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Ireland must focus on bigger jobs prize
Current FDI job predictions are impressive, but Ireland must focus on a much bigger jobs prize, writes Liam Quirke.
In a country where almost 15% of the population is out of work, job creation is the single most important issue facing Ireland.
This is demonstrated by recent job announcements, where the relief of senior Government Ministers at a rare good news story has been palpable.
So far in 2012, these good news stories have, mainly, been the result of investments by international companies. A new report published this week by the Economist Intelligence Unit (“EIU”), meanwhile, predicts 20,000 new FDI jobs in the next three years.
These predictions, along with those of state agencies and the Government itself, demonstrate the importance of FDI as a means to address Ireland’s current economic difficulties. However, the prize is far greater than any of the current estimates, and highlights the need for more ambitious thinking and policy making.
Every year, around one million jobs are created globally as a result of FDI. Ireland, to its credit, already punches far above its weight in attracting some of these jobs. Last year the IDA created 13,000 new FDI jobs, and it is generally accepted that these FDI jobs will in turn result in the creation of a corresponding number of indirect jobs. The question for Ireland’s policy makers, however, is how can we attract even more of these FDI jobs. Imagine if we could double our share of the one million FDI jobs which are created annually by these global foreign direct investors. When you factor in the indirect jobs which would also be created, we could nearly halve the level of our unemployment in four years.
What would this entail? In real terms, there are and will continue to be a variety of measures required across all the key FDI sectors including financial services, IT/online and pharma/healthcare. That is the nature of business. It is always evolving, it is always competing. The real key, however, is adopting the right mindset, together with a deep understanding of those needs of international business, which Ireland must be committed to meeting better than our competitors. The EIU report tells us those needs are access to the EU Internal Market, a comprehensive tax offering, a pool of appropriate talent and legal certainty/ease of doing business.
In simple terms, this means that we must ensure that Ireland is the best “low- tax” “pro-business” “gateway” jurisdiction to the EU Internal Market.
With such a large prize at stake, it is important to realise however, that other countries have similar ambitions and are actively pursuing policies to this end - countries like Switzerland, the Netherlands, Luxembourg (in the context of financial services) and even the UK. Historically, Ireland was very successful in positioning itself as the best low- tax pro-business gateway jurisdiction for US companies accessing the EU Internal Market. With significant investment likely to come into Europe from the emerging capital exporting countries of the world such as China, India, Brazil and the Middle East, Ireland needs to position itself to be the best gateway jurisdiction for these new investors also.
A pre-requisite to this objective is that Ireland must be constantly looking to ensure that goods produced in and services supplied from Ireland get to market more efficiently than goods or services from competitor jurisdictions. Secondly, and although the 12.5% must continue to be cornerstone of Ireland’s tax offering, it is important that policy makers understand that the taxation needs of global business are more comprehensive. In some sectors, for example, international tax treaties and sector specific incentives are as important, if not more important, than the corporate tax rate.
In 1998, Ireland introduced the 12.5% corporate tax rate. Following its introduction, Ireland was without question the best gateway jurisdiction in Europe. The 12.5% tax rate was a game-changer in the true meaning of that term. It is debateable, however, whether Ireland has introduced a really impactful FDI tax incentive since that time. Ensuring the necessary supply of talent is another key area. One of Ireland’s best calling cards is its ability to provide a pool of talented employees – both from Ireland itself, and from other countries – to service the needs of FDI employers.
Certainly, Irish people can provide many of the employment requirements of FDI companies. However, there will always be instances where they cannot, due to specialist qualifications or foreign language requirements, for example.
In such circumstances, Ireland must ensure that FDI employers have no problems in bringing in the right people to meet their needs, whether they are from the EU, Africa or Asia.
One area where the EIU Report suggests that there may be an emerging difficulty is in relation to key executives, i.e., competing jurisdictions are seen as offering more competitive personal taxation environments. In the context of the current fiscal climate, calling for lower taxes for higher earners may be a political hot potato. However, if we are to be the best gateway jurisdiction in Europe, we must be prepared to be more flexible.
The final piece of the jigsaw is legal certainty and ease of doing business. Take financial services regulation. We have a very successful international financial services industry, spanning aircraft leasing, international investment funds, bond issuing and international insurance. Everyone accepts that financial services regulation is increasing world–wide and the reasons why this is so. It is really important, however, that regulation in Ireland does not become out of step with accepted international norms of good regulation.
The EIU Report confirms that this is a sector with high job creation potential and there are many countries, including many of our European partners, who covet our international financial services sector. It is worrying, therefore, to see the EIU Report note that some investors believe there is a risk that the need to be seen to be doing something, may replace doing the right thing.
Understanding the cornerstones of Ireland’s success, along with retaining a good grasp of the law of unintended consequences, is the key to attracting a greater proportion of the one million FDI jobs which are on the table every year.
Above all, we need to start thinking about investors in Ireland as being our customers, and develop a real customer service ethos to stay ahead of the competition. Personally, I believe we need a Senior Government Minister solely focused on FDI. Ireland needs a promoter and a champion of international companies and financial institutions doing business in and through Ireland and all matters affecting them sitting at the cabinet table.
Management is all about priorities. Next year, Ireland takes over the presidency of the EU. Our politicians and public servants will quite rightly dedicate significant resources to the presidency. There is no doubt in my mind, however, that if our policy makers dedicated the same level of priority and resources to making Ireland the best low-tax, pro-business, gateway jurisdiction in Europe, Ireland would grow its share of the one million FDI jobs which are created every year.
For Ireland, this prize is far too big to ignore. I know where my priorities would be.
(This article first appeared in the Sunday Business Post on 11 March 2012)