Wednesday 19 June 2019

Richard Curran: 'IDA Ireland may need to change gear if it's to stay in the fast lane'

Martin Shanahan, chief executive of the IDA, which may have to focus on attracting higher quality jobs in an era of full employment
Martin Shanahan, chief executive of the IDA, which may have to focus on attracting higher quality jobs in an era of full employment
Richard Curran

Richard Curran

Foreign direct investment to Ireland has probably never gone better than in the last three years. This is borne out by the fact there are now more people working in IDA Ireland-backed multinationals than ever before.

The quality of the jobs being produced in these investments is in large part highly skilled and perhaps in many cases becoming even more so. The real challenge now is to try to discover the next big trick that will keep the FDI train rolling into town over the next five years.

IDA Ireland is in the process of developing that new plan and it may involve fewer jobs actually being created into the future - fewer higher quality jobs that is. After the crash there were clear and early signs of a two-speed recovery as Dublin hoovered up a greater portion of jobs.

However, in the last three years the agency has made significant strides in landing solid investments outside Dublin and other cities, and into towns like Carlow, Dundalk, Longford etc.

However, an analysis of the underlying figures in IDA Ireland's 2018 results statement paints an interesting picture. At the end of 2018 there were 229,057 people employed in the multi-national sector. Assuming this includes full-time as well as temporary and part-time, it compares to 167,145 a decade ago, just as the crash was unfolding, according to the Forfas Annual Employment Survey 2008.

Last year agency clients created 22,785 new jobs and only 8,745 jobs were lost. Compare this with the period between 2004 and 2008, the height of the boom years, and client firms were creating 25,000 to 28,000 jobs per year, while also shedding 22,000 to 30,000 a year.

The more recent IDA-backed jobs are proving to be a lot stickier than they used to be. FDI companies paid out €11.7bn in payroll in 2017, up from €10.9bn in 2016. The average pay per employee was also higher, which reflects well on the quality of the jobs.

Despite the progress of recent years in spreading jobs around the country, some regions have not done so well since the crash. In 2008, 36.1pc of FDI jobs were in Dublin, according to the Forfas Annual Employment Survey for that year. Last year, it was 42pc. The percentage share of total jobs has risen in the last 10 years for Dublin, the south-west and the west, but it has fallen in the other regions. Irish companies have failed in the past to maximise the opportunity of having such a wealth of blue chip global companies on their doorstep. That is changing when it comes to services, but less so when it comes to raw materials. In 2017 FDI companies bought €2.43bn of Irish sourced materials - up just €28m on the previous year.

But they bought €5bn of Irish sourced services, up 13pc or €282m more than in 2016.

The country continues to do very well from FDI. However, when it comes to the next five years, the agency may have to focus on attracting higher end quality jobs as the country reaches full employment.

This is the logical shift to make as the needs of global multinationals change and Ireland has fewer obvious competitive tax advantages into the future.

The problem might be that the new strategy is in place, just in time for the next downturn.

Taking a punt on Brexit

Fancy taking a share punt in 2019? Davy Stockbrokers published its investment opportunities for this year last week. Its investment case seems to be predicated on a hard Brexit not coming to pass, which looks like a reasonable and wise assumption to make for forecasting purposes.

Assuming otherwise in your investment case might be just too depressing, not to mention chaotic.

An annual Financial Times survey of 81 economists found that a majority of them declined to predict what level of economic growth they believed the UK would reach this year, such is the uncertainty around Brexit.

Yet, Brexit lurks in the background of Davy's stock picks for this year.

It highlights the upside potential for Bank of Ireland (UK presence), Dalata Hotel Group (UK presence), ICG (UK dimension) and Grafton Group (UK contributes 70pc of group revenues).

The Davy picks all point to very well run companies that for various reasons the broker believes have been hit with undue pessimism in the market.

Take Dalata for example, which shed 25pc of its share price in 2018 on the back of concerns about Brexit, oncoming Dublin supply and Vat changes. Davy highlights its strong growth rates, new rooms and a "robust demand environment".

Davy is pencilling in a 34pc increase in profits in 2019 for ICG and rates it an outperform stock. Recruitment firm CPL is also in there which the broker believes should benefit from the continuing FDI inflows and the growth in employment in Ireland.

With Grafton Group, the broker points to its strongly performing Irish operations. It also believes housebuilders Glenveagh Properties and Cairn Homes have been oversold.

Yet on housing it sees just 22,900 units completed in 2019, substantially below the annual demand of 35,000 to 40,000, "meaning it will be into the next decade before the market reaches a balance". With Brexit hanging over so much in the world of business as we begin 2019, it makes you wonder what impact a complete British U-turn with a fresh referendum would have on the investment environment and for some of these Irish stocks in particular.

The question is whether you are willing to take a punt on the UK remaining. Fortune favours the brave.

Our approach to electric vehicles is definitely lacking some spark

How much has Ireland in common with Norway? Their population of 5.2 million is similar enough to our 4.8 million. Norwegians bought 148,000 new cars last year. Irish people bought 125,000. Norway wants all new cars to be pure-electric by 2025 and for Ireland the target is 2030.

However, last year 31pc of all new cars sold in Norway were pure-electric.

The figure goes to 39pc when hybrids are included. In Ireland we are running at around 0.95pc for pure-electric vehicles.

The Norwegians have thrown at a lot of money at reaching their target. Currently buyers of electric cars escape import and purchase taxes and they are exempt from 25pc Vat. They also avoid road tax, road tolls, pay half price on ferries, get free municipal parking in cities and can usually use bus lanes.

No wonder they are making a lot of progress in this area and Norway is now the third-largest market for electric vehicles in the world after the US and China.

In Ireland the limited tax breaks don't seem to be working when it comes to incentivising the purchase of pure-electric vehicles.

It may be a cultural thing, a financial thing, a policy thing or even that car sales staff aren't trained enough or incentivised enough to flog electric vehicles here.

Perhaps we are not yet ready to do what it takes to make real progress in electric car sales. But why have a target similar to Norway's but with just five more years to go from 0.95pc to 100pc? Is it because targets sound good? Well at least we have won the Eurovision more times than they have.

Sunday Indo Business

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