Business Irish

Saturday 20 January 2018

We need indigenous start-ups

The Curran Account

Richard Curran
Richard Curran
Richard Curran

Richard Curran

FORBES magazine's choice of Ireland as the best country in the world for business is a big boost. It is an influential publication and it sends out the right signals to the international investment community about doing business here.

It just might not send out the right signals at home. The real winners in the current Irish business environment are international investors and multinationals. The investors are punting on a recovery play and, in areas like commercial property, they are being heavily subsidised to do it. The multinationals are simply investing in the country, its workforce and its tax arrangements.

There is no doubt that Ireland is benefiting enormously from the current inflow of foreign capital. You can see it in the job numbers or the big refurbishments that international buyers are doing on hotels and other assets they have bought. But the wider economic benefits of this kind of investment may not be fully flowing through.

I would prefer if Ireland was voted the best country in the world to start a business. That would suggest start-ups by Irish people and entrepreneurs moving to the country, would flourish. This would create more jobs.

Those jobs would be a lot "stickier" in terms of remaining when things get tough. And enterprise jobs would deliver a greater return to the economy as a whole.

According to the World Bank's Doing Business Index, Ireland is 15th. On starting a business we came in 12th this year, down from ninth. It's a limited measure and it doesn't carry anything like the PR cache of Forbes.

Would you prefer, from an economic point of view, to live in Germany which came in 24th on the Forbes list, but has an unemployment rate of just five per cent and a debt to GDP ratio of around 81 per cent. We came first and have an unemployment rate of 12.5 per cent and a debt to GDP ratio of 124 per cent.

Commercial property investors and multinationals are the big winners here right now. That is no bad thing, except Ireland needs to be a better place for indigenous start-ups.

Just 69 buyers spent around €1.2bn buying commercial property worth over €1m in the 18 months from January 2012 to July 2013. Michael Noonan's decision to cut stamp duty in December 2011 from 8 per cent to two per cent saved those buyers €72m.

If commercial property values grow by an average of five per cent per year for the next seven years, those same buyers will save €126m in capital gains tax exemptions when they sell. That is a subsidy of almost €200m on just 18 months of property sales to 69 purchasers.

Contrast the cut in stamp duty on commercial property with the pension levy, where the minister grabbed a chunk of everybody's pension.

A decade ago, the Exchequer took in €5.1bn in corporation tax, around 16 per cent of its total tax take. Next year it is expected to be around €4.3bn or 10.9 per cent of its total tax take.

We have chosen our route to economic success and it is as an open exporting economy, attractive to inward investment with low business tax. By and large it has worked up to now and is yielding positive results.

The question is whether we need to do more on the indigenous side by incentivising people to set up small, but real companies, which make and sell real things. The answer is yes we do.


Smyth and Weston gunning for Arnotts

PROPERTY developer Noel Smyth, backed by Galen Weston's Selfridges, looks like he is in poll position to take control of Dublin iconic department store, Arnotts.

Smyth's Fitzwilliam Finance Partners has snagged Ulster Bank's €140m in loans to Arnotts. This puts them in a strong position to secure IBRC's €230m in loans. Bids were due on Friday.

With "Smyth and Weston" owning the Ulster Bank debt, any new owner will have to talk to them. If they get it, Selfridges will own and run Arnotts, while Smyth will do a deal with Selfridges to develop the 16 other properties in the area that are part of the loan package.

This raises a few questions. Firstly, isn't Noel Smyth in Nama? Secondly, would it be good to have the Brown Thomas owners also owning Arnotts?

Smyth is in Nama in relation to his own loans, and has co-operated fully with the agency. There is nothing stopping him securing backing to bid for these IBRC loans. Even if these loans were in Nama, he could still buy them, because you are only prohibited from buying back your own assets from the agency.

As for Brown Thomas prices in Henry Street, if Galen Weston went down that road, he wouldn't have a business anymore.


Moody's upgrade the final piece of debt jigsaw

ALL eyes will be on Moody's credit rating agency (CRA) in the coming weeks to see if it raises its rating on our debt to above junk status. Moody's is the last of the holdouts given Standard & Poor's and Fitch have already moved.

The cost of raising debt on the markets has fallen dramatically for Ireland and it is now below countries like Italy and Spain. NTMA chief executive John Corrigan has signalled that a move by Moody's would open up possible debt purchases from the likes of Asian investors.

Some investment funds are prohibited from buying debt that is below investment grade.

It is deeply ironic that CRAs like Moody's could have such sway given the criticism these agencies faced after the financial crisis in 2008. Then EU commissioner for the internal market, Charlie McCreevy, criticised the CRAs for failing to respond to the clear danger signals in the US subprime market. Coming from our former finance minister, this had a few ironies at home as well – but that's another story.

Moody's was the one to pioneer a new credit-rating model for collateralised debt obligations (CDOs) in 2004, which the others followed, resulting in a complete shambles in the credit crunch in 2008.

Some now question whether the ratings agencies are actually as influential as they were. Last month S&P cut the credit rating of the Netherlands. Dutch bond yields didn't rise, they actually fell marginally. Something similar happened to the US and France without yields going up.

Michael Hasenstab, of Franklin Templeton, wasn't too worried about ratings when he took a now very profitable €9bn punt on Irish debt.

But the automation of global bond trades and tighter rules for pension funds, do mean that many potential bond buyers simply cannot or will not purchase without a certain CRA rating.

A Moody's upgrade would help. It would be a final piece of a jigsaw rather than something that fundamentally changes the picture.

Sunday Independent

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