In the last few weeks, IDA Ireland and the Department of Enterprise have been on a charm offensive. One source outlined how their company has been bombarded with “outreach” attempts – speaking to executives, inviting them in for meetings, asking about plans, whether they need anything.
“It tells you they’re worried,” the source says. “They’re concerned and they’re putting a brave face on it in public, but maybe they’re a little more worried in private than they are in public.” After a week that has seen hundreds of job losses announced at three high profile tech companies, who could blame them.
Since the weekend, the Government has tried to calm nerves. But coalition figures privately accept that, while some of the catastrophising may be overstated, there are well-founded concerns. “It’s too early to say it’s going to be as bad as people say, but it’s too early to be as positive as others are,” one remarks.
Government sources do not believe a Lehman Brothers-style collapse is underway, but fear a gradual rot that could suck in contractors and adjacent industries as growth in the technology sector stagnates or contracts.
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The impact of this is clear, and was acknowledged by Minister for Public Expenditure Michael McGrath on Wednesday.
“We are seeing a significant slowdown in the global economy and a major correction in the tech sector. That will have an impact in Ireland in terms of job losses, income tax and corporate tax down the line,” he told RTÉ, adding the Government believes the situation is “manageable”.
Some point out that the cuts merely return the companies to the headcounts of a few years, or even months, ago, and can be explained by “company specific” factors. But the fear is not that the technology companies merely revert to a pre-existing stable state with fewer employees, but that rapid expansion and contraction is a signal that may belie deeper issues in the sector.
While the Government and the IDA can press the flesh, there is a private acceptance that the openness of the Irish economy means it is vulnerable.
Again, McGrath was frank about the prospects for economic growth on Wednesday.
“We sell 90 per cent plus of the goods and services that we make here in Ireland, so we are dependent on external demand and the global trading environment will have an impact on Ireland. There’s no point in sugar-coating that, that is a reality.”
An experienced FDI executive concurred: “We don’t have a domestic market which can support anything else, so you kind of have to accept that as a cost of the business model that we have.”
It won’t be reinventing the wheel – just getting new tyres
The IDA, on Wednesday, suggested in a statement to the Oireachtas enterprise committee that it could be time for a wider strategic rethink, perhaps hooked on a forthcoming white paper from the Department of Enterprise, Trade and Employment. It said that “considering all the changes we have seen over the last few years – and the changes that will take place in the years ahead – it is an opportune moment to set a renewed medium-term vision for Ireland’s enterprise policy”.
Government sources said the hope is that the white paper will be published next month. A senior source said it would take in an assessment of new markets and sectors, as well as training, education, tax breaks and competitiveness. “It won’t be reinventing the wheel – just getting new tyres.”
Others are more doubtful that a rethink can have a meaningful effect. Many “capacity constraints” cited by the IDA as “negatively impacting” and “eroding” Ireland’s advantages are near-chronic problems – energy, water, infrastructure, planning and, above all, housing. The paramount importance of tax revenues from multinationals provides a backdrop.
“So much hangs on the steadiness of corporate tax,” says one insider. “The capacity of the system to reinvent itself is limited.”
Nobody is betting against tech as what one executive said is a “secular trend” but, in the medium term, uncertainty about how it grows – or shrinks – has been alloyed to a host of other instabilities in the wider economy. In a speech last summer, Minister for Finance Paschal Donohoe hinted at the state of flux in the global economy, saying it “is becoming more fragmented”.
“In these unprecedented times,” he said, “we cannot rely on old solutions for new problems.”
