The job losses announced at Accenture and Salesforce in the past week are, first and foremost, significant life events for those directly involved and their families. Their impact should not be underestimated, notwithstanding that this is an economy operating at full employment, and the job prospects for many of those involved will be positive.
These job losses are likely a downstream effect of the technology reset under way globally since the latter half of last year. In reality, technology is a catch-all phrase from semiconductor engineering and software to platform advertising sales.
It is in the platform companies where most of the resizing has occurred. Some of the losses relate to excessive optimism on the back of pandemic growth resulting in over-hiring, some are related to specific companies and challenges to their business models, and some relate to global headwinds including inflation and higher interest rates to combat that inflation dampening consumer demand. There will be new opportunities in the technology sector, too, including in areas such as AI as the use cases around that technology develops. The point is that it is a mixed bag, making it more difficult to discern long-term trends.
The core question is how this reset impacts the foreign direct investment (FDI) model that has served Ireland so well and looks more fragile than it has been for some time.
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The answer is that FDI is a continued opportunity for this country, but we face many challenges in continuing to attract, retain and grow multinational companies.
The single biggest threat to industrial development and the FDI model successfully employed here over recent decades is not a technology reset or the external environment; it is domestic complacency
Relative to our size, Ireland continues to outperform in attracting FDI, capturing about seven to eight times our expected share of investment into Europe. There are now close to 1,800 multinational companies employing over 300,000 people directly. Exporting multinational companies spend over €30 billion within the economy on payroll and materials and services procured from Irish companies.
These companies are also responsible for an estimated 80 per cent of corporation tax, and about 40 per cent of all income tax comes from employees of multinational companies.
No inherent right
The single biggest threat to industrial development and the FDI model successfully employed here over recent decades is not a technology reset or the external environment; it is domestic complacency. That complacency is manifested in recent calls from some quarters to stall FDI while we play catchup on the infrastructure and on the housing front. Those calls speak to a lack of understanding as to how FDI works.
Ireland has no inherent right to the FDI we win annually. We must be competitive as a country to win it. FDI is not a tap we can choose to turn on and off as it suits. Ireland stepping out of the FDI attraction competition could result in decades of investment losses.
Too much time is spent hand-wringing over whether we are too dependent on FDI or whether corporation tax receipts will remain stable. Instead, our focus should be on ensuring that global companies see Ireland as a competitive and compelling location to invest.
I fear that past success is now taken for granted. It appears that a future/alternate scenario where we do not have this investment is absent from the general consciousness. For those of us who grew up in the era of high unemployment in the 1970s and 1980s, we know what the alternative looks like, and those memories and the associated images are not pretty. We have seen some reminders in recent months.
The IMD 2023 global competitiveness report has ranked Ireland second out of 64 countries. While this is a cause for optimism, it is a lagging indicator. Our recent economic performance is flattering us in these rankings, and we cannot rest on our laurels. FDI flows globally have yet to return to the pre-pandemic levels seen in 2019. Therefore, we are fishing in a smaller pool. That makes what we do domestically even more important.
Challenges include the availability of housing, sustainable energy and water infrastructures, and issues relating to the planning system that have an impact on infrastructural delivery and the development of plant and facilities for multinationals. There is potential for economic growth to be curtailed by these capacity issues.
Ireland also has growing issues relating to the supply of talent. Relatively speaking, Ireland has done well at aligning the output of its education system with the needs of companies and in attracting highly skilled talent to Ireland. However, it is imperative that our third level sector is funded appropriately to deliver the required output at the necessary level, so that we can continue to compete internationally.
Ultimately, we depend on industry to drive the economy and provide the Government with the wherewithal to meet citizens’ needs in education, health, social supports and infrastructural investment
The cost and availability of housing is now a serious deterrent to those who wish to make a home and work in Ireland. Our ability to grow, attract and retain talent will dictate our success in the future in both growing Irish businesses and our ability to attract and develop FDI.
Intense competition
While FDI has proven very sticky, if Ireland does not deliver, companies can go elsewhere and the global competition for FDI has never been so intense.
Much of the discussion between now and Budget 2024 will be centred on the size of the budget, on the balance between tax cuts and additional expenditure and within that, how the pie is divided. Unfortunately, there will be less interest and attention in measures designed to keep the economy performing at a high level.
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Ultimately, we depend on industry to drive the economy and provide the Government with the wherewithal to meet citizens’ needs in education, health, social supports and infrastructural investment.
We need to urgently address our domestic competitiveness challenges to continue to make progress economically and societally because, ultimately, that is what will dictate how big the pie is in the future. If there are any positives from the recent technology reset, it might serve as a wake-up call that we cannot take economic development for granted.
Martin Shanahan is head of industry and FDI at Grant Thornton and a former CEO of IDA Ireland
