Ibec chief executive Danny McCoy is strumming a different tune these days but it has nothing to do with his bullish outlook on the Irish economy, which he maintained even in the darkest days of the recent recession and the Troika bailout.
"I've joined the ukulele craze that's out there for middle-aged people," he says, adding that he's more George Formby than Jim Royle, the string-vested, working class star of the BBC sitcom, The Royle Family.
On the economy, McCoy is as positive as ever about the State’s future prospects. He believes there is real substance to the size and scale of the Irish economy, multinationals included, that many people just don’t appreciate.
He even suggests that the 26 per cent rise in our GDP in 2015, which was derided as leprechaun economics by Nobel prize-winning economist Paul Krugman, played down by the Government, and saw the CSO even coming up with a new measure for growth, was truly reflective of activity here.
“I actually think there is substance [to the 26 per cent GDP growth figures]. We’ve moved up the value chain, that thing we were banging on about around 2000.
“Back in the 1960s, the only natural asset we had was grass. We didn’t do much with it, other than letting the cows eat it and then live cattle, no value added, were exported out. Now when you think about the grass...they’re burning off the liquid to get the nutrients for infant formula and for the gym bunnies and sports nutrition and so on. That’s where the money is.
“In our generation, we’ve seen grass move from being a primary product into premium and a lot of it built around branding. And that’s replicated around so many sectors.
Corporate taxation
“In addition, something very significant has happened,” he says citing the Organisation for Economic Co-operation and Development’s work around corporate taxation, with the view now being taken that companies must have substance and decision makers located wherever they are domiciled for tax purposes. “A lot of action was happening in the Caribbean islands. As part of this trend, you were beginning to see company’s lift and shift.
“They were very often American companies and looked towards Europe, where there’s plenty of substance. Nobody is going to say you’re in a tax haven if you go to Europe. So they’re coming from an Anglo-Saxon, common law system, which means there’s only two choices, either Britain or Ireland.”
McCoy argues that the UK's issues with its EU membership, and the influence of Nigel Farage and Ukip on its domestic politics at the time, meant that a number of substantial US companies chose Ireland.
“In 2015, the corporate balance sheet in Ireland increased by 40 per cent in a single year. €350 billion of controlled assets was moved in, to take the overall total to €1 trillion in balance sheets controlled out of Ireland. This is different to the portfolio transactions that just flow through the IFSC, day in, day out. They’re transactions.
"And some of it gets confused with brands like Apple and Facebook and so on. They haven't become Irish, they transact through Ireland. These are corporations that changed their nationality. So Accenture is an Irish company, Ingersoll Rand, Medtronic, Aercap moved their €39 billion balance sheet from Amsterdam and brought their C-suite executives here to Aercap House [on St Stephen's Green]."
McCoy argues that the flow of P&L activity boosted the transactional value of GDP by 34 per cent in 2015 (and 26 per cent in volume terms, the figure most often quoted). "You might say, aw, that's just accountancy and a bunch of numbers. We didn't see a 34 per cent increase in the labour market or wages. You won't. But the Department of Finance were guiding corporate tax revenue for 2015 at €4.3 billion. On the 31st of December 2015, because the cash was in, instead of €4.3 billion they received €6.9 billion.
“The €2.6 billion ‘miss’ represented the missed profits of €26 billion [he’s assuming an effective tax rate of 10 per cent], from the balance sheets that are now Irish and controlled here.”
As McCoy sees it, the 26 per cent jump in GDP is consistent with the increase in corporate tax revenues. “The world is changing very dramatically,” he says, moving away from “touch-and-feel” companies towards intangible services company. “These intangible assets are now dominating corporate balance sheets and Ireland is in the frontier of these intangible resources that have suddenly landed.”
And it's not just a foreign multinational effect. He cites public statements by Glanbia chief executive Siobhán Talbot on the growth in its balance sheet.
“Glanbia’s balance sheet had a little over €1 million of intangible assets back in 2002. Today, it’s about €1.3 billion. In the modern world, value is very much in brands.”
Whiff of sulphur
McCoy says there are now three questions for Ireland to consider. Do we believe we actually have a ‘find’ of intangible assets? Are we using it properly? And is it potentially destroying us?
“The great thing about the balance sheets, if you get it right, [is that] unlike oil, intellectual property is continuously renewable. It could even be better than oil [for Ireland].”
He accepts there is a “whiff of sulphur” connected with Ireland capturing “other people’s” intellectual property. “But who are these other people, who own these corporations?”
He doesn't discount the potential impact of Donald's Trump's corporate tax changes, which could tempt US companies home, but argues that most of them will stay for the legal certainty, safe in the knowledge that we won't nationalise assets or do anything silly, that we're committed to the European Union, and are located in a time zone that is beneficial for doing business in Africa and the Middle East. "Ireland is in a sweet spot right now."
Just 10 multinationals paid 39 per cent of Ireland’s €8.2 billion in corporation taxes last year, a significant concentration that worries many commentators. McCoy acknowledges there is a “potential vulnerability” to this revenue stream and suggests that it should be used for future rather than current spending, notably for infrastructure that could be wealth generating in years to come.
In a recent column for The Irish Times, McCoy suggested building a tunnel between Ireland and Britain, a proposal that many would consider to be barking mad due to the likely cost and the engineering challenges involved.
“I don’t anticipate a tunnel in my lifetime. My argument was that a society that is looking to the future needs to start preparing for the future state of the world.
“We’ve a lot of things in between now and a tunnel. Connecting up our second and third largest cities by motorway, for a start. Maturing as a society and building for a bigger Ireland with the population rising is the challenge for this generation.”
The last time McCoy was interviewed for Business This Week in 2012, in the middle of our EU-IMF bailout programme, the Tuam native was cheerily optimistic about the State's future prospects, arguing that we would grow our way out of recession in spite of the hugely-negative impact at that time of years of austerity.
He predicted annual growth of 3 to 4 per cent by 2020, with employment levels once again rising above two million, and exports surging.
It turns out he was right.
“In fact, I wasn’t optimistic enough,” he says. “Looking back, I would contend that a lot of the heavy lifting for business was done in ’07 and ’08. Those were really tough years where you saw a lot of cost takeout and productivity. The construction sector when it collapsed actually released a lot of productivity that was suppressed in other sectors, which were competing with the property bubble.
“By 2009, you started to see the recovery in lots of businesses. You began to hear these individual stories. It might still have been in the negative quadrant but the ‘j’ curve effect was already there. By 2010, Ireland was capturing market share. World demand went down in ’09, with exports down 12 or 13 per cent globally. Our exports only fell by 4 per cent so we were already capturing market share. Lots of the engines were back powering again.”
Ireland’s economy has roared back since the Troika left town at the end of 2013. We’re the fastest growing economy in the EU, employment is back at record levels, the population is closing in on five million, and there continues to be a healthy flow of foreign direct investment.
Recovery
And yet many of the old failings of the Celtic Tiger years have returned. Property prices are growing by double-digit figures year on year, rents have gone through the roof, health spending is once again over-running budgets, rural broadband hasn't been sorted, there are bottlenecks and logjams emerging in many public services, and Dublin has once again become too expensive to live in for many locals.
To coin a phrase, have we wasted the recession? “I wouldn’t say we wasted the recession per se but we’ve not acknowledged the recovery sufficiently and the scale of the recovery,” he says.
He cites the housing crisis, suggesting that if we’d recognised the strength of the recovery sooner, we might be further down the track in solving the problem.
On Brexit, McCoy "definitely" thinks there will be a deal. "I would be 99 per cent confident that we will not face a 'no deal' scenario. It's just not credible. This doesn't mean it won't happen, and others might think it's a higher probability, but there's too many people on both sides who would lose."
He gives an analogy of a government that says it won’t negotiate with hostage takers. “It’s possible but its very unlikely, from experience. It’s not to say that a cliff edge can’t happen, but it is not credible that it will be allowed happen. No government will stand over wilfully doing a Thelma and Louise because it’s not just Louise here it’s also Thelma going over the cliff.”
How bad will Brexit be for Ireland? “I think it will be awkward but not catastrophic. Brexit is not a positive for Ireland at all. But there is adaptability.”
For McCoy, the bigger danger is the threat to our competitiveness from the booming economy, and the bulging State coffers.
“We’ve seen all these costs rise partly because there’s no ration on the other side in terms of housing,” he says.
Is there a danger that we are in Celtic Tiger II territory? “Yes, there is. There’s no doubt we’re seeing the same symptoms. There’s every chance this boom is going to erode our competitiveness. I think we’re eroding competitiveness today faster than at any time during the Celtic Tiger because there is just so much money around because of quantitative easing.
"You can feel it and see it. We've six offices on the island so I go around the country a lot. The other cities are hopping. Places like Letterkenny and Sligo have great industries there. These are the industrialisation hubs of Ireland, in Westport with Allergan and Baxter in Castlebar and so forth."
To help illustrate his point, McCoy offers an analogy comparing the Irish and British versions of Gogglebox, a reality TV programme showing people in their homes watching television.
“The wealth in the Irish sittingroom compared to the average British one, it’s actually quite significant. Claremorris versus Huddersfield. They’re not controlled experiments. But how people are dressed, the wealth on display, the fitbits.
Career plan
“If you look at any small town in Ireland, yes the shops are closing down but it’s not that people aren’t consuming. The ecommerce and what they’re wearing tells you that, the cars they’re in, and the smartphones and so on.”
Next year will mark a decade at the helm of Ibec for McCoy. What’s his career plan from here?
“Actually, I’d love to stay in Ibec if they’ll have me because it’s continuously changing. We have a unique vantage point here and it’s hard to see a better job for me personally.
“A lot of people probably don’t appreciate that Ibec itself is rather a large business. We have 230 staff, a €29 million turnover, seven locations. We’re by far the single biggest lobbying entity in the country. In terms of European lobbying, of our type, we’re the third biggest in Europe.”
There are 43 “sub brands” within Ibec covering a range of sectors. These would include the Small Firms’ Association, Property Industry Ireland, Financial Services Ireland, Retail Ireland, and the Alcohol Beverage Federation of Ireland.
“Running that is really exciting, as well as the public policy narrative. Ibec is bigger in relative terms than the Confederation of British Industry. Scale matters because it allows you to be a more effective voice, and less afraid to call things out.”
He acknowledges that some people think it has too much influence on public policy, too much access to Government, and is merely interested in pushing the agendas of big business, including the banks.
“We’re not perfect but business is definitely a force for good and one of the challenges is to give voice to that. Sometimes that is uncomfortable.”
He would like to lead the “internationalisation” of Ibec, expanding its presence overseas.
“Ireland is going to be a hub for internationalisation, so the internationalisation of Ibec to follow where our companies are going would be one of the ambitions. We’ve been in Brussels a long time but I think there are other areas we could be.
“Bringing the Ibec model into other jurisdictions might be a possibility. I haven’t identified anything yet but we do know the future is going to be much more internationalised. We need to look further afield.”
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CV
Name: Danny McCoy
Position: Chief executive, Ibec
Age: 51
Lives: Terenure
Family: Married to Ailish with four children.
Hobbies: "I jog and run."
Something you might expect: "I'm obsessive about keeping up with current affairs."
Something that might surprise: He's recently taken up the ukulele and likes watching reality TV, notably Gogglebox and Operation Transformation. "Those shows where there's people and their stories involved."
