Ireland cannot be complacent when it comes to Brexit, warns IDA’s Martin Shanahan.
The assumption that Ireland stands to gain an easy windfall in jobs and investments from the UK’s decision to exit the EU is a foolish one, warned IDA Ireland CEO Martin Shanahan.
Shanahan was addressing the annual MacGill Summer School in Glenties, Co Donegal.
He said that Ireland’s economic fortunes only rose when the country began to embrace the fact that its greatest natural resource was its people.
‘The UK’s exit from the EU was not what we wanted; it is overwhelmingly negative for Ireland on multiple fronts’
– MARTIN SHANAHAN
“We (in this country) now understand and take it for granted that it is through trade and through attracting investment that we earn our living. As a small economy on the western edge of Europe, we have to engage, we have to be connected to the outside world. We have to trade and we have to attract investment to earn our way in that world.
“The same understanding has propelled the Irish – and, indeed, global economy – forward in recent decades.”
The spectre of populist nationalism returns
However, Ireland is now at a crossroads where countries east and west are becoming more protectionist.
“We see a type of populist nationalism rising in the world – that doesn’t recognise interdependence and the value of connectivity.”
Shanahan said that globalisation has been good for Ireland, but warned that a more protectionist global economy will not be.
“For those who have advocated for Ireland to consider following the UK and leaving the European Union, I say this: such a move would put an end to foreign direct investment (FDI) as we know it. Investors in Ireland value our European access hugely. It is part of every conversation we have with our clients in IDA. It provides us with access to one of the largest markets in the world, unrestricted movement of talent and services, amongst many, many other things.”
Ireland, he said, at all costs, must continue to welcome people and the diversity they bring.
“We must remain open to ideas, to innovation, to business, and to trade and investment. Ireland is a small example of how a small open economy can prosper in a globalised world – we must continue to lead by example.”
New wave of investment from Brexit fallout is not guaranteed
The fact that Ireland crawled back from the economic grave and managed to restore its reputation is a real win, Shanahan said.
But he warned that a dangerous notion of ‘job done’ must not be allowed to take hold, and that only by ensuring sustainable growth can Ireland afford to deal with its myriad of social issues.
“We need to ensure that the productive elements of our economy that generate wealth – and ultimately pay for social services and provide the standard of living that exists in this country – are continually tended to, as well as making progress on the many social challenges that remain.
“The notion that the economy will continue to grow and create jobs in perpetuity in absence of appropriate policy development and execution is naive.”
While some in the Republic are rubbing their hands with glee at the prospect of banking giants potentially moving operations to Ireland and elsewhere in Europe, Shanahan said they are missing the point.
He said that there are real threats to employment in Ireland in sectors heavily exposed to the UK market, and we must not lose sight of the fact that the absence of the UK weakens the attractiveness of the EU market; for example, in FDI sectors such as engineering, which are now exposed.
“The UK’s exit from the EU was not what we wanted; it is overwhelmingly negative for Ireland on multiple fronts. There are indigenous sectors of the economy in particular heavily exposed to the UK, including agri-food and fisheries. From an FDI perspective, Brexit presents both opportunities and challenges.”
‘We need to ensure that the productive elements of our economy that generate wealth – and ultimately pay for social services and provide the standard of living that exists in this country – are continually tended to’
– MARTIN SHANAHAN
Shanahan said that Brexit is not a win-win for Ireland – if anything, it will change how new FDI coming to Europe will consider its location.
“Given that the UK was the most significant destination for that FDI over the past number of years, it creates opportunity … we should remember that about 50pc of FDI currently going to the UK is to service a UK market.”
On the bright side, Shanahan said that Ireland is making steady progress on winning investments.
“IDA Ireland has been engaging with companies affected by Brexit for over a year now. There has been a significant focus on financial services, but discussions have now broadened beyond that to other sectors. We have seen companies like JP Morgan, Barclays, Legal and General, Chaucer, Beazley Re and Almac announce investments in Ireland on foot of Brexit.”
He said that while he is confident Ireland will see more Brexit-related investments over the coming months, the country cannot be complacent.
“These investments will not fall into our laps, they will have to be won. We will also have to address the carrying capacity of the economy if those investments are to continue into the future.”
What does ‘Making America Great Again’ mean for the rest of the world?
As well as the Brexit drama, the drama unfolding in the US administration under President Trump is a cause for concern.
US companies make up about 70pc of the IDA’s portfolio.
‘Due to this uncertainty, IDA expected to see some holding off of investment decisions in the first half of 2017 and we did observe some of this in quarter one’
– MARTIN SHANAHAN
The Trump administration’s policies on a number of fronts, from protectionist trade policies to migration, are creating a somewhat unclear picture.
“Due to this uncertainty, IDA expected to see some holding off of investment decisions in the first half of 2017 and we did observe some of this in quarter one.
“However, overall, the first half of the year has seen investments broadly at the same level as last year, and jobs associated with those investments 22pc ahead of last year.”
Nothwithstanding this uncertainty in the US, Shanahan said there is every reason to believe that US companies will continue to invest in Europe and Ireland.
He added that international developments are beyond Ireland’s control, and we must instead focus on the things that we can affect.
“Education and talent availability, infrastructure – roads, public transport, broadband, utilities – energy, water, waste, costs, tax, and regulation all make a difference to investment decisions by multinationals, but also to Irish companies and entrepreneurs.”
In conclusion, Shanahan said he felt “cautiously optimistic” about the future.
“On the FDI side, the results over the past two years represent the strongest sustained employment performance since 1999/2000. Employment in IDA client companies is at the highest level on record, just shy of 200,000 people, representing circa 10pc of the labour force. Unemployment is at a nine-year low at 6.2pc. This is an incredibly positive turnaround over a relatively very short period of time.
“If we apply the same diligence now as has been applied to driving the recovery over the past number of years, there is no reason to believe we can’t continue to achieve sustainable growth and, within that, foreign direct investment will play its part.”