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News : Irish Economy Last Updated: Sep 30, 2010 - 4:40:40 AM

The challenge of creating 160,000 new Irish jobs
By Michael Hennigan, Founder and Editor of Finfacts
Dec 18, 2009 - 4:11:46 AM

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Wednesday Dec 02, 2009: Pictured at the launch of the Report of the High Level Action Group on Green Enterprise were Tánaiste and Minister for Enterprise, Trade and Employment, Mary Coughlan and Taoiseach Brian Cowen.

Creating 160,000 net new jobs in the Irish economy is a daunting challenge but starry aspirations and pious hopes about exports from armchair "experts," are a far from adequate response.

It may be ambitious to seek to return to an unemployment level similar to the total of 126,700 in the second quarter of 2008, for a current workforce of 2.2 million but setting the goal may bring a more practical focus to the issue.

The scale of the task of creating sustainable jobs in the international tradeable goods and services sectors, is illustrated by stark statistics from State agency, Forfás, which show that in the ten years to 2008, less than 4,000 net new jobs were added by foreign and Irish-owned firms, while overall employment in construction, the public sector, retail and distribution, expanded by over half a million.

Employment in companies assisted by Irish State enterprise agencies - - IDA Ireland, the foreign direct investment (FDI) promotion agency and agencies supporting indigenous enterprises in the tradeable goods/services sectors: Enterprise Ireland, Shannon Development and Údarás na Gaeltachta - - in December 2008 was 1.4 per cent (3,981 jobs) higher than it was in 1999. Employment in Irish-owned companies had increased from 142,142 in 1999 to 144,734 in 2008, while employment in foreign-owned companies increased from 150,975 in 1999 to 152,364 in 2008, increases of 1.8 and 0.9 per cent respectively.

Total Irish employment in December 1998 was 1.54 million and was 2.05 million in December 2008 - - a surge of 33 per cent.

In the peak boom year of 2006, 83,000 new jobs were added in the economy while direct job creation in the export sectors was less than 6,000.

In the third quarter of 2009, there were 279,800 unemployed or 12.7 per cent of the workforce, up 120,400 in a year. In its December 16 release, the Central Statistics Office said there were 192,000 males and 87,900 females unemployed in the third quarter. In November, the Live Register total was 422,500 It includes 73,600 part-time workers (those who work up to three days a week), and seasonal/casual workers entitled to Jobseekers Benefit or Allowance.

In 2007, when the Irish invested €13.9 billion in European property deals, while the Irish-owned business sector didn't even get a total of €200 million in venture capital investment, there was no official urgency about the imbalance. Since the crash, the development of a so-called "smart economy" has been a mantra of policy makers and is a typical case of live horse and you'll get grass. The potential of clean technology and the green economy has also been promoted while the latest quick-fix solution is to attract bankers from London who wish to flee new tax measures in the UK- - as if beggar-my-neighbour policies will always turn up trumps.

We are good with announcements and aspirations. Last September at the diaspora forum at Farmleigh, Taoiseach Brian Cowen asked for help on how a European Silicon Valley can be established in Ireland. It could be worthwhile or maybe not, because the biggest deficiency at policy level is that there is an evident unwillingness to face inconvenient truths. The poor performance of the indigenous high-tech sector and the shambolic development of broadband, at a time of prosperity, merit no attention. The official target to be recognised as a "world class knowledge economy" by 2013, has been quietly junked and we have moved on to new aspirations.

However, a public policy framework or company business plan is useless unless it credibly addresses issues such as strengths, weaknesses and competitive threats.

It is foolish to assume that we will in future be able to outsmart other countries on incentives for investors. Given the changed economic circumstances, there is likely to be more competition from the big economies. Two weeks ago, the UK Shadow Chancellor of the Exchequer, George Osborne, said Britain should follow the lead of Ireland, Belgium and the Netherlands and not tax profits from most intellectual property.

Earlier this month, a report on the potential of what is termed the “green economy” said that “while care must be taken in aggregating…there is potential to create over 80,000 sustainable jobs in the coming years.”

The total includes estimates from industry groups who have a vested interest in promoting their sector. There are no estimates of job losses elsewhere.

The Minister for Communications, Energy and Natural Resources, Eamon Ryan, said yesterday that the Government’s plan to create “a green IFSC” (Dublin’s International Financial Services Centre) could create 20,000 jobs over the next five to 10 years.

“It could specialise in clean energy project finance or carbon trading,” Ryan said. “It could also look at ethical fund management and administration. We would specialise in three or four key areas.”

Last July, Eamon Ryan said 30,000 jobs could be created in digital and clean technology. He launched a report which said: “In the next ten years, Ireland will move decisively to being a creator, developer and exporter of products and services meeting real needs in an era of serial crises - - climate change, peak oil, energy, water shortages, food production, etc.”

In March, at the launch of a research link-up between the universities, Trinity College and University College Dublin (UCD), the forecast jobs in a decade was 30,000 - - one of the architects of the venture was reported to have wanted a target of 75,000.

Ireland has not a strong exporting tradition and the UK market remains the dominant one for Irish-owned firms while the 16-country Eurozone market, with the stability of a common currency, has been largely unexploited. The biggest Eurozone member, Germany,  increased food and drinks exports by 15 per cent in 2008 and became a net exporter in the sector, for the first time in decades. In contrast, the Irish food and drink sector, which is the only significant area of export activity that is dominated by indigenous firms, saw exports fall 6.5 per cent in 2008. 

According to a US government agency, Ireland is more dependent on US companies than any other developed country. The US economy will continue to face challenges in coming years and last week, Jeffrey Immelt, the head of America's largest industrial group, General Electric, said:"I have taken on the challenge to increase manufacturing jobs in the United States." This is a signal of the pressure on companies to keep jobs at home.

Returns from Irish investment in science will take many years to realise and in a decade, we could have as little as 1,000 jobs from the commercialisation of university research.

Typically, less than 30 per cent of the high-tech start-ups in the US survive to see their 10th anniversary, with the first years being the most dangerous ones. Enterprise Ireland has claimed a 90 per cent survival rate for Irish university spin-outs over the past decade. It is not a credible claim.

The green economy will remain compelling to Irish politicians in coming years and there will be demands for cash support for the many business firms that will see potential opportunities. But consider the challenges.

This week, The Wall Street Journal reported that the US Department of Energy (DOE) hopes to lend or give out more than $40 billion to businesses working on clean technology, everything from electric cars and novel batteries to wind turbines and solar panels. In the first nine months of 2009, the DOE doled out $13 billion in loans and grants to such firms. By contrast, venture-capital firms invested just $2.68 billion into the sector in that time.

Last month, two American think-tanks issued a report, which claimed that China, Japan, and South Korea, have already passed the US in the production of virtually all clean energy technologies and will invest a total of $509 billion in the sector over the five years to 2013, compared with $172 billion in the US.

China has already allocated $177 billion in stimulus funds for green projects including high-speed railways.

Even if an Irish company developed a significant technology, the operation would likely be acquired by a bigger foreign firm, before there would be a significant return for the Irish economy.

While the ambition to build a European Silicon Valley, ignores the patchy record of the Irish-owned high-tech sector, why are we ignoring opportunities under our noses?

New Zealand with a similar population total, level of development and traditional dependence on agriculture, is a good role model.

Its biggest dairy company Fonterra, is responsible for 25 per cent of New Zealand's export earnings, utilising largely home-grown inputs and accounts for more than one-third of all international trade in dairy products.

Food and drink are hugely important sectors and who would have thought that Irish farmers would find an outlet with a gin producer for milk, that is used in Baileys Irish Cream - -  now a world class brand? Swiss company Nestlé, the world’s biggest food company, has 5,000 people directly involved in Research & Development (R&D) and has 28 research centres across the world.

The Irish dairy sector is fragmented; it invests significantly less than its major competitors in terms of capital investment and R&D and focuses on low value-added products.

SEE: Finfacts Sept 2009 article: Ireland: A "smart" economy in food better than pie-in-the-sky aspirations?- - Dutch cheese production is about six times the Irish level; Irish business consultants Mazars, said in 2008 that despite being 12,000 miles away from European markets, New Zealand had become increasingly competitive for its chilled lamb and their lamb exports to the EU had increased 40 per cent in the previous two years.

Meanwhile, the Irish Farmers' Association has been focusing on protectionist measures for Irish beef while an Irish steak franchised restaurant is a rare if not non-existent presence across Europe, where the Brazilian, Argentinean and Uruguayan brands are in the ascendant.

Irish education exports do not even merit a separate category in service exports' detail, while education is Australia's third biggest export earner and earns New Zealand 7 per cent of its export earnings.

The Irish Government has not viewed it as important and has damaged the product by allowing private business concerns from significant operations to small training course providers, to engage in misleading promotion to attract foreign students directly or via overseas commission agents.

A training course provider, operating over a shop and charging fees of €5,000, can be listed with the recognised universities, in Department of Education and Science literature.

At a minimum, private colleges should be required to state explicitly that they are not universities and smaller operators providing services at exorbitant charges to foreign students should be closed. The facility to work part-time 20 hours per week, promoted by an agent, can be the hook for an individual from a poor country to pay fees at a multiple of typical country earnings and collected from extended family, for what may not be an education.

In 2007, the Indian government refused to allow an Irish education mission into the country following the collapse in 2004 of a business called "Dundalk Business School."

Last August, I was contacted by five Pakistani students who were having difficulty in getting a refund of fees from an education business in Galway, after their visa applications were rejected. They claimed that the Department refused to contact the particular firm, on their behalf.

Also in August, at the McGill Summer School, Don Thornhill, chairman of the National Competitiveness Council said: "Ireland performs relatively poorly in terms of attracting overseas students and is a net exporter of students. In 2006, foreign tertiary students comprised 6.8 per cent of the student population in Ireland which compares poorly to other English-speaking countries such as the UK (14.1 per cent), Australia (17.8 per cent) and New Zealand (15.5 per cent). We have only one higher education institution, the Royal College of Surgeons in Ireland, which has a significant international footprint."

There is no shortage of armchair "experts" with ideas on exports but developing new export markets is very challenging.

There are no simple panaceas and after fifteen years of the Celtic Tiger, when primacy was given to property investment, it would be foolish to expect anything but a hard slog.

The cost of doing business in Ireland is very important and data from the European Central Bank has shown that from the launch of the euro in 1999 to 2007, unit labour costs for the total economy, jumped 33.3 per cent compared with Germany at 2.9 per cent and France at 16.9 per cent.

The process of adjustment has begun but will only be short-term in the absence of reform across the economy - - not only in the public sector but also in the sheltered private sector and the property market.

We must try and understand why so many Irish small firms do not export, compared with counterparts in the UK and elsewhere.

Small industrial enterprises with up to 50 employees, exported over €1.9 billion of their gross output in 2005  - - 2.2 per cent of total merchandise exports - - according to the CSO in 2008.

The CSO also said that 56 per cent of Irish employment, was in workplaces with less than 50 employees.

Bank of Ireland said in December 2005, that only 3 per cent of Irish SMEs were medium size with more than 50 employees. It said overseas expansion and exporting are dependant on businesses growing to a medium sized enterprise - - defined as in the range 51-250 employees - - yet the research indicated that only 7 per cent of Irish SMEs intended to expand abroad in the succeeding twelve months. This contrasts sharply with the UK where medium enterprises, which employ 30 per cent of the workforce, are the powerhouse of the economy.  

MORI Ireland completed 1422 telephone interviews with randomly selected SMEs across the Republic of Ireland between September 16 and October 18, 2005. The sample was designed to be representative of key business sectors in the Republic of Ireland. Corrective weighting was applied to bring the results in line with the actual business populations in each sector.

A European Commission Eurobarometer survey of 16,339 SMEs - - defined as enterprises with a total payroll of 250 employees (irrespective of number of company units) - - which was carried out by the Gallup Organisation and published in 2007, found that less than one in ten SMEs - - 8 per cent - - reported turnover from exports. However, in some small open economies, SMEs export much more frequently:.in Estonia 23 per cent of companies generated turnover from exports, Slovenia: 21 per cent, Finland: 19 per cent, Denmark: 17 per cent  and Ireland 11 per cent.

The proportion of SME revenue generated from exports in 2005, was Belgium: 15 per cent, Estonia: 12 per cent, Slovenia: 11%, Iceland: 10% and Ireland: 4.2 per cent.

In the 1980s, it was suggested that German should be the key language taught in schools. Now, it tends to be Mandarin.

However, the market on Ireland's doorstep, the Eurozone, is the one to develop. It is the biggest market for exports from Ireland and in the year to August 2009, was responsible for 42 per cent of merchandise exports. In 2008, 37 per cent of service exports went to the common currency area.

In 1973, when Ireland joined the then European Economic Community, its export ratio was 21.4 per cent. By 1993, it was 51.1 per cent; 79 per cent in 1999 - - the year of the euro's launch  - - and it is forecast to be 93 per cent this year.

Even ignoring the potential for a huge amount of chaos, armchair panaceas of looking for a short-term benefit from devaluation by exiting the euro system, ignore the reality that it is what would be in the interest of the big American firms who are responsible for most of Ireland’s exports, is what counts. Besides, why would home-grown firms get an instant market in Europe after a devaluation?

Selling commodities and building markets from scratch require different skills.

Some 20 per cent of Irish exports go to the UK compared with 55 per cent in 1973 but about half of exports from Irish owned firms are dependent on the UK market.

Beyond the Eurozone, niche products can be sold in Asia but the obstacles to making an impact there from scratch, are immense.

Besides, the days when the travelling salesman could strike off for weeks with the wife back home shouldering all family responsibilities, are over.

Today, almost 100,000 people are directly employed in over 570 US firms in Ireland accounting for 70 per cent of all IDA Ireland supported employment - - after 50 years of engagement. The American Chamber of Commerce says indirect employment in sub-supply and community industry and services has been estimated at over 200,000.

So we need up to 50,000 new direct export related jobs.

Iceland at least has its fisheries to provide more than 50 per cent of its merchandise exports. Ireland's foreign-owned firms provide up to 90 per cent of annual tradeable exports.

The international recovery will be some benefit but not enough. We have to continue to largely depend on foreign investment but we have some strengths and need vision, a reformed economy and politicians who can handle the truth to have success in job creation. It is of course a lot harder to achieve results than increasing public spending in boom times.

SEE: Finfacts Dec 2009 article: IDA Ireland puts 2009 numbers on net job losses, new investments but no values; Total jobs fall below 2000 level

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