion into the Irish econ-
omy in - comprising € billion mer-
chandise exports, € billion services and
€ billion from tourism. The diverse-service
exports deserve more visibility and attention
because of their significance. But crucially
the figures mask the reality that the bulk of
the growth in merchandise exports has come
from the multinational companies in the life-
sciences sector - which are largely immune
to global economic downturns. The indige-
nous Irish companies - faced with shrinking
export markets, depreciation of the pound
Sterling and the US dollar against the Euro,
and lack of export credit insurance - have
lost, and continue to lose, thousands of jobs.
In the three months to the end of September,
the Irish Exporters Association calculates
that Irish exports to the UK were down %
- much worse than the % decline in the
first six months.
Export-proofing
At a minimum, any expenditure and tax propos-
als should be ‘export proofed’ to assess and
minimise any adverse impact on the exporters.
This process should have started before the recent
Budget. Export Credit Insurance - designed so
that the Irish exporter gets paid if the overseas
customer defaults on payment – must be intro-
duced so that our exporters can compete with the
UK, Germany, France, and Denmark.
Export Credit Insurance
Designed so that the Irish exporter gets paid if
the overseas customer defaults on payment –
must be introduced so that our exporters can
compete with the UK, Germany, France, and
Denmark.
State Agency Funding
The Government should boost the funds avail-
able in to the State agencies which are
encouraging Irish enterprise start-ups and
expansions, principally Enterprise Ireland,
Údaras na Gaeltachta and the City and County
Development Boards. It is not encouraging to
discover in the Annex to the recent Budget that
the total capital funding available to Enterprise
Ireland in including the Stabilisation
Fund will be €m. This is totally inadequate
for the key development agency charged with
encouraging Irish industry to discharge its
role in a positive way .
Two Task Forces have been established by the
Government to bring forward recommendations
on the industries of the future which Ireland
should promote. The Green Economy Task
Force under Chairman Joe Harford submitted
its report in early December and The Innovation
Task Force is to advise the Government on posi-
tioning Ireland “as an international innovation
hub”. What the business community will want
to see is real action to implement the imagina-
tive proposals emerging from these Task Forces
- supported by the necessary funding.
-
I propose that the Government should estab-
lish a special funding allocation of € billion
next year and a further € billion in as
a once off enterprise-generation investment
to get our economy moving again. This would
include the €million ‘Innovation Fund
Ireland’ which is in the Renewed Programme
for Government. There is a striking dispro-
portion between the availability of billions
of special funds for recapitalising the Banks
and funding of NAMA on the one hand and
on the other the lack of urgency and limited
extra funds allocated to sustaining and devel-
oping the Enterprise sector. I am sure that
the ingenuity displayed by the Department
of Finance in sourcing the Bank recapitali-
sation and NAMA bonds and keeping them
off the State’s balance sheet of national debt
could be equally applied, given the will, to
sourcing the € billion I am recommend-
ing for enterprise-generation over the next
two years. For example, it is expected that
NAMA would pay € billion to the Banks,
but final decisions on the amount will be
made “only after exhaustive bottom-up valu-
ation“. I would not be surprised if the case-by
-case evaluation resulted in a valuation much
less than € billion. Surely, it would be an
excellent use of the funds not required by
NAMA in that situation to invest € billion
of them in enterprise and export generation?
The benefits to Ireland of the improving eco-
nomic outlook in other countries will be
restricted in the absence of dramatic action
to cut our costs and in the face of a weak
Sterling. All this adds up to a very tough envi-
ronment for business over the next two years,
at least. The Enterprise-generation agenda I
have set out cannot succeed without a power-
ful political commitment and the instigation
of a new transparent mechanism at Central
Government linked with the private sector
in a common cause. I suggest that the politi-
cal and organisational approach adopted by
Government in promoting the IFSC during the
last major recession provides a useful model
to start with.
Padraic White is an entrepreneur and former Managing Director
of IDA Ireland. He is also Chairperson of seven diverse Irish SMEs.
“lending to the
private sector
by banks has
gone from a 30%
annual increase
to a 3% decrease”
PHOTO: GETTY IMAGES
