Friday 17 November 2017

Richard Curran: Why an early election won't be good for business

Fianna Fail leader Micheal Martin and Fine Gael’s Michael Noonan Picture: Collins
Fianna Fail leader Micheal Martin and Fine Gael’s Michael Noonan Picture: Collins
Richard Curran

Richard Curran

The country is inching ever-closer towards a general election. Assuming there is a new leader of Fine Gael in the coming weeks, an election could be triggered very easily after that.

But would an election be good for business? Looking at opinion polls an election is unlikely to deliver a radically different result in the make-up of the Dail.

Micheal Martin might be Taoiseach in a minority government or a new Fine Gael leader might be Taoiseach in a repeat of the current minority arrangement. But for business and the economy, it is all about the lost time in getting to that point.

For business, time is money and uncertainty is usually bad business. An election campaign would take everybody's focus away from the key economic challenges of Brexit, Trump and the future of foreign direct investment.

The country is also facing a rising oil price on global markets, and recovery in the eurozone that might precipitate higher interest rates and a higher cost of raising sovereign debt on the bond market.

After the campaign, the political choreography of coalition talks would follow and then a negotiation of a new programme for government. Add on the new faces around the cabinet table, who need to read into their briefs, plus the requisite changes to the roles of various government departments.

In all, up to half a year could be lost, while the Brexit problem trundles on and is negotiated in Brussels and London.

Our political leaders could end up haggling over the support of an Independent TD in return for a hospital unit, while the future of the trading relationship with one of our most important trade partners is hammered out elsewhere.

A general election might clear the air. But a close result might clear little else.

Fianna Fail's policy documents are not that radically different from what we have now and it is hard to see a radical change in government direction even under a new Fine Gael leader.

Fianna Fail's business policies last time out were made up of very expensive promises. It included reform of the USC at a cost of €2.6bn; equal tax treatment of the self-employed and PAYE at a cost of €123m per year; entrepreneurs Capital Gains Tax reduction up to €15m at a cost of €74m and extending Job Seekers' Benefit to the self-employed at a cost of €93m.

It promised to remove loan restrictions on credit unions and let them enter the mortgage market and bring back the Motor Insurance Advisory Board, which has been recommended by an Oireachtas committee but isn't yet government policy.

It also proposed selling off EBS separately from AIB. Some of these ideas are very positive for business and for consumer, but would a coalition government get them through at a time of such other hefty demands on the exchequer?

Political parties can't help themselves from making lavish promises that cannot be delivered. Fianna Fail said last time out it would set a target of 98pc of all capital expenditure being spent on goods and services provided by domestic Irish contractors - a sort of "putting Ireland first" as it were.

Aside from squaring this one off with European Commission tendering rules, you have to ask how it stacks up with the goal of delivering the best value for money.

Any change of approach on Brexit under a new government or new Taoiseach could be significant. Martin says he thinks the Government is "in denial" about Brexit, while Leo Varadkar appears to have differed from his party leader by saying Ireland should be looking for a special arrangement or status for Northern Ireland. Without the backing of the DUP, that simply won't happen. If there could be a clear winner in a general election, business might benefit from whatever policy agenda the new government would bring. But without an obvious clear winner, an election in the short term would bring all of the uncertainty for business and the economy and little gain.

KBC Bank's challenge to bricks and mortar

Having decided to commit to staying in the Irish market, KBC Bank is talking up its targets for the Irish market. It believes it can reach a 10pc share of the Irish retail and micro-SME market in the medium term.

By pursuing a strong "Digital First" strategy the bank believes it can make significant inroads here without having to add substantially to its 15 branch/hub network. If it can pull it off, the KBC model poses a real challenge to the sustainability of the big two's commitments to traditional bank branches. Last year KBC made a profit of €227m in Ireland with just 14 bricks-and-mortar places for customers to go.

Both AIB and Bank of Ireland closed bank branches in the crash, but Bank of Ireland still has 250 branches around the country while AIB has slimmed down to around 200.

Going into a bank branch these days is very different to the past. In country towns punters are queued up at busy times lodging cheques and taking out cash, all of which costs the bank money. At quiet times they are more like the Marie Celeste.

Staff numbers have been thinned out but the idea of using them as a location for selling all kinds of other financial products is looking somewhat suspect, relative to the cost of keeping them open.

Branch decision-making has been all but done away with and many staff are not used to turning into a sales team for life insurance, credit cards or car loans.

Talk to anyone who works in a branch and they will tell you how at times they are out the door performing non-money-making functions like providing change of a €50 note for the old lady who comes in every week.

Last year Bank of Ireland said it was closing eight branches in the North or one fifth of its branch network north of the border. The branches being closed accounted for only 6pc of the business conducted by their network in the North.

AIB and Bank of Ireland have made great strides in advancing their online and mobile offerings. Yet they face enormous backlashes once they try to close branches in small towns.

If KBC can pull it off, then 17 years after the year 2000 bubble, banking will finally become more about clicks than bricks.

Nokia nostalgia points to Microsoft's big debacle

Speaking of the year 2000, that is when Nokia brought out the much-loved 3310 mobile phone. Nostalgia about the return of the phone in a relaunch later this year, has overtaken the business story behind it.

The Nokia 3310 will be marketed and sold by a Finnish company called HMD. It bought the rights to the Nokia name as part of a deal last year with Microsoft. The creator of Windows sold the Nokia business to Foxconn and HMD for just $350m.

Foxconn will manufacture and distribute the phones and HMD, set up by Arto Nummela, a former Nokia executive, will sell them. HMD has the exclusive global licence to Nokia-branded mobile phones and tablets for 10 years.

Microsoft took a $7.6bn write-down on its Nokia acquisition just two years after buying the company. Now having flogged it for $350m, HMD and Foxconn stand to make a very fast buck on the Nokia nostalgia.

It's a bit like someone buying the back catalogue of the Beatles or the Rolling Stones. The real test is whether the nostalgia creates enough hype to draw attention to the old but failed Nokia brand. Can the greatest hits release sell the new album? Nokia was once valued at $300bn but sold for $7.2bn.

Either way, the return of the 3310 makes the multi-billion dollar Nokia debacle look even more embarrassing for Microsoft.

Sunday Indo Business

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