Mr. Simon McKeever:

I thank the committee members for inviting us to speak to the issues faced by small and medium-sized enterprises. I am chief executive of the Irish Exporters Association, IEA, and I am joined by my colleague Mr. Karl Picard, our communications and public affairs officer. The Irish Exporters Association was founded in 1951. Since then, it has supported the growth and development of all export businesses in Ireland, leading the export agenda as the voice of Irish exporters, promoting their interests, identifying critical issues and in many cases delivering solutions to them.

Ireland is a small open economy, which has seen exporting businesses drive us out of troubled waters. Exporting has become a way of life for Ireland. The IEA has adopted a simple view – if a business wants to grow substantially, it needs to get off the island. Speaking to our SME members, they pointed to the following areas as being of most concern: housing shortages, staff retention issues, supply chain issues, inflation and energy costs, as well as concerns over their ability to comply with upcoming sustainability regulations. Housing has become a significant issue for our members' ability to attract and retain talent. We have consistent engagement with businesses across the country and housing has been a pressing issue for some time, but it is now becoming a greater concern. It is being discussed at every level of the company. Inflation and the cost of living are major issues, but we believe it is the acquisition and retention of talent that has become the issue of most concern.

Many companies are talking about housing or, rather, the lack and cost of it. This is having an impact on their ability to attract and retain staff, particularly in more rural areas. On top of our monthly national council meetings, we operate a series of regular regional network meetings with members. We are in recurrent one-to-one contact with senior people in these companies, and we visit their businesses regularly. One of the most frequent concerns arising at the moment is the availability and cost of both talent and housing. Members are concerned about how they can attract and retain staff if these people cannot find affordable, let alone any, accommodation close by. Our members are increasingly concerned about how they will deal with the wage demands associated with this acute shortage in the supply of housing. Simply put, our members have consistently raised housing, or the lack of it, as a significant problem. If people cannot get or afford homes, how will these employers attract new workers and hold on to the ones they have? The housing situation has deteriorated to such a point that some companies have taken to building their own accommodation in which to lodge staff. They have been unable to obtain suitable accommodation locally or even marginally local to where they are located.

Certain sectors find it immensely difficult to find general operative staff locally as it is, and particularly due to constraints in securing visas for workers coming from outside of the EU. We spoke to an established family-run business operating in the consumer foods industry, which has had to cut production levels by 25%, putting it at a significant competitive disadvantage. The consumer foods industry is not listed in the critical skills occupation list and, moreover, process operatives within this sector - and most others - remain on the ineligible list of occupations for employment permits. The IEA is of the opinion that it beggars belief consumer foods companies do not constitute an essential service. I assure the committee that this issue is hampering the productivity of companies in other sectors too.

The lack of housing and visa issues are crippling the potential of many businesses to hire new staff, maximise production and therefore remain competitive. We are told that the reduction in the number of landlords is driving up the prices of what rental properties are available in most areas of the country. When both issues come together it creates a vicious cycle that only serves to hinder SMEs across the country.

Entrepreneurs are a key driver of Ireland’s indigenous growth and have helped sustain economic growth in recent times. In an economy as reliant on foreign direct investment as Ireland, supporting a strong indigenous economy and the Irish entrepreneurs fostering it is essential to having a more balanced industrial mix. It can be an added mitigating measure to insulate Ireland from global economic uncertainties in the current geopolitical climate. As a State, we have developed a core national competence in our enterprise policy and have long been successful in supporting the scaling of small to medium-sized indigenous exporting businesses. However, we have been poor at bringing micro-businesses into the loop. Equally, we are poor at developing these medium-sized businesses into global corporations.

We have created a very successful scaling loop, where entrepreneurs grow, and are supported to grow, their business to small or medium size, before selling out to reinvest in early stage companies that will inevitably follow the same trajectory into familiar territory. It is not only financial resources, which these entrepreneurs invest but also their knowledge, with many of them mentoring and in some cases being involved in directing these companies. What I have mentioned is laudable and may sound positive, but there is an inherent issue with this process. In most cases, support for SMEs coincides with encouragement to sell that business on. Hence, we see very few Irish SMEs willing to float on the Irish Stock Exchange. While it might, in some instances, be desirable to sell, the IEA believes more can be done to support the development of larger indigenous Irish businesses. A revised strategic approach is needed to support both sides of our very successful small to medium development loop.

One way of assisting the development of larger organisations is by doing more to assist the intergenerational transfer of companies. We have very few large third or fourth generation family run companies in Ireland, which is in contrast to other countries. It is a reasonable presumption that Irish Government policy should be tailored towards encouraging the sale of Irish-owned SMEs, often to foreign-owned multinationals or larger scale operations. Should a business owner wish to hand down a company to their children, they run the risk of succumbing to an unforgiving rate of capital gains tax, at 33%, or the recipient is liable to pay capital acquisitions tax, also at 33%, with stamp duty of 1% on top of that. This compares with a rate of 20% capital gains tax in the UK with the first £1 million taxed at 10%. There is no incentive to keep the company within the family, encouraging them to grow it to more global proportions.

On supply chains, companies have told the IEA that from their perspective inflation pressures remain an issue. Despite predictions earlier this year that we are at the top of this latest spiral, the most recent figures in the USA suggest that interest rate hikes, initially predicted to stop following one more hike, will probably be prolonged by another quarter. With Germany, our second largest export market, expected to enter a technical recession during this quarter, we need to keep our wits about us.

Last year, a mix of items were delayed in the supply chain. A bit of everything was missing. Companies were able to balance operations to ensure their range of lines remained open. This has forced companies to increase the inventory they were carrying, buying forward what they needed whenever it became available and storing it. We are acutely aware that smaller companies have considerable working capital tied up in this storing of inventory and concerned about the effect that a potential slowdown in one or more of our critical export markets might have.

This year, companies tell us they are increasingly finding difficulties sourcing particular key components required for the manufacturing process. This is particularly the case with electronics, and they foresee these components being almost impossible to source into the latter half of 2023. This will hamper investment into and additional job creation within these companies. While we have seen a reduction in shipping costs and an improvement in container availability, we remain alert to potential issues that the rapid reopening of the Chinese economy post-Covid may have on global supply chains.

As an organisation, we are very concerned about the upcoming sustainability regulatory changes that will have a seismic impact on SMEs. It is without doubt that trade sustainability is the single biggest challenge we face as trade professionals. This is especially true considering the particular acuteness of the greater need for sustainability efforts in our industry owing to the global nature of supply chains. Without sustainable trade policies in place, the economic growth gains from trade will inevitably decrease, while the social and environmental costs will grow intolerable. It is not spoken about very much, but the corporate sustainability reporting directive, CSRD, will be one of the single biggest impacts on businesses. Companies do not know about it and are not ready for it. I am paraphrasing here but there is a misconception that it will only affect large businesses. It will not. They will push it down through their supply chains and it will come out in tendering processes. I have paraphrased the final part of my statement.