Are the regions ready for business?

29 May 2003

When Ireland’s economic boom dominated our lives for a brief period, the regional imbalance between the lot of regional SMEs (small to medium-sized enterprises) and industry and those of their city brethren — in terms of road, rail, socio-economic and communications infrastructure — became much clearer.

Ireland was effectively two places — the country and Dublin. If you were lucky and didn’t have to get on a boat out of Ireland, it was then a case of getting on the bus and making your way in the big, little city if there wasn’t a job for you in your locality.

In early Nineties Ireland, the attraction that brought industry, lower cost jobs and a bright educated workforce to various locations wasn’t as big an issue; people were glad of employment no matter where and the government and IDA Ireland only too happy to facilitate landmark projects such as Intel and Dell.

When various regions — Wexford for example — became vociferous in the late Nineties about the lack of regional spread in terms of foreign direct investment (FDI), reality began to dawn. Inward investment fed local enterprise, boosted employment amongst SMEs and created a pool of experienced talent.

The majority of this investment was going to large economic centres such as Dublin, Cork, Galway and Limerick. Ireland’s unexpected economic prowess was taking a toll — fine new houses and impressive lifestyles were offset by three-hour commute times, for example from Portlaoise to Dublin. This has been exasperated by the fact that the Luas project is being further delayed and going over-budget and a growing fact that our young, educated population has decided Ireland is too expensive a place to live in the face of indifference of their own government and are opting to go abroad in search of a more affordable lifestyle. A potential brain drain on our hands? We’ll see.

The National Development Plan (NDP) is grinding forward amidst constant criticism and the most echoed view is that it kicked off too late, at the end of the brief economic boom.

Today, much-vaunted proposals to turn Ireland into a so-called knowledge economy are being undermined by the fact that much of the country’s actual broadband infrastructure exists in Dublin. Regional SMEs still have to rely on dial-up access, ISDN and on the trickle of ADSL (asymmetric digital subscriber line) services to bring them up to speed with their global counterparts. A lot is being expected from the government’s National Broadband Strategy that will see †65m invested in metropolitan area networks (MANs) — fibre optic rings — that will circle 19 towns.

Research from the National Competitiveness Council placed Ireland at No. 13 in terms of broadband penetration, second last on a list, amongst key countries competing for FDI. By failing to invest when the sun shone, is it now too late to address such infrastructural imbalances?

According to research from the National Institute of Regional and Spatial Analysis (NIRSA), information and communications technology (ICT) firms, which led the vanguard of economic development in Ireland in recent times, as a rule are spatially biased. ICT firms, the NIRSA says, tend to underpin new and old geographic divisions and hierarchies, and can contribute to new patterns of homogenisation and differentiation.

“This digital divide can be between individuals, households, businesses and geographic areas at different socio-economic levels with regard to both their opportunities to access ICTs and to their use of the internet for a wide variety of activities,” said NIRSA researcher Conor McCaffrey in a paper entitled ]ITALS[Access to Information & Communication Technologies and Social Exclusion in Ireland]ITALS[.

Focusing on ICT organisations for moment, the imbalances in infrastructure fall not only on communications but also in terms of funding available to regional organisations and encouraging local multinationals to include local SMEs in their supply chains. Enterprise Ireland in recent months openly acknowledged a regional imbalance in terms of the amount of venture capital (VC) support awarded to young companies, with a clear bias in favour of Dublin and east coast-based industries.

The state organisation has been criticised for lacking focus in terms of regional divide. However, in recent months Tanaiste and Minister for Enterprise, Trade and Employment, Mary Harney TD, unveiled a €7m fund for companies in the border, midland and western (BMW) regions. The new fund is a public private partnership between Enterprise Ireland and Enterprise Equity Venture Capital Group, with each contributing €3.5m. At the recent Second Equity Conference in Dublin, Julie Sinnamon, who heads up Enterprise Ireland’s VC division, acknowledged the imbalance that exists in demand for investment among Irish SMEs. “The bulk of VC in Ireland is invested in the Leinster region and we are anxious to push that out to the rest of the country,” she says.

But it is also about encouraging better trade links between the multinational sector and the indigenous SMEs throughout Ireland. In an entrepreneurial strategy document last year, IBEC-based ICT Ireland, which fosters the interests of the Irish ICT sector’s indigenous and multinational companies, said that better trade between multinationals and SMEs could double the number of people employed in indigenous ICT companies from the current level of 30,000 to 60,000 by 2010. The ICT Vision document also called for the Government to consider ordering 20pc of all its ICT purchases from the indigenous sector.

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According to ICT Ireland director Brendan Butler, the imbalance between the plight of regional firms and their city slicker counterparts has been allowed to rot. “In terms of the cost base in relation to wages and non-pay costs, Dublin, Cork, Limerick and Galway have always attracted investment and it’s difficult for the IDA to attract FDI outside of those locations despite awareness of the need for better regional spread,” he explains. “There’s a chicken and egg situation they are grappling with — do you get the industries in first and follow with the infrastructure or do you do it the other way round? In my opinion it’s a no brainer — get the infrastructure in first. At the moment the gap between the major urban centres and the regional divide is actually widening.”

Butler continues: “The Corrib Gas Field rejection was typical of the small-mindedness that is exasperating the problems of infrastructure. The entire western seaboard does not have gas. If you are trying to attract industry to the west, clean energies such as gas are attractive. As well as this, Ireland does not have a proper waste treatment facility — one third of Ireland’s waste is exported and that costs industry money. Think about it!”

“In terms of broadband, it’s brilliant if you can send something cheaply from Dublin to New York, but if it costs more to send something from Westport to Dublin then there is a problem. However, in terms of broadband infrastructure we are seeing the most significant progress on what has been an emotive subject for several years now. From a business perspective, the significant push on DSL [digital subscriber line] could be seen as one of the biggest breakthroughs we’ve had. If you are trying to promote a part of this country, at least having DSL available at an affordable price is something,” Butler adds.

“The talk of having every town and business park with 3,000 people with broadband access is laudable but hardly realistic. It has to be demand led or it will cost a fortune. If you put the infrastructure in first you have to be sure that the demand will follow. That’s why telecom firms are reluctant. There is a clear need for the Government to prime the pump on this one and the jury is still out on whether the 19-town rollout will actually work. There is clearly some work to be done, but at least we are going in the right direction.”

Butler lauds the efforts of ‘industry helping itself’ on the matter, indicating strident efforts such as the new Atlantic Technology Corridor fostered by Tellabs executive Pat Shanahan and Nortel executive Mike Conroy and supported by organisations such as Ennis Information Age Town, Dell, Hewlett-Packard, APC and Analog Devices. The corridor will stretch along Ireland’s west coast, taking in Limerick, Shannon, Ennis, Gort and Galway City.

However, Butler warns, funding issues such as the potential review of the Business Expansion Scheme by the Minister for Finance “would prove to be a very serious blow to the small business community if such as scheme were to be discontinued.”

John Dunne of the Chambers of Commerce of Ireland (CCI), however, feels that the support for greater communications infrastructure at government level is not strong enough. “Mary Hanafin is doing her best, but we believe that it is very difficult for a junior minister to get senior ministers such as the Minister for Finance active,” he says. “A single minister with a clear focus on ICT and a portfolio of investment to manage would send out a strong signal.”

He continues: “In terms of the €65m investment in MANs, the question we have is will it integrate with existing investment? The landscape of Ireland is littered with fibre optic networks that have never been lit. Using roads as a metaphor for broadband, it seems we are building new roundabouts but are unsure about connecting them with the motorways.”

Dunne goes on: “Demand aggregation and showing the telcos that there is a demand for broadband in the regions is all very fine, but much of the rhetoric seems to be confined only to industry, trade and employment. There is a clear need to demonstrate that this also covers education, health and local government, the elements that are key in making it work. Again, we feel that the focus in government at the present stage is not strong enough or senior enough.”

“There are many other areas that need to be considered — social, environmental, energy — but it is too easy for the Government to take its eye off the ball. I don’t think the National Spatial Strategy has the right framework and is not sharp enough in appeasing the many interests; it is diluted to a point where it is not effective. Take the €11m element of the BMW investment in broadband as part of the National Broadband Strategy — it takes in a lot of the principal midland towns such as Athlone, but seems to bypass the major hinterland that is Portlaoise. That will throw up major issues in the future. The plan is politically courageous, but seems to be a halfway house in terms of strategy. What is needed is a bottom-up approach that takes in every town and business district,” Dunne recommends.

According to Pat Delaney, director of the Small Firms Association, the situation is not as cut and dried as people think. “There is an element of ‘build it and they will come’. But the road is fraught with danger. It is down to how the whole thing is managed,” he says.

According to Delaney, there is a history of danger in this regard: “If you go back to the Seventies and Eighties and the creation of the greenfield industrial sites around the country, the ESB discovered to its peril that there was a problem. It spent 20 or 30 years rolling out electricity to greenfield industrial parks and found the changes in the economic climate led to oversupply and undersupply, mistakes were made and infrastructure when it mattered was poor.”

Delaney continues: “A lot of the talk by ministers and state agencies shows there is a clear bias toward pushing infrastructure and new industry to BMW regions because that’s where the investment is needed, but it could go wrong if the demand is incorrectly assessed.”

“However, in the key hotspots things aren’t happening fast enough. The issue is how do you cope with a country that is trying to grow. The east coast is close to the economic markets and for many it is the market. In terms of state investment in public private partnerships, you have to make sure that the rest of the country is on a level playing field in terms of maturity and availability, and I don’t think this is happening fast enough,” Delaney concludes.

By John Kennedy