Oireachtas Joint and Select Committees
Tuesday, 18 October 2016
Joint Oireachtas Committee on Jobs, Enterprise and Innovation
Economic Impact of Brexit: Discussion
I remind members, visitors and those in the Visitors Gallery that mobile phones must be switched off, or in flight mode, for the duration of the meeting as they interfere with the broadcasting equipment, even when on silent mode.
I welcome Mr. Kevin Sherry, executive director of global business development and Mr. Garrett Murray, policy manager from Enterprise Ireland, Ms Mary Buckley, executive director and Mr. Denis Curran, department manager international services centre from IDA Ireland and Mr. Aidan Gough, strategy and policy director at InterTrade Ireland to discuss the likely economic impact of Brexit with particular emphasis on jobs and enterprise and the steps being taken to mitigate these risks.
I advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of a long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House, or any official by name or in such a way as to make him or her identifiable.
I remind our guests that their presentation should be of no more than five minutes duration, if possible. Members have been circulated with the presentations that were submitted by today's attendees. I now ask Mr. Kevin Sherry to make his presentation to the committee.
Mr. Kevin Sherry:
I thank the committee for the invitation to attend today. I am joined by my colleague Garrett Murray, the department manager of our policy team and in the Visitors Gallery by Ms Deirdre McPartlin and Ms Anne Lanigan who are part of our newly established Brexit team.
The committee will know that Enterprise Ireland's activities are focused on supporting indigenous manufacturing and internationally traded services companies. We also have a responsibility for overseas direct investment in to Ireland in the food area. We support more than 5,000 companies in those areas. The contribution from those companies in employment is felt throughout the State, in every town, village and county. In 2015 those companies recorded record employment growth of 21,118 jobs, a net of 10,169 jobs. Of that increase, 64% of those jobs were created outside of Dublin. The total spend of those companies in Ireland was €23.8 billion in 2015 and between them their exports accounted for €20.6 billion, a 10% increase on 2014. We are forecasting that this year, those exports will reach the target we set of €22 billion.
The UK is a very important market which accounted for €7.5 billion of that €20.6 billion. In 2015 that market grew at the second fastest rate by 12%. We have, however, seen a trend where the UK market - as a percentage of exports over the last number of years - has decreased from 45% of the total exports of those companies in 2005 to 37% in 2015. The focus for Enterprise Ireland is to reduce that dependency and increase the penetration into other markets such as northern Europe, the US, Asia and the Middle East. A total of 1,476 of the 5,000 companies have recorded exports to the UK, so it is a very important market and those companies are significantly impacted by Brexit, as the committee can appreciate.
Of the 1,475 companies which have some level of exports to the UK, 355 have substantial exposure to the UK market and employ more than 24,900 people. Over 200 of those 355 companies would be deemed to be particularly challenged because they have a high level of sales to the UK. The UK is and will continue to be the largest market for Irish exporters in the short term. Our current activities and strategy for 2017 to 2020, which we are currently developing, will have the twin focus of trying to sustain and deepen the exports of those companies to the UK market and also expand their reach into other markets.
The primary cause of uncertainty in the short term as a result of the Brexit vote is currency volatility. On 7 October the exchange rate went over 90p. The sectors that are most impacted by that and which have a high level of exports to the UK are our construction services, engineering, agriculture machinery, timber, furniture and food industry. What is also very clear is that the impact of Brexit will not be temporary. It is structural change and we need to respond to it in that way. It requires a strategic response from Irish exporters and from Enterprise Ireland.
It is not the first time we have been in this situation. In 2009, when the euro and sterling were near parity, Irish companies successfully overcame those challenges, even though they went through a very painful process. Brexit will drive companies to focus on increasing their competitiveness, on innovation and on differentiating their products from their competition in parallel with going after new export markets. We are putting a lot of effort into supporting them in that area.
We surveyed our clients in the last number of months on their view on Brexit and their exposure. Of those companies, 29% said they did not expect the UK exit to impact substantially on their projections; 47% said it is too early to tell; and 26% said they will immediately focus on diversification. From Enterprise Ireland's perspective, we are focusing on supporting those companies in the areas of market diversification, planning their next steps, competitiveness and information innovation. As soon as the Brexit vote was announced, we launched a five pillar response in terms of our strategy. I will not go through the details because it is publicly available. It was focused on helping them with information about how to immediately respond from a currency point of view in terms of hedging; on trying to respond within the UK market and helping them to identify and progress their objectives in other markets; and on competitiveness and innovation.
The majority of our work with companies is on a one-to-one basis but we also work on the response of specific sectors. Two weeks ago was international markets week and we brought 140 of our overseas team, which is virtually all our overseas team, back to Ireland to meet with over 400 companies that are most exposed. During that week, we held over 1,400 one-to-one meetings with those companies. They were focused on assisting those companies plan for what is ahead. We also had a briefing to hear advice from entrepreneurs who have succeeded in scaling their business in international markets. During that week, we also held a number of specific sector workshops with sectors that are most exposed to Brexit to help them respond at a company and sector level. That was about understanding and defining the particular challenges and opportunities faced in each sector. That is central to our approach.
Brexit will continue to pose challenges for Irish exporters. This will be a marathon and not a sprint. It is very important to say that it creates opportunities. There are a series of sectors where there are specific opportunities. Our past experience of downturns and other challenges have positioned companies and incentivised them to look at other markets and broaden their base. Our focus will be on driving scale and expanding the reach of companies. That is what our strategy is focused on. Let there be no doubt that at the moment we have the strongest cohort of indigenous Irish companies that we have ever had. Part of that is a function of us having come through a very difficult period during which companies had to improve their competitiveness and focus on improving their international competitiveness. We are optimistic about the potential for Irish companies to come through this period of great difficulty stronger and to build their export base during that period.
Ms Mary Buckley:
I thank the committee for inviting IDA Ireland to attend to discuss the likely economic impact of Brexit. I am accompanied this evening by my colleague, Mr. Denis Curran, who is the manager of our financial services division.
Ireland has performed extremely well in attracting FDI over many years. We have over 1,200 FDI companies employing over 187,000 people. These companies account for more than two-thirds of the corporation tax take in Ireland. They account for €130 billion in exports and they contribute €9 billion in pay per annum. The years 2015 and 2016 have been excellent ones for FDI. IDA client companies created just under 19,000 jobs on the ground during 2015 across a range of sectors, with every region of Ireland posting net gains in jobs. In 2015, 213 companies invested in Ireland, 94 of which were investing in Ireland for the first time. Our mid-year results for 2016 were announced in July and show we are ahead of the first half of last year, with 9,100 jobs created and 115 investments secured. Ireland’s stable business environment and certain access to the EU market means Ireland is extremely well placed to win new FDI investments in Europe. Ireland has a unique perspective and interest in Brexit. Our relationship with the UK is closer than with any other member state. Brexit is not what we hoped for but we fully respect the decision of the British people. Ireland will continue to be a core member of the EU single market and euro currency. This is one of the key reasons that companies choose Ireland as a place to locate.
IDA believes there are potential opportunities for Ireland arising from the vote by the UK to leave the European Union. However, quantifying these at this point is not possible. Ireland has a strong track record in winning FDI. In terms of employment creation from FDI over the past four years, Ireland has been second only to the UK in the areas of technology, consumer and content business services and international financial services. We also have strong attributes that are of interest to global companies: we are English-speaking; we are a member of the European Union and the eurozone; we have a common law legal system similar to the UK; and we have a direct land border and close geographical and cultural links with the UK. Ireland also provides an opportunity to passport into the wider the European Union market from any part of Ireland. We believe these attributes are of interest to companies but the best way to explore these ideas is through direct contact with companies, existing or potential.
Areas of increased FDI interest are likely to be services companies such as international financial services, technology, consumer and content business and life sciences in the short term and in the medium term in the manufacturing sector and pharmaceuticals, bio-pharmaceuticals, med-tech and engineering. There are a few different categories of clients and potential clients where we see opportunities: existing IDA clients with a presence in Ireland who also have a presence in the UK; overseas clients who have a presence in the UK but not in Ireland; UK companies operating in the UK which now need certain access to the European market and international clients without a presence in Europe seeking a European base.
IDA Ireland has taken a number of steps to ensure we carefully manage the uncertainty the vote has created. We are members of the Brexit co-ordination group established by the Minister for Jobs, Enterprise and Innovation, Deputy Mary Mitchell O'Connor. The group consists of the CEOs of both IDA Ireland and Enterprise Ireland, as well as relevant enterprise, single market and trade officials from the Department. The group has met on a number of occasions since June to address the response to the referendum result and the messaging to business both domestically and overseas. The Minister, Deputy Mitchell O'Connor, has continued to chair the group as part of the Department's ongoing response as developments unfold. We have established an internal Brexit team at senior level. Following the vote, we wrote to 1,200 of our existing clients to reassure them Ireland will remain in the European Union, to remind them of Ireland’s positive attributes including talent, skills, tax and ease of doing business and to offer assistance, advice and support. We have also initiated a global advertising campaign highlighting Ireland's attributes as a key European FDI location and this will be supported by further public relations activities later this year.
Every investment agency in the world will be competing to win mobile investment in a post-Brexit environment. Notwithstanding our strong baseline position, Brexit will result in risks in the short and medium term. These risks include a long period of uncertainty leading to the stalling of investments, dampening of FDI growth and, consequently, global FDI flows, decreased attractiveness of the European market, direct impact on existing IDA client companies, some of which are heavily exposed to UK and the impact of Brexit on the Irish economy. The shape of the UK's future relationship with the EU after Brexit is, as yet, unknown. It is important that we monitor developments to continually assess the implications of whatever model emerges in terms of its impact on Ireland's attractiveness for FDI relative to the UK.
Mr. Aidan Gough:
InterTradeIreland is an implementation body mandated by the Governments of Ireland, Northern Ireland and the United Kingdom to promote and develop cross-Border trade and business development opportunities. As an implementation body, InterTradeIreland is preparing to help North-South trade, innovation and business development linkages continue to flourish in whatever trading relationships emerge from the UK-EU negotiations. Cross-Border co-operation and trade has been a success story during the past 16 to 18 years. Cross-Border trade in goods and services, which stands at over €6 billion, has more than doubled during the past 18 years. We have worked with more than 30,000 businesses across the whole island. We emphasise the whole island as part of our corporate strategy to ensure we work with businesses in every county, and we have done it successfully. We have created nearly 10,000 jobs in SMEs across the island and we have generated, through our initiatives for businesses, over £1 billion of added value.
The Republic of Ireland, ROI, market accounts for 16% of the external sales of Northern Ireland companies. As the external sales figure includes sales to Britain, approximately 38% of Northern Ireland's exports go to the South. Approximately 62% of Northern Ireland's total exports to the EU are to the South. The Northern Ireland market is especially significant for smaller Irish firms with nearly one sixth of exports from Irish small firms going North, while approximately two thirds of Northern Ireland's exports from small firms go to the South. We have a highly integrated market across the island. It is also very sectorally specific, with some sectors being almost an all-island industry, particularly the agrifood industry. We may want to talk about it later.
The potentially negative impact of a Brexit on cross-Border trade and business development has been highlighted in a number of reports. Our business monitor, which surveys approximately 1,000 CEOs in businesses across the island on a quarterly basis, shows the outcome of the Brexit referendum has caught a large majority of businesses offside. The report indicated that 97% of businesses in Ireland have no plan in place to deal with the consequences of the vote to leave, and that 92% of export businesses have no plan for this eventuality. The negative implications of the uncertainty - and it is the uncertainty that is causing the problems - created by the referendum result in the marketplace are reflected by the fact that one in five Irish firms reported that they planned to decrease their level or speed of investment. Approximately three in five Irish businesses believe Brexit will have a negative impact on cross-Border sales. This is a much higher figure than Northern Ireland businesses, of which one in four said it would have a negative impact, but I am sure this reflects the way exchange rates have moved.
Supporting businesses, particularly small businesses, to navigate the uncertain landscape and realise their growth ambitions as the new terms and conditions of the UK's new relationship with Europe emerge will form a critical part of our work programme over the next few years. We are well placed to engage with SMEs across the island. Our corporate e-zine will keep us in contact with businesses. It circulates to over 15,000 businesses ten times a year. The key is to get information to the businesses to help them navigate the uncertainty and present the facts where we can. Our all-island business monitor also keeps us close, in a listening mode, to the challenges businesses are facing. Our range of cross-Border trade programmes will become even more attractive to exporters and to inexperienced and first-time exporters in particular. The range includes our Acumen and Elevate programmes, which help small or micro businesses take the first step onto the export ladder. We also offer our trade accelerator vouchers and we expect a big increase in demand for all these supports.
We are also examining what we can do in the future. In the short term it is information based. We are exploring the development of a model that will allow us to assess the impact of tariffs on cross-Border trade. The impact of Brexit will be sectorally specific and even within sectors there will be greatly differentiated impacts depending on the products. With the WTO tariffs there is great variety and it will be greatest in the agrifood sector. Even there, the average EU trade-weighted WTO tariff is approximately 2.3% for non-agricultural products but approximately 22% for agricultural products. Agrifood is a massive sector, accounting for 52% of cross-Border trade. Even within agrifood there is great variety in tariffs and we are particularly concerned in a number of areas. For example, there are three flour mills in the island, two of which are in Belfast, and the Belfast mills export 60% of their output to the South. The EU tariff on flour is 65%. This could decimate one industry. We must get down to very granular detail and we hope to provide this advice to businesses as negotiations emerge and we see the tariff levels and where they will be imposed.
Meanwhile, we are encouraging businesses to continue to grow through exporting and developing the cross-Border market. We are advising them to focus on the things they can control. While there is much uncertainty, there are certain things they can control and they all make good business sense in any event. They can develop their customer and supplier relationships, which can add value to a contract. We know 70% or 80% of the businesses we work with do not even have a business plan. It is critical when navigating the landscape to have some idea of the different scenarios one could face.
We are encouraging businesses to diversify. If one is selling one product to one market, which many cross-Border traders are doing, one is heavily exposed. We are encouraging them to diversify. Linked to that, we are encouraging them to innovate because uniqueness adds value that can provide a buffer if tariffs are imposed or increased. Obviously, there is the question of currency hedging. A emerging problem is that the deals of companies have already hedged are starting to run out.
As I said, we are piloting a series of Brexit breakfasts between now and Christmas along the Border area and in the Border counties, where the impact will be felt. InterTradeIreland, as an implementation body, is prepared to help North-South trade innovation and business development linkages to flourish in whatever new relationships emerge.
I have a question for InterTradeIreland. Brexit has dramatically altered the prospects of the North's economic development. It is fair to say InterTradeIreland, as the body responsible for the promotion of cross-Border trade, now finds itself in totally new and uncharted territory. Does it agree with that statement?
Mr. Aidan Gough:
We are specifically an implementation body, and we report to two Ministers. The two may not have the same views on Brexit. There is no doubt that Brexit, by its nature, will have a differential impact on cross-Border trade. The businesses we are working with are telling us they would prefer as free a movement of goods, services and capital as possible. Whatever arrangement can achieve that will have the least impact.
InterTradeIreland was set up under the Good Friday Agreement. What does Mr. Gough believe the Irish Government now needs to do to protect cross-Border trade and InterTradeIreland itself? InterTradeIreland is in a unique position.
I thank Mr. Sherry for his presentation. While one cannot see into the future, what steps does he believe could and should be taken to reduce and protect against the impact of a hard Brexit? That is a nice easy question to start off with.
I was struck by two factors. It was said that 47% of exporters plan no change in strategy. Mr. Gough alluded to this and said that 80% of businesses have no business plans. Those are two statistics that worry me. How does InterTradeIreland intend to combat these trends?
My final question is on the resources of Enterprise Ireland. Could Mr. Sherry give us an idea as to how they have changed? What was the staff complement in Enterprise Ireland five years ago, what is it today and what is it likely to be next year given the challenges of Brexit? Could Mr. Sherry make specific reference to his London operation? It will be particularly important.
Mr. Kevin Sherry:
Regarding the steps being taken to avoid a hard Brexit, our focus is sector by sector and company by company. Just short of 1,500 companies, which we have identified as exporting to the United Kingdom, including Northern Ireland, are affected in different ways. Some export to multiple markets. If they are already embedded in a number of other markets, they can switch resources to put more emphasis on those that are not as affected by Brexit, such as other euro-denominated markets or markets that are already established. Companies with the United Kingdom as their primary market face different factors. It is too early to say what is likely to emerge in the negotiations by way of tariffs in particular areas but one of the immediate factors to which companies must respond is the exchange rate. There are a number of strands to this response. One is that companies immediately look towards their competitiveness. In the short term, they are looking towards their hedging strategy. Very importantly, companies are not in the business of gambling on the currency exchange rate. Therefore, it is about creating certainty for themselves, be it through hedging through financial institutions or natural hedging in terms of some of their sourcing activities. In some cases, companies will be considering sourcing where they might have been sourcing in other parts of Europe with a view to switching some of that sourcing into the United Kingdom so they have a natural hedge. That type of activity is taking place.
With regard to other responses, we have seen companies in certain sectors opting for price increases in the United Kingdom. Some have been successful. Actually, it is not just Irish companies that are affected. There are substantial additional exporters to the United Kingdom, and they are also affected by the same factors. It is not just Irish companies looking for increases. This is likely to lead to knock-on inflation in the UK market.
With regard to the 47% that said there has been no change, they said there has been no change for the moment because of the relative uncertainty in the market. However, as we move towards hardening positions, the companies are moving towards spreading their risk and considering other markets. One of the factors in this regard is that Enterprise Ireland is providing a lot of support to companies in evaluating options for other markets, including in respect of the questions as to how transportable their products are, how attractive those products are in other markets, and how well positioned the companies are to go after other markets. The first port of call for companies whose primary export market is the United Kingdom is other English-speaking markets. This is because language skills and culture are important. One finds that the United States and some other English-speaking markets are very important. With regard to our activities in this area, we brought virtually all our overseas team back two weeks ago to engage in the discussions and work with the companies. That is not something that happened this week or last week. It is something we have been doing for some time but the urgency associated with it has increased. We are deploying a lot of resources in this area, just as we are focusing on competitiveness and helping companies to focus on becoming lean and making improvements.
With regard to resources, Enterprise Ireland has been no different from any other organisation over the past four to five years. We have reduced our numbers substantially in recent years. I will ask my colleague, Mr. Murray, to talk specifically about the current numbers.
We have not reduced our resources overseas. In fact, we have increased resources in recent years in what we term "high-growth markets". These include the Asia-Pacific region and the Gulf region, in particular. Under the budget allocation, we received an increase in both our operating budget and the budget for staffing resources.
There was an additional allocation for the Department and Enterprise Ireland and IDA Ireland have an additional 50 staff. We are in discussions with the Department on the deployment of these staff. We see the additional staff helping companies in more established markets such as the United States, the United Kingdom and other parts of Europe and increasing the resource available in Ireland to assist companies with their competitiveness.
Mr. Garrett Murray:
Our capital budget was increased by 12%, as announced last week, while our research and development budget is at a figure of 3.7%. We also have the more than 50 staff allocated to the Department. We have spent a lot of time in the Department looking at where we need priority posts and where we can have the most impact. When the final number has been decided based on what is available through what has been allocated and from our own resource income, where the ceiling on what we are allowed to use has been increased, we will be able to announce exactly where the posts will be. On where we are regarding what has happened in the past five years, I am more than happy to circulate the information we can show to the committee broken down appropriately.
My question relates to the diversification of companies into new markets. It goes back to what was said about the Asia Pacific region and the eastern side of the globe where 4.5 billion people live, or 60% of the world's population. I understand, however, that there is a lot less income than in the western world, but, as was rightly stated, there is an emerging market with the growth of the middle class. How much of an increase in resources was there in the Asia Pacific region in the past 24 to 36 months? I see from the figures that Irish exports to the region have increased. Is a specific strategy being put in place for it, given what has happened with Brexit? On IDA Ireland looking at foreign direct investment and competing with the United Kingdom, at the recent EU symposium the British ambassador, Mr. Robin Barnett, mentioned that the United Kingdom was looking at increased trade with Asia and towards a Singaporean model. That would put us in direct competition with it for foreign direct investment, as mentioned. Is there a strategy in place to attract Asian companies to Ireland and compete against the United Kingdom? What is the strategy between Enterprise Ireland and IDA Ireland and is there joined-up thinking?
Mr. Kevin Sherry:
With regard to the resources we have available in the Asia Pacific region, even though like any agency we have reduced our resources overall, we have actually increased them in the Asia Pacific region. We have allocated an additional ten staff in the region in the past 36 months. We also have a resource in Ireland, the high growth market team, which is focused on assisting companies to prepare for tackling these markets. We have eight offices and 39 staff in these markets. We also have a network of what we call pathfinders, or trade consultants, which represent a variable cost to us. They have specific expertise in certain sectors and we support companies to utilise them.
The market in the Asia Pacific region is growing. Exports to the region have grown by 70% in the past four years. The number of client companies which are exporting to it is approximately 620, a 15% increase in the same period. It is a region that requires a very sharp focus because while it is big and has strong growth rates, the timescale to secure business in the market is longer than in other established markets. The committing of boots on the ground is critical, not just by Enterprise Ireland but also by companies.
It is not a case of either-or, that we go after the market in the Asia Pacific region and not other established markets. The United States and Europe are very important markets. We were very clear that we would not take resources from these established markets and place them in high growth markets; they had to be additional resources. Today, we have an international education trade mission to China led by the Minister, Deputy Richard Bruton. Next month we will have a trade mission to China and Japan. The Minister of State, Deputy Eoghan Murphy, has returned from a trade mission to attract investment in the financial services sector. It is a constant focus for us in terms of trade missions and activities. Obviously, high level missions led by Ministers are particularly important in these regions, where government to government interaction is so important, but that is not to take away from other markets. Last year the growth rate among Irish indigenous companies exporting to the United States was 27%. It is about focusing on both and not a case of either-or.
On foreign direct investment, as part of our activities in the market Enterprise Ireland has responsibility for the food sector and our trade missions to the Asia Pacific region have been partly focused on food products. Recently the Minister for Agriculture, Food and the Marine, Deputy Michael Creed, was in the region on a food and agri-tech mission. Foreign direct investment is a key part of this activity. The Chinese are very interested in baby infant formula because they had a big issue and scares associated with it in terms of the quality of product from their own producers. My colleague from IDA Ireland, Ms Buckley, may also want to comment on the foreign direct investment aspect.
Ms Mary Buckley:
We have nine offices in six locations in the Asia Pacific region, including Bangalore and Mumbai in India and Japan. We also have representation in Singapore, Korea and Australia where we are very well represented. We have been marketing in Asia in the past six years. It is a market in which we have had some wins and on which we are very focused. Huawei, Sumitomo and ICBC, to name but a few, are some of the companies we have attracted here. From a foreign direct investment perspective, many of the companies located in Singapore are broadly similar in the sense that they are subsidiaries of corporates located in other parts of the world which are targeting the Asian market. Many of them also have operations in Ireland. Singapore is a competitor of ours, but we have a presence there to actively promote Ireland as an investment location.
I thank the delegates for their presentations. My first question is on funding. Enterprise Ireland, IDA Ireland and InterTradeIreland do a phenomenal job and as such, I was disappointed to see that only €3 million had been allocated in the budget. The figures speak for themselves in terms of the trade risk to various sectors. The sum of €3 million allocated in the budget represented only one fifth of 1% of the fiscal space available.
I have read through the documents to see what is going on, particularly in the case of Enterprise Ireland engaging with indigenous companies to get them ready to diversify. It is as clear as day from the data the delegates have provided for the committee from the reports produced that the indigenous sector is not prepared and not thinking about this issue as well as it should. I see very little interaction on the ground. Is a sum of €3 million enough to prepare Ireland for what will probably be the biggest macro shock the indigenous sector will experience, I hope, for quite some time? To me, it does not seem it will be enough for the agencies to do what they are speaking about. For example, Mr. Gough spoke about organising breakfast briefings. Certainly, those involved in the business sector in County Wicklow do not believe they are proactively been engaged with. Perhaps this is because the agencies are still ramping up and the money is being allocated and the teams are being hired. Could the agencies usefully put a sum of €10 million to work?
My next question is on the Brexit co-ordination group. It seems to be quite a small group of people or bodies. Is any Department other than the Department of Jobs, Enterprise and Innovation represented in it? If not, would the agencies welcome the representatives of others? Is there any employer group represented in it such as ISME, IBEC or the Small Firms Association? If not, do the agencies think they should be?
My final question, which is probably mainly to Mr. Gough, is around informal talks. The Government must take a position that all negotiations will be between the UK and the remaining 27 member states but I hope that there are intense and detailed informal talks going on, the most obvious of which are between the North and the South. I ask Mr. Gough for InterTradeIreland and for EI and IDA Ireland, what level of informal talks are going on. Are these talks getting into, for instance, the example of the flour mills? That was a fantastic example of the devil being in the detail. Those are my three questions.
Ms Mary Buckley:
From the perspective of the level of informal talks that are taking place, the nature of our business is strongly based on relationships and the depth of the conversations with our client companies and we have always been engaging with our clients on the opportunities and challenges they face globally. In that regard, we continue with all of those engagements. We have certainly been proactively engaging with our clients, not only as to their operations here in Ireland but globally because that is where many of the decisions will be made on what they will do.
Second, in order to capture potential clients which is key for us as well, we have been actively involved in the media globally. In particular, our CEO is focused on getting out the message about Ireland as a location for FDI. That has been done, both in print and in television media, right across the globe. In addition, we are actively partaking in as many conferences, seminars and any type of one-to-many engagement as possible. Our core function is in that regard, and the way that we do and win business is through our relationships and engagement with clients. That will continue to take place right across the globe.
Mr. Garrett Murray:
In terms of funding, we would have had extensive discussions with the Department on what we needed in funding to deal with the immediate issues. The immediate issues for us are boots on the ground overseas so that we can help diversification and drive innovation.
Mr. Sherry would have referred to my colleagues from our newly established Brexit unit. We are well poised to deal with the situation as it stands. That is not to say that we will not have to go back to Government and have further conversations as we see what Brexit will be like, be it hard or soft, or whatever terminology we are using.
In terms of ramping up and engaging with companies and the unknown, many companies are only reflecting on what their challenges are. What we have been trying to do is meet them, contact them and point out the services we already have available, what we will have available to them following the budget and what we have been doing over recent months. We are comfortable at present.
Mr. Kevin Sherry:
I would add that companies' preparedness for Brexit is not uniform and companies are responding to the situation as it is evolving. In the area of agricultural machinery I mentioned, for example, the immediate response in the market for agricultural machinery was that farmers who would be buying agricultural machinery in Great Britain and Northern Ireland was to stop purchasing because they were wondering what would be the situation on the single farm payment and their spend. Rather than it being a currency or pricing issue, their response was to stop purchasing in the short term which created a greater shock than any exchange rate fluctuation. What has happened now is that many Irish companies that are also in competition with suppliers from outside of Ireland have sought price increases and have got them, and the market has started to move again. That situation could change. They are responding and evolving to the situation as it emerges.
Equally, in the case of customers in the UK market, for the majority of Irish companies supplying into that market it is business to business as opposed to business to consumer with the exception of the food sector. Companies in that area are tied in, by and large, to medium to long-term contracts. If one is supplying in to the aerospace sector, for example, there is all the approval process to be gone through and from the customer's point of view, switching suppliers is not necessarily easy. That would be a good example of North-South trade where some Irish companies would be supplying in to Bombardier, never mind in to Great Britain. Every sector is different and we are having to deal with them on a company-by-company and sector-by-sector basis.
As I mentioned earlier, and as referred to by my colleague in InterTradeIreland, in the case of the companies that are hedged, with few exceptions that hedging was in place until the end of the year. They are having to look at their pricing strategy for the next contracts coming up and hedging. It is something that we are staying on top of, and requires us to deal one on one with the companies. One thing we can say is we have a strong relationship with those companies and would be aware of what their positions are and understand where their exposures are. It is then based on responding to them one on one and having a plan in place with each of those companies.
Yes. I thank Ms Buckley for her answer to the question on the talks, but it was less on IDA Ireland and its clients than on whether officials are talking. Are there officials from Dublin, London and Belfast beginning to sit down and identify exactly the sort of micro-opportunities and threats that Mr. Gough was talking about?
Mr. Kevin Sherry:
The answer is that officials are talking. There were recent meetings, for instance, of secretaries general of Departments in Ireland with secretaries general in the UK over in Whitehall. That exchange of information is taking place. There are concerns on both sides about how this develops and emerges. From our perspective, we have highlighted to our colleagues, in the Department of Foreign Affairs and Trade who have been involved and in our own Department, the Department of Jobs, Enterprise and Innovation, the issues that we are seeing on the ground and ensuring that they are raised.
Mr. Garrett Murray:
In terms of the representative question, the group referred to is the Department and its agencies. That is not to say there is not extensive dialogue with representative bodies. As Enterprise Ireland, we went out to all the representative bodies through July after the vote. Our Department would have done the same and engaged with them. The Export Trade Council, on which there is private sector representation, was meeting today. The Department of the Taoiseach also runs a consultative group which involves all the main representative bodies which would have met last week. One thing we can be sure of is there is extensive conversation within the policy ecosystem. There certainly has not been a failure in that regard.
Mr. Aidan Gough:
There are plans for talks through the North-South Ministerial Council. I am not sure if they have started yet. It is meeting in plenary format fairly soon and that will form a big part of the agenda. Certainly, there are significant implications across a number of sectors, particularly the agrifood sector and the all-island electricity market, that will have to be teased out.
I ask Mr. Sherry of Enterprise Ireland to give us an overview of its current and capital Vote allocations for 2017 and how that will impact on its new staff head count. He alluded to it but has not given us any detail in terms of how many staff we are talking about and how they will be spread across the globe. He could give us a little more detail. There was reference to boots on the ground. As part of that answer, could Mr. Sherry give us an overview of Enterprise Ireland's footprint around the globe.
Second, I ask Mr. Sherry about our competitiveness vis-à-visour capital gains tax rate.
Obviously, we are going to be competing with the UK. We are competing with it today and we will competing with it post-Brexit. In terms of our rate and the UK rate, we have a €1 million threshold and the UK has a threshold of £10 million, which is almost €11 million. How does Enterprise Ireland feel about that in terms of its impact on and potential to damage our competitiveness? What is Enterprise Ireland's plan to address that? While I acknowledge that Government has a role to play in that, what has Enterprise Ireland been doing to influence that? If we are going to lose entrepreneurs into the UK because of the higher limits, it is a factor we have to be concerned about.
My third question is for Mr. Gough. Can he comment on the report in the media recently, particularly in Northern Ireland, that InterTradeIreland was blocked or vetoed from making a presentation to the economy committee? I understand the DUP Minister vetoed InterTradeIreland from making a presentation to the Assembly committee. We know the direction from which the DUP is approaching this. It is pro-Brexit and campaigned to leave the EU. How is that impacting on the work InterTradeIreland is mandated to do? Was it an isolated incident? Was it a one-off or has it had an impact on the organisation since then?
Mr. Kevin Sherry:
I will take one of the questions and ask my colleague Mr. Murray to take another. On our international footprint, we have 33 offices around the world. Our focus with those offices is on helping companies to target and win business internationally and to gain access to key target customers. The vast majority of the people located in those offices are on contract with us. Two thirds of the members of our overseas team operate on contract. They are taken in from industry and have specific domain expertise in sectors that are relevant and which represent opportunities in those particular markets. That is very important for us to maintain a network that has strong industry contacts. In terms of budget, the cost of our overseas office network is approximately €22 million a year. We have approximately 170 staff in those offices and wherever possible we are co-located with our sister agency or the Department of Foreign Affairs and Trade. In terms of the tax rate, I will ask Mr. Murray-----
Mr. Kevin Sherry:
As I mentioned earlier, when we sought to get additional resources a number of years ago for high growth markets, including Brazil, India, China and Russia, the Asia-Pacific region and the Gulf region, we received sanction from Government for an additional budget to fund an extra 20 people on the ground. We recruited those people and they are in place. That was an additional allocation. We are still in discussions about the final number, but we have sanction as part of the budget allocation for €3 million and that is 50 people across the Department, Enterprise Ireland and IDA Ireland. We are in discussions. We have talked to our Department about where we need those people and are in the process of identifying the priorities for those locations depending on the number that is finally agreed.
Mr. Kevin Sherry:
It is 50 new people. That is across Enterprise Ireland, IDA Ireland and our parent Department. It is 50 additional people above the existing head count. In terms of the 10% tax rate, what is being referred to is obviously capital gains tax, which was changed from 20% with a €1 million lifetime cap to 10% on a €1 million lifetime cap. In the case of the UK, it is 10% on a cap of £10 million. There is no doubt when we look at the startup area that we are in an environment where startups are mobile. The vast majority of startups that we support are mobile. We support over 220 new startups every year with investment and other supports. Those companies can locate anywhere on the globe by and large, which means we have to be competitive. Tax is an important element of that in terms of capital gains and the incentive for people to build their businesses, but it is not the only factor. Access to talent, costs and the availability of quality space and other infrastructure are also key. Access to international markets is also a key factor as are resources, including the resources Enterprise Ireland provides to entrepreneurs. There is no doubt, however, that the more competitive we can be on the tax side, the better positioned we are on that particular agenda or issue. However, it is one of a number of issues. While that is important for companies exiting and for entrepreneurs and investors realising their gains, having companies, entrepreneurs and investors investing in those companies in the first instance is equally important. As such, the EIIS scheme is very important in terms of a tax incentive for early-stage companies. We continue to talk to our parent Department, the Department of Finance and the Department of Public Expenditure and Reform about our competitive position in that area. I pass to my colleague, Mr. Murray, on that because he is involved in leading those discussions with our parent Department.
Mr. Garrett Murray:
There are two points I want to follow up on. The first is on the 50 plus posts. As Mr. Sherry said, we have to confirm the number. I referred to boots on the ground earlier and it is important when we are talking about additional resources to note that it is about having resources here to support companies to prepare to go overseas and about having people overseas to help them in the market. That is where the innovation and competitiveness piece comes in, to be clear.
Second, tax is an important pillar, particularly with the mobile nature of entrepreneurship. We were happy to see an enhancement of the capital gains regime for entrepreneurs but as Mr. Sherry rightly points out that is not all we are looking for. We also welcome the changes to the foreign-earnings deduction, or FED. One of the challenges our companies have is that when one is diversifying into foreign markets, one has to get one of one's employees here to go over and do the hard work before one puts a presence full-time on the ground. FED is a way to incentivise companies to do that. The amendments to that in the budget were welcome.
During the lifetime of the previous Dáil, the Minister for Finance launched a consultation exercise on taxation for entrepreneurship. We had a number of things in there. One was on share options as announced for next year in the budget. We welcome that because our companies cannot compete with larger companies in terms of share options. Attracting talent is as critical if not more critical than other tax elements in the budget. If one is an international expert or CTO with a particular skill set who is looking across Europe for a place to locate, any place that does not have a competitive share options scheme will not be at the races. We really welcome the fact that one will be introduced in 2018.
On EIIS, while it is important to look at the entrepreneur coming out and at what he or she is getting in terms of capital gain, attracting money into companies is also critical. In looking at the relative competitiveness of the UK, we should also be looking at the EIS versus the EIIS as well as the capital regimes. We have stated publicly that when there is fiscal space, this is an area on which we would like to see further concentration.
Mr. Aidan Gough:
InterTradeIreland never received any veto to say specifically that it was not to go before any committee. What is happening and what we are led to understand is that the whole system in the North is adjusting to the fact that there is now a designated opposition in the Assembly for the first time. All our papers that go in front of committees have to be approved by our own Minister in the North. If we want to send a paper to any Assembly committee, it must be approved by him. That paper was not approved by the time the committee was meeting and, as such, we could not appear before it. Subsequently, we wrote a detailed response to a letter from the chair of the committee on Brexit, which has been approved and gone to the committee.
Mr. Aidan Gough:
No, because that committee meeting has taken place.
I think it was yesterday, but I need to check. I think we have been invited to go appear before the committee again in January. We will resubmit the paper to the Minister and if it is approved, then we will appear before the committee.
I welcome the various agencies and I thank them for the great work they have done over the past six years and in the years before that, but particularly during the difficult times of the downturn. The agencies have achieved phenomenal results. I also thank the witnesses for their presentations.
Comments have been made about whether an allocation of €3 million is enough. I am sure the witnesses were gagging to say it would be great to get €10 million but, nonetheless, the Department has considerably increased the budget. It is the biggest increase in ten years. There is huge competition for funding as there is great need for resources in other areas.
It is welcome that the agencies have been able to prepare in the way they have done so. They are putting feet on the ground because that is what it is all about. India is one of the areas that interests me, particularly where IDA Ireland and Enterprise Ireland are concerned. That country is a huge market as it has an official population of 1.3 billion and a couple of hundred million more undocumented people. When I visited India the people I spoke to hardly knew about Ireland, except for great cricketers from Ireland, who were mainly from north County Dublin. Only for cricket people in India would not know about Ireland at all. Irish cricketers are to be commended for giving us more advertising than we could ever afford to pay for in India. A huge job of work needs to be done in India as it is massive market that is full of opportunity. Having said that, I do not want to focus on where we are weak, even though we need to address the matter. Remarkable advances have been made in China and the baby milk sector was mentioned. Ireland is not just seen as green; Ireland is seen as clean. That is critically important from the Chinese perspective and with other markets. I would like the witnesses to comment on the market in India. It poses a huge opportunity but it is very difficult to break into that market. I commend Enterprise Ireland for maintaining market activity in the US, UK and Europe where we are already strong in other areas.
Mr. Gough referred to the flour industry which offers us an opportunity if tariffs lead to a reduced market. We will not know the situation until Brexit has been completed. Irish producers will have an opportunity to fill gaps in other areas as English producers will be unable to export in the same way as they do at the moment. I do not want to create divisions but, equally, there will be opportunities north of the Border on which the South will lose out as Northern companies export to the UK mainland. I would like to hear a few comments along these lines.
All the agencies have done a phenomenal job over the past number of years. There are huge challenges ahead but it has come across loud and clear that the agencies are preparing for them. When I was visited these locations as a Minister it was great to see Irish products, and some of them from north County Dublin, on the shelves in Dubai and Abu Dhabi. There is no doubt that the markets are being penetrated and opportunities remain.
Mr. Kevin Sherry:
I thank the Senator for his kind comments. Next month, the Minister of State, Deputy Breen, will lead a trade mission to India and we will also have a trade mission to the Gulf region that will be led by the Minister for Foreign Affairs and Trade. Both markets are important and quite different. In terms of the sectors that we go after, both markets are quite different. India is a market with a huge population. As the Senator mentioned, our promotion in India has been related to cricketing activities and Ireland's success in the market, and one of Ireland well known cricketers has helped us in that regard. We have succeeded in substantially increasing the number of international students who come here from India. This sector will be one of the focuses of the trade mission next month, in addition to ICT and financial services.
It is quite difficult to conduct business in India. My recollection is that India is ranked 138th out of 160 countries in terms of the ease with which to do business. As the Senator will know, it is not easy to conduct business in India but it affords us huge opportunities. One of the areas that we must focus on in India are activities in which Irish companies have a competency and in which they are capable of doing business, and where they can undertake those activities in Ireland. There is not a huge amount for us to gain from supporting companies to undertake activities if they locate their functions to service those opportunities in India. We want opportunities that can be serviced from Ireland and where value is primarily added in Ireland. Opportunities in the project management and construction area can be undertaken here and engineering can be designed to be undertaken here, although we must also have boots on the ground in India.
We are focused on the Indian market. IDA Ireland, Enterprise Ireland and the embassy focus on the Indian market together. Mumbai is our primary centre of activity in the region. India remains high on our agenda but the market requires resilience and a marathon, as opposed to something from which we expect to gain meteoric results in the short term.
Mr. Gough may comment on filling gaps left by UK producers. At the moment, there is €7.5 billion in exports to the UK and the Northern Ireland and €1 billion of indigenous companies is accounted for by Northern Ireland. The latter refers to products and services that are produced in the South but sold in Northern Ireland, which is an important market to many companies. Bilateral trade is extremely important and the outcome of Brexit discussions and tariffs will be equally as important to both sides.
Mr. Aidan Gough:
The agrifood sector has been incredibly successful for the Northern and Southern economies. A significant contribution to its success has been the fact that the industry more or less operates on an all-island basis using scaled economies and comparative advantage in terms of sources for the production processes. All this has contributed to the growth of the agrifood industry North and South. In fact, 40% of the milk produced in the North goes South into southern processing plants. A similar proportion of pigs are sent North to be slaughtered. The agrifood industry is incredibly integrated. We would not want to see barriers put in place that would detract from the advantages to be gained from operating on an all-island basis.
I thank the witnesses for their presentations. I am sorry for being late as I missed two introductions.
I have a question for Enterprise Ireland. Mr. Sherry said in his statement that there has been a trend whereby exports to the UK, as a proportion of total client exports, have declined from 45% in 2005 to 37% in 2015. I want the delegations to tell me whether we are witnessing a Brexit panic. A vote on Brexit took place but after Theresa May's speech the currency speculators created uncertainty. Mr. Sherry, in his statement, said there was a short-term volatility in the market.
The valuation of sterling can go up and down depending on the outcomes of discussions, talks and agreements that may happen when we sit down to work out the detail of Brexit, but a decline was taking place anyway in trade between Britain and Ireland.
I also notice in Enterprise Ireland's statement that reference is made to reorienting towards North America, Canada, Asia and the Middle East. I ask the representatives of Enterprise Ireland to comment on what they think the impact of the Comprehensive Economic and Trade Agreement, CETA, with Canada, the first stages of which are to be signed next week with the European Commission, will be on all its ambitions. What do they think the impact of the agreement will be and how might it offset any kind of negative impact of Brexit in the Republic of Ireland?
Regarding InterTrade Ireland's presentation, it is interesting to see that one third of all external sales by small companies from the North come south and over 62% of Northern Ireland's total sales to the EU are to Ireland. Therefore, the market in the Republic of Ireland is clearly very important to the economy in Northern Ireland. However, given all the sensitivities and in the absence of discussions happening, does InterTrade Ireland see a way around doing specific trade deals within the island, should a hard Brexit go ahead?
I direct my last question to IDA Ireland. I am delighted to see its figures state a fact that we have been saying for ages, that is, it is not just our tax system that attracts foreign direct investment into this country, but also the fact that we have talent and infrastructure, we are English-speaking, we are a member of the European Union, we are a member of the eurozone and we represent a passport into the European market in general because of our location. Every time it is said we should try to collect the effective corporation tax of 12.5%, there is another panic, that is, that the companies would all up sticks and leave, whereas in fact the witnesses have all outlined that there are many other factors that make this economy particularly attractive for investment. However, I am concerned about the IDA and the type of investment it brings in. We had a discussion at a previous committee about the quality of jobs. This point is probably separate from but related to Brexit. I want to know from the IDA, while its representatives are here, whether it does any checking of the quality and types of jobs it funds and attempts to attract in. Specifically, in the financial sector, we will see many sorts of dodgy companies in the future - I will not mention them here because I probably would be given out to - through which the quality of jobs will drive down working pay and conditions for many people. The nature of these global corporations is that they provide an app and somebody goes out as a self-employed technician and delivers a service at a very cheap rate for the corporation. Is the IDA concerned about funding such companies? They may tick the boxes and show that we are getting jobs, but should we not also be concerned about the quality and standard of jobs and pay that public money pays for?
Mr. Kevin Sherry:
I will take the first question, which was directed to me, about UK exports. What we said is that if one goes back to 2005, the percentage of our total exports to the UK was 45%. That was at a time of a much smaller amount than the €20.6 billion we had in 2015. The strategy has been very much focused on trying to lessen dependence on one particular market. Companies that manufacture engineering products are a good example of this. If we go back ten years, engineering in Ireland was primarily an indigenous industry focused on the domestic market. Three years ago, the level of exports from the sector exceeded the level of sales in the domestic market for the first time, so it is now predominantly an export-oriented market. Equally, we have seen transition from companies primarily focusing on the UK markets to Irish engineering companies exporting all around the world, for example, Combilift in Monaghan, which exports its fork-lift trucks to markets all around the globe. We have seen these successfully competing companies cut their teeth on the near market, namely, the UK market, but they have gone global. This is true of a range of sectors. We have put a lot of effort into trying to lessen their dependence on any one market, as a result of which, as I said, exports to the UK have grown substantially. Last year they grew by 12% but they have grown more quickly in other markets. That has been a conscious effort by Enterprise Ireland working with these companies to help them to broaden their footprint and lessen their dependence on any one market. However, the UK being our nearest neighbour and being English-speaking, is and will continue to be a very important market for Irish exporting companies.
One of the switches we will probably see in certain sectors, such as financial services, over the coming years is that rather than the UK being the first export market, exporters might look west. Part of one of the things we are doing with some of these companies now is helping them to consider other markets as their first export markets, given the challenges in the financial services sector and market. However, I would not describe it as a panic on Brexit. What we are seeing is companies looking at the situation and responding to it as it evolves. The short-term situation regarding exchange rates is an immediate matter for them to deal with and we are helping them to respond. As I mentioned earlier, companies that have exports into multiple markets are better positioned than companies that have an awful lot of their export eggs in the UK market. It is therefore different for different companies and sectors. However, we do see exports as part of our next four-year plan and we do see exports to the UK growing, as opposed to declining. It is just that we see and will be focused on trying to accelerate growth in other markets, so the relative dependence on the UK will decline.
Mr. Garrett Murray:
Our clients would welcome CETA. We saw growth in exports between 2014 and 2015 to Canada of 7%. We hope to grow that. It is a location where there has always been an Enterprise Ireland office but as a focus for our clients, it has not been a priority. We think CETA will open Canada up to being a far greater priority. That is the state of client engagement with the market in the short term. In the more medium term what will be interesting is what opportunities will arise regarding not only the European-Canadian trading relationship, but also what happens in Britain, which has a traditional trading relationship with Canada, and whether that would also open up opportunities for our clients. We are therefore hearing from our clients that CETA is positive.
Mr. Aidan Gough:
The formal negotiations will be between the Government, the UK and the European Union. As regards deals across the island, the only thing we will say is we are encouraged that all parties - the British Government, the Irish Government and the Government in Northern Ireland - have made it their explicit aim to maintain as open a Border as possible on this island.
Ms Mary Buckley:
We launched an organisational strategy in early 2015 which highlighted our focus, which is by the end of 2019 to win investment in 900 projects, help to create 80,000 new jobs and increase investments in regional locations by 30% to 40%. In 2015, we had the best performance of our history. We now have 187,000 FDI jobs in Ireland. Last year alone, 213 investments were approved, the knock-on effect of which is quite interesting in that about 20% of all private sector jobs are related to FDI. That is the spin-off from FDI, which means that both direct and indirect jobs, as a result of FDI in Ireland, number about 300,000.
In regard to the Deputy's question with regard to salaries, IDA Ireland looks at the salaries offered by companies coming to locate in Ireland. Companies compare salaries with other locations around the globe. We are competing for investment. Last year the average salary of our new investments was in the region of €49,000. About 74% of the jobs approved last year had salaries of greater than €35,000. That is an indication of the level of salaries and the types of jobs we are attracting and winning for Ireland.
I do not doubt that and I did my sums on the figures of the number of jobs and the wage bill of €9 billion that is paid to 187,000 employees. I do not doubt the average, however I did ask Ms Buckley if IDA Ireland does a check on the standard and type of job that these companies are locating in Ireland. I can mention the companies. I know public money is being used to fund them. I am concerned about the type of jobs they are promoting in our cities which are more like a return to the 1913 rather than 21st century type jobs.
I have acknowledged that. I am not talking about the average salaries. Does IDA Ireland scrutinise companies that we fund and the type of job they are bringing into the country?
Ms Mary Buckley:
-----the type of activities they are bringing in. Clearly that is very important. We have to be able to show that we can get those type of employees for these companies as well when they are looking at locations around the globe. That is something that we do. Overall our companies employ a good calibre of people and in return they pay good salaries.
I know I would not be allowed to name it here. I will certainly do that. It is not just a company, there are several multinationals that are getting tax breaks and our money to create very badly paid bogus jobs with lousy conditions for workers.
I thank the Chair for allowing me to contribute today. If there is any doubt about the serious threat that Brexit is for the business sector, one should hear the account from the mushroom industry, on which a debate is taking place in the Dáil as we gather here. The mushroom industry representatives made a presentation to the Joint Committee on Agriculture, Food and the Marine of which I am member and I can tell members there is no doubt about the impact of Brexit on this industry. A significant number of jobs in that sector have been lost already because of devaluation of sterling. There is no doubt about the threat of Brexit to businesses across the island.
In the InterTradeIreland presentation from Mr. Aidan Gough it was alarming that 97% of businesses had no plan ahead of the referendum vote and 92% had no plan in terms of this eventuality. There was a widespread assumption that it would be a vote to remain in the EU, not one in favour of Brexit.
The other point that was worrying was that one in five firms plan to decrease the level of investment. I would like to hear the witness comment on this. I appreciate that for Enterprise Ireland, IDA have as many opportunities as threats in terms of bringing investment into the country, particularly competing with a number of multinationals that traditionally would have invested in Britain and is looking at bringing them to Ireland.
In the presentation by Enterprise Ireland, they talk about looking at other export opportunities. It is a much more positive presentation. It does not really tally with the survey that InterTradeIreland has. I want to get a sense of whether IDA understands the severity of this.
Second, in fairness to Enterprise Ireland, it acknowledges that a number of sectors are under threat - construction, engineering, agricultural machinery, timber, food, particularly the agri-food sector. I assume Enterprise Ireland has detailed data on a county by county basis of companies and their level of exports to the North and to Britain. What plan has Enterprise Ireland for the Border counties? A very significant organisation that comments on economic matters in this State recently briefed Oireachtas Members that the North is in serious trouble in their opinion, that County Donegal is under threat and interestingly County Waterford is under threat because of its exposure to exports. Waterford is heavily reliant on exports, which one would not have thought.
Is the data that Enterprise Ireland has informing its position of putting a focus on counties and sectors that are impacted by Brexit? Is there a really focused evidence based approach to how Enterprise Ireland is dealing with this?
In terms of currency hedging, what is really worrying is that the advice we are getting is that the Bank of England will take the approach that for the foreseeable future it will look to boost trade from Britain so it will try to keep the currency low in order to assist that strategy. That is not good news for us because currency hedging is based on swings and roundabouts. If one is to have a permanent situation of equilibrium with the euro and pound sterling, that is very worrying. One has heard contributions from certain sectors, saying that they are taking a 25% hit and they wish to speak to the companies to which they export next year, seeking 25% more. I would appreciate feedback on my three questions.
Mr. Kevin Sherry:
I thank the Senator for his questions. On the data analysis, we have looked very closely at it and I mentioned earlier that we had identified just short of 1,500 companies that are exporting to the UK and Northern Ireland, that those companies are the companies most immediately affected and that the impact is not uniform. It depends on their level of exports; some sectors are more export oriented than others and have more of their eggs in that basket. Those companies are clearly the most vulnerable companies and they tend to be in sectors where they have products or services that are not that easily transportable, such as construction products that do not necessarily transport very well to more distant markets. We have that data and we have been talking to those companies on a one-to-one basis. We have identified the companies that are most vulnerable, both in terms of sectors and the companies. As I mentioned earlier it is not a one-size-fits-all. Our response is tailored to the individual company. As the exchange rate deteriorates from the point of view of the euro, with sterling weakening it makes the situation more difficult for those companies if they are not hedged through a financial institution or if they have no opportunity to undertake a natural hedge. In some cases, our discussions with some of those companies are on reconsidering their supplier base and where they were importing some product from other parts of euro denominations, they may be looking at putting more of that natural hedge into sterling regions so that they can offset some of currency risk. It is true that some companies are in a more difficult position than others because no matter what they do it takes time to make that switch. We have been focusing on providing them with information and with connections. We ran a webinar on hedging. We have put companies in touch with financial institutions. We have brought the main pillar banks into Enterprise Ireland to meet our board.
The main pillar banks have met our board. We have talked and are continually exchanging information, without divulging confidential client information about their approaches and our approach, and the strategic importance of some of those sectors. I certainly would not underplay the difficulties that some individual companies are facing. We are working with them to help them address the short-term issue and competitiveness. In the long term, some of those companies are considering other markets and other potential customers innovating and being able to position their product as a higher value added premium product. Not all companies have that opportunity in the short term. It is company specific. We are working hard with those companies to try to help them with that response.
On 7 October, the currency breached the 90p mark. Predictions are not certainty. The volatility will continue. Meanwhile, companies have to manage their businesses. Other companies supplying into the UK market face the same situation. UK companies face the same issue in respect of their supply base. Switching suppliers is not easy, particularly for products that require approvals and standards on traceability. That cannot happen overnight. That fact alone gives companies some window of opportunity to make plans and moves. We are working on a daily basis and as it changes we are responding to those changes.
Although it is cold comfort to companies, this is not the first time we have had that exchange rate. It went close to parity in 2009. We have to be able to respond. In the areas where we can provide support such as competitiveness, innovation, market access and information, we are doing so. Where we have the ability to provide funding for those activities, we are also doing that.
Two problems face the mushroom sector. Western Polish mushroom companies are going into Britain whereas they would have been in Russia. There has been a swing in their investment plans, and a perfect storm is happening because of the currency exchange. Their presentation was deeply worrying. It is no surprise to me that Deputies are raising it in the Dáil as a matter of urgency. It would be helpful to get a sense of it.
Mr. Garrett Murray:
We work with our colleagues in Bord Bia in respect of horticulture and they are responsible for marketing in that area. There is very little we can do because in most cases in the mushroom sector they are growers. We can support them where they are adding value to the product rather than just picking and exporting. Under de minimuswe can support them for up to €5,000 per year in terms of lean supports. We are trying to see if we can package something with everybody’s €5,000 entitlement to do something lean-orientated for the sector. Otherwise, we are quite restricted. The Minister announced a growers lending fund last week through the Strategic Banking Corporation of Ireland, SBCI. The mushroom clients we have are very supportive of that idea.
Mr. Aidan Gough:
The one in five statistic of firms planning to decrease the level or speed of their investment is not surprising. Investment depends on certainty and there is so much uncertainty at the moment. That is why we are trying to get as much information as possible out to businesses. The exchange rate is not likely to change much. It is not likely to be favourable for the euro in the near future. We do not know what will happen with tariffs that will also take value out of the market. We are encouraging businesses to focus on what they can do and that is building value into their products and their relationships with suppliers or customers.
I am based in Donegal where there is serious worry across a range of sectors but I know from speaking to colleagues it is the same around the Border. There was a 50:50 policy of regional development with the Industrial Development Authority Ireland, IDA Ireland, which was scrapped and there is now a focus on Dublin, Cork, Galway and Limerick. I would like to get a sense of IDA Ireland and Enterprise Ireland’s focus on rebalancing that, particularly for the Border counties which are most affected by this.
Mr. Kevin Sherry:
Of the jobs created by Enterprise Ireland in 2015, some 64% of the client companies were outside Dublin, which is very positive. We are focused on working through the regional action plans in terms of specific initiatives in each region and there is a plan for each region. We are very conscious of the fact that, depending upon what sector one is talking about, there are regional clusters of companies in different parts of the country. The vast majority of the companies most affected by Brexit on the manufacturing side are regionally-based companies. That is a priority for us and we are not just taking a county by county approach but a company by company approach.
Ms Mary Buckley:
I mentioned earlier that our strategy is very strongly focused on winning investment in regional locations and around the country we have seen an increase in investments. Last year, of all the investments we had approved we saw an increase in the numbers going into the regions. There has been a significant number right across country. We have some very good companies in the Border region, for example, in Donegal, United Health and Pramerica which are significant employers and very good reference sellers for the regions. We have other companies in the region as well, such as State Street on the financial services side in Louth. There have been recent announcements too, such as YapStone's new office in Drogheda and an increase in the numbers employed. We had this with Kellton Tech too. There is activity in the regions. Many people would be familiar with some of the recent announcements in Limerick city: WP Engine has gone in there. Yesterday, Data Centre announced 50 new jobs in Raheen and Fazzi Healthcare announced the creation of 300 jobs. There is significant investment across the country. It is good to highlight some more, such as Agora Publishing announcing earlier in the year that it would increase its headcount, just outside Waterford. There are lots of good things happening from a foreign direct investment, FDI, perspective in the urban centres and outside. Earlier this year First Data, a financial services company announced the establishment of 300 jobs in Nenagh. Those will be good high-quality jobs. Coca-Cola is making a €26 million investment in Ballina, County Mayo.
There are very good activities taking place and we are working very hard to increase those investments across all the regions.
There is an analysis of site visits, county by county across the State, but as regards my county the analysis is of companies that have been there for ten or 12 years. I am talking about new investments and new jobs. Can Ms Buckley give information on new jobs and investment on a county-by-county basis over the past five years? Can she reflect on the presentation she has given and on how accurately it reflects the real situation out there in the regions? I appreciate that the Belfast corridor has been successful and that this has benefited County Louth, but the other counties around the Border would not share the view put forward this morning.
Ms Mary Buckley:
Some 70% of our investments come from our existing client base. Last year alone, 53% of all jobs created by IDA companies were outside Dublin, which compares to 49% in 2014. We are seeing an increase in jobs going to regional locations and we have ambitious targets for each region around the country. Our focus is to win those investments, from our existing client base and from new investments. I will be happy to forward any further information the Senator requires.
It was said that capital gains tax was one of a number of issues that came into consideration for start-up enterprises. What is the IDA's experience of the personal taxation regime when it comes to dealing with target clients and the question of attracting executives? How does the regime impact on our competitiveness and to what extent is it a barrier?
Can the witnesses comment on the connectivity fund established by the Government from the proceeds of the State's shareholding in Aer Lingus? It has been reported that approximately €60 million of that has been committed, part of it to Aqua Comms and €35 million to the Dublin Airport Authority. To what extent are the witnesses involved with client companies who want to access the connectivity fund? It is stated that it likes to fund energy, air, sea and mobile data connectivity to help build Ireland's international links so it will have a parallel with the Brexit issue we are discussing today.
The IDA has had an increase in its capital budget of 22%, or €15 million. Has it a plan to increase the roll-out of its advanced facilities next year to the parts of the country I and Senator Mac Lochlainn represent, which do not get a high concentration of site visits? The IDA categorises sites by region and not by county and when regional figures are broken down for counties it tells a different story.
We have some 38,000 employed in the financial services sector. Ms Buckley said the IDA believed there were potential opportunities for Ireland from the UK vote but that quantifying these at the moment was not possible. This is a fair statement given the great unknown that Brexit is. In any discussion of Brexit the word "unknown" is at its centre but on Newstalk this morning a guy on the business section, whose name I do not remember, gave a figure of approximately 10,000 working in financial services in the city of London who might relocate. I understand the IDA's constraints in this regard but does it have any kind of handle on what the potential upside might be? Has it any target in this regard? I understand why it is reluctant to give any targets as it will be held to account on them some time down the road, but perhaps Ms Buckley could give us more information.
Ms Mary Buckley:
On personal taxation, one of the things the IDA does is compete with other locations around the globe and it is important that we are competitive in every aspect. Every company carries out analysis of locations and looks at everything in this regard. Anything that can be done to make us more competitive and more attractive for winning foreign direct investment against other competing locations is very important.
Ms Mary Buckley:
We engage with our clients all of the time and last year was our best year for foreign direct investment, with 187,000 people now working in overseas companies. Across the board, in infrastructure or education, we have to compete and the ability to compete with other countries is critically important.
Ms Mary Buckley:
We want to be more competitive in everything we do and that includes personal tax rates. Making those more competitive would be advantageous.
The €15 million will help us to cover our costs of construction for three new advanced buildings. In our strategy, which we developed at the end of 2015, we highlighted the areas on which we would be focusing from the perspective of constructing new buildings to help attract clients to regional locations. Our focus in that regard has been on Athlone and Waterford, where we constructed two buildings in 2015. We recently sold one of them to a company called OPKO in the life sciences sector, creating 200 jobs. We are marketing the second, in Athlone, at the moment. We are currently constructing three buildings across the country, one in Tralee, one in Castlebar and one in Sligo and they will be complete next year. We then move onto the next phase and we anticipate that the additional funding will cover the cost of three buildings in Limerick, Galway and Dundalk.
Mr. Denis Curran:
In terms of connectivity from a telecommunications perspective substantial data centre investment has already taken place and is currently taking place. We saw an example of that recently with the announcement in Limerick. Investments by Facebook, Apple, Google and Microsoft cumulatively will run to more than €3 billion. Obviously connectivity on and off the island, both back to north America and to mainland Europe, is extremely important and we would welcome any diversity and any increase in capacity that would enable those types of investments to take place. From a construction perspective, data centres are very labour intensive and are very welcome for that reason.
In terms of the financial services sector, the Deputy is right in saying that it is far too early to say what will happen. The companies themselves cannot with any degree of specificity quantify the impact of Brexit, either from a people or an activity perspective. They are going through a process at the moment, based on interactions. We have had a high degree of interaction with financial services institutions from around the globe which have operations in London. A lot of them have formed Brexit teams and those teams have carried out impact analyses. Based on those analyses, they are now putting together potential solutions on paper. As part of those solutions, Ireland has the potential to be a recipient jurisdiction for relocated activities.
In terms of capturing the quantity of jobs or investment, however, it is far too early to say. What they have communicated to us is that they would like to make an informed decision, in as much as they can, against the backdrop of the political uncertainty. They may be on a commercial timeline that is not compatible with the political timeline so we would anticipate that some of their commercial decisions will be made prior to any final political negotiations as a result of the activation of article 50.
Thank you. I have one further question on the resourcing issue I was trying to get to the bottom of earlier. I appreciate Mr. Murray's offer of figures in that regard. I am told that the ballpark figure for the reduction in staffing over the last five years is approximately 230 - from 980 down to 750. I do not know if that is correct. Is that the ballpark figure within which the witnesses are operating? Are there 230 fewer staff than five years ago? If I am wrong, I apologise and ask them to give me a figure for the actual reduction in staff.
Mr. Kevin Sherry:
What I can confirm is that we have had staff reductions. I can also confirm that there are activities that we previously were involved in which we are no longer doing, in terms of certain service provision. As part of our realignment and re-skilling within the organisation we had a voluntary leaving programme under which a certain number of people left. We also undertook some recruitment which brought in some additional skills. As I mentioned earlier, there were certain areas where we did not reduce numbers and that included our overseas activities. In fact, in those activities, we got sanction to increase our staffing levels. We got a specific budget allocation to increase-----
Mr. Kevin Sherry:
I can confirm that we have reduced our staffing level from in excess of 900 to our current complement. I will just have to check the timescale on that because my recollection is that the reduction was over a longer period than five years. I will confirm the figures for the committee as soon as possible.
I am not one bit surprised that there was a reduction in staffing levels because that happened right across the public sector. I would like to know if any of the functions in which the organisation was involved and activities it undertook previously were taken over by any other agency, Department or group of individuals. If not, what are the implications of that and how would the witnesses like to see it addressed?
I am also interested in IDA Ireland's view on the impact of the higher tax rates in this country. We are all aware that we are currently having great difficulty attracting senior medical personnel, for example, not because we pay less but because they pay more tax here than elsewhere. There are, of course, other ways of addressing that issue such as providing sums of money for moving, allowances for rental and various other initiatives. Thinking outside the box could result in attracting the highly skilled people we need, rather than creating a two tier tax system.
Finally, I wish to refer to the innovation hub. We have, as the witnesses already pointed out, the top IT companies in the world located here. We also have the top pharmaceutical and medical devices companies in the world located in Ireland. It seems to be that there is an opportunity for synergies between those to create even more products that will not alone enhance the life and longevity of our own population but which would also be very profitable for export. Perhaps the witnesses could give the committee an update on that area, if not now, then in written form at a later date. I feel that this is an area we have not exploited to the full.
Mr. Kevin Sherry:
First of all, in terms of activities I will, as I said earlier, come back to the committee with some further details on that. One of the things that Enterprise Ireland has done, not just over the last five years but over the last ten years, is to cease our involvement in certain activities where we felt that there was an alternative market provision of those services. That would have been in areas such as technical testing, for example, where we felt that those services could be provided by commercial entities. That included some activities where parties decided to undertake those services in a commercial capacity rather than for Enterprise Ireland.
In terms of the issue of personal taxation and Ireland's attractiveness as a location, I would point out that in addition to attracting companies from abroad, Ireland is also an important destination, as far as Enterprise Ireland is concerned, for entrepreneurs to relocate to and that is something that we have focused on increasingly over the last number of years. In fact, about 15% of the new startups that we support are run by people who came here from outside of Ireland. Last year for the first time we ran a competitive fund which was targeted at international entrepreneurs to try to get them to come to Ireland. We had 86 or 87 applicants which we short-listed down to 20 and, of those, ten came to Ireland to establish their businesses. We have had two such competitive calls this year, which were very successful. Under the second call we will have some entrepreneurs coming to Ireland next month to compete for those funds. We are seeing entrepreneurs coming to Ireland to establish new businesses and while personal taxation is, of course, one of the important factors, they are also coming here because of the availability of skills, the ease of doing business and the international access that Ireland can provide. An important factor in terms of that access is the cost of infrastructure and this is one of the reasons for entrepreneurs increasingly choosing to locate their businesses outside of Dublin, given the pressure on housing resources and given the high costs - both personally and commercially - of doing business in the capital. This is important for us in terms of promoting regional locations.
In terms of innovation, I will just mention here that there are national targets to double the level of business expenditure on research and development. A very important factor in that regard is the availability of the infrastructure, technology centres and centres of expertise that have been built up around the country including in the medical technology area, biotechnology and a range of other areas. One of the interesting aspects in regard to recent developments in terms of Brexit is that we have heard researchers in the UK are getting a bit concerned about the availability of, and access to, Horizon 2020 funding and it is one grouping that might be looking at where it should undertake its research. If one of the implications of Brexit is limited access to Horizon 2020 European funding and collaborative research that could make Ireland a more attractive location for those leading edge researchers.
Mr. Aidan Gough:
If I could make an additional comment, there are certainly synergies or opportunities in the sectors that were mentioned to work together but there are also real opportunities for cross-Border co-operation and the development of genuine all-island clusters. We are currently working with colleagues from the agencies here plus Science Foundation Ireland, SFI, and Invest Northern Ireland to look at the potential to develop an all-island cluster within the biopharma sector.
I thank Mr. Murray, Mr. Sherry, Mr. Curran, Ms Buckley and Mr. Gough for coming here today to engage with the committee on what has been a very informative session. This is the first of many more meetings we will hold on Brexit and we will have more witnesses to question. It was a very frank session.
That concludes our business in public session. I now propose that we go into private session to deal with housekeeping matters. Is that agreed? Agreed.