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News : Irish Economy Last Updated: Sep 29, 2010 - 6:42:11 AM

Cowen's fairytale 300,000 jobs 'plan'; No space for inconvenient truths
By Michael Hennigan, Founder and Editor of Finfacts
Sep 28, 2010 - 3:12:46 PM

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About 90% of Ireland's tradeable goods and services exports are mad by foreign-owned firms, mainly American.

Taoiseach Brian Cowen today announced  a 300,000 jobs 'plan' which can be fairly termed a fairytale. There is no space for inconvenient truths in the aspirational document titled Trading and Investing in a Smart Economy(pdf).That of course is no surprise.

On Monday, the Minister for Enterprise, Trade and Innovation, Batt O’Keeffe announced a 'top-level' group to draw up a plan for innovation research priorities. It was the fourth group to be appointed since December 2008 to advise policymakers on the flagship enterprise policy known as the 'smart economy.'

It appears that the shambolic strategy of relying on university research to provide an engine of growth is floundering and the reaction of US venture capital to the Taoiseach's announcement in New York last July of a planned €500m  innovation fund, has been tepid.

One giveaway of the Government's addiction to spin over substance in its jobs announcements, is the recent development of  including indirect jobs in the headline figure. So 300,000 jobs comprises both a figure of 150,000 plucked from the air for direct jobs and  150,000 plucked from the thin air for indirect jobs.

IDA Ireland is targeting 75,000 new jobs in 780 new foreign direct investment projects; Enterprise Ireland is targeting 60,000 jobs between now and 2015 and tourism will add 15,000.

So we have 30,000 new direct jobs for each year of a five-year period and the inconvenient fact that each year there will be job losses also, is ignored.

Earlier this year, IDA Ireland published a new jobs target of 105,000 by 2014 in its 'Horizon 2020' plan. On closer examination, there were 62,000 direct jobs targeted and what the IDA chose to ignore was that there may well be NO net additional jobs.

In the boom years of 2004-2008, IDA Ireland companies added an average of 11,000 new jobs annually, with 60% in financial services and software. It lost an average of 9,600 annually. So the IDA Ireland headline target of 105,000 new jobs by 2014 could end up at zero or below net jobs added, as the international backdrop to this period will be far less supportive than it was prior to the Great Recession.

Today's document says Ireland’s relative position as a leading international location for value-intensive FDI remains strong.

In 2008 and 2009 despite these challenging economic circumstances. Ireland attracted 4.2% of the total number of greenfield projects entering the EU in 2009, up from 2.5% in 2007. While the number of projects entering the EU fell by 24% in 2009, the number of projects coming into Ireland in the same period fell by just 4%.

The data from a United Nations agency on greenfield projects is provided by a unit of the Financial Times  and the number of greenfield projects logged in 2009 is four-times the level handled by IDA Ireland which is in the main areas of FDI activity of relevance to the economy.

Despite the spin, the number of new foreign direct investment announcements this year, has been low.  

At 1.9 million, we now have 400,000 more in employment than in 1998 and 200,000 more in unemployment, but employment in the main growth engine of the economy – the foreign-owned sector - - is at 1998 levels.

State agency Forfás reported last March that total permanent full-time employment in the manufacturing and internationally traded services sectors amounted to 272,053 in 2009. It was 276,287 in 1998. Employment in foreign-owned firms was 132,596 in 2009 and 140,281 in 1998.

While exports from the pharmaceutical/medical devices sectors, which account for about 57% of total merchandise exports, rose 25% in the period 2004-2009, employment remained almost unchanged at about 40,000. The engine of growth has to be home-grown start-ups.

Enterprise Ireland, the State agency which supports Irish-owned firms with export potential, said last July that it had invested in over 800 start-up companies over a 20 year period (1989 - 2009), which has yielded more than €1bn in Irish exports and in excess of 14,000 jobs.

Between 1998 and 2007, there were 11,000 additional jobs added in the international tradeable goods and services sectors, at a time of unprecedented prosperity.

So about 1,000 additional jobs each year were added and now this level is expected to be significantly exceeded with a much more challenging international economic backdrop.

There is no credible explanation as to how this can be achieved.

Last March, the Innovation Taskforce report estimated that 117,000 to 235,000 jobs could be produced in a decade from university research and linkages with existing foreign firms.

It was based on a dream that the US Silicon Valley could be transplanted to Ireland.

Why deal with facts on the ground that in 30 years, the tech cluster in the area of Cambridge University in the UK, has many research institutes; it has a few big tech companies, about 30,000 in employment and most companies employ less than 10 people?

It's only amateurs who believe that every company in that sector can become a Google or Facebook.

 So, we Irish are very good at announcements and today's scene had a supporting cast of ministers to add a sense of importance to the occasion but could bring to mind the comment of English statesman Benjamin Disraeli in 1872 on William Ewart Gladstone's Liberal Party government: "As I sat opposite the Treasury bench, the ministers reminded me of one of those marine landscapes not very unusual on the coast of South America. You behold a range of exhausted volcanoes."

IBEC, the busines sgroup as expected praised today's announcement but complained that there were no plans to include a private business representative on the Foreign Trade Council.

Commenting on the strategy launch, Pat Ivory, IBEC head of international trade and transport policy said: “Export-led growth will drive Ireland’s economic recovery, and this new strategy is welcome. However, it is important that there is a private sector representative on the new Foreign Trade Council, as it is the private sector that is actually out there in the market every day, selling Irish goods and services.

“The Irish export sector has performed well this year. Exports grew by 6.9% in the first half of 2010 compared with the same period in 2009; goods exports grew by 4.2%; while services imports expanded by 10.1%.

“There is huge potential for companies to increase their market share of high value goods and services in international markets. The emerging markets of China, India and Latin America offer new opportunities, in addition to those provided by an enlarged EU and the Gulf region."

Opportunities indeed.

Easy to say from behind a desk in Dublin!

Report: Taoiseach launches aspirational 'plan' for trade, tourism and investment; Five-year 'strategy' to generate 300,000 new jobs and boost exports from Irish firms by one third

Trading and Investing in a Smart Economy thread on the Irish Economy Blog:

There are challenges from the changing model of globalisation for both big and small rich countries.

There are no easy options but being in denial hardly helps. 

Intel co-founder, Andy Grove, asked in a recent article:"...what kind of a society are we going to have if it consists of highly paid people doing high-value-added work - - and masses of unemployed?"

The conventional globalization model in having design/R&D done in the US/Europe and mfg/assembly work done in China currently works for Apple but it's viewed as a flawed model for other sectors with a proven risk for companies of losing control of their intellectual capital. Applied Materials, one of Silicon Valley's big firms has opted for transferring its key R&D functions to China and its CTO is now based there.

SEE: US, China and the rickety state of conventional globalization

Last year another former Intel CEO, Craig Barrett, said Ireland should reduce its dependence on FDI. He said an estimated 3bn additional people entered the free world economic system since the rise of China, the collapse of the Soviet Union and economic reforms in India.

“And guess what, they also want good jobs and have a rich educational heritage. You have 3bn new customers, you also have 3bn new competitors.”

It's likely again this year that the numbers working in the FDI sector in Ireland will fall.

The most depressing aspect of the Irish scene is the craven role of the senior management of the State enterprise agencies.

There needs to be a Whitaker who can present some home truths to the political leadership.

For a company to have export potential, it has to generally first establish a domestic base/record and unless it has a compelling product/service (in such a case it's likely to be acquired by a bigger overseas firm), it needs resources, perseverance and patience.

Putting Mandarin on the school curriculum is a typical proposal from armchair 'experts'  who have no experience of the challenges of selling in China - -  1.3bn consumers and all we need is a teeny-weeny slice of the pie!

Yesterday the Taoiseach spoke of more high-level trade missions and “a greater focus” on the languages, culture and history of emerging nations in the education system.

It's not too long ago when his deputy was pushing for a complete EU ban on Brazilian beef!

Last November, Irish companies were warned by several senior executives who run some of the country’s most successful indigenous companies, to be cautious about expanding into emerging markets and focus instead on developed markets.

“More fortunes have been lost than made by getting in too early,” former CRH CEO Liam O’Mahony told a conference on making businesses international at UCD’s Michael Smurfit Business School.

O’Mahony, who ran the world’s second biggest building materials company from 2000 to 2008 and now chairs IDA Ireland, said Irish companies should consider expanding into the US, UK and other mature markets before looking at countries such as China. “Some of these markets are very large and there is still scope to grow as long as you have value propositions,” he said.

Mahony’s advice was repeated by Glanbia chief executive John Moloney and Glen Dimplex boss Sean O’Driscoll. "China is a long-haul, a slow-burn,” O’Driscoll said.

-  - Michael Hennigan

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