The IDA is set to embark on its largest ever marketing campaign to draw business to "the island of innovation", writes FIONA REDDAN
IT IS not so long ago that Ireland was basking in the adulation of the world. Having gone from a situation whereby the international money lenders were going to "pull down the shutters" on the economy, as the Timesso memorably put it, Ireland's economic miracle became the stuff of legends. All over the world, newspapers and magazines were reporting on the Celtic Tiger, while government minister after minister jetted off to impart their collective wisdom as to how Ireland pulled off such a turnaround in its economy to an awe-struck world.
Since the bursting of the bubble, however, the purported Celtic Tiger has left a bad taste in the mouths of those who voiced the biggest praise for the economic miracle.
“In a way you can say that we have all been misled, very much like we have been misled by the US,” says Paul De Grauwe, an economics professor at Katholieke Universiteit Leuven, Belgium, and research co-ordinator for international money and finance at CESifo.
“Ireland had been the role model for many countries in Europe and countries had tried to learn from Ireland . . . Somehow so many people failed to see that the foundation of that growth was based on bubbles and excesses financed by credit. It was quite a shock for many and for me.”
And it's not just economists with whom Ireland has fallen out of favour. The international media, which once clamoured to pay tribute to Ireland's economic strategies, has turned its back on the tiger. The Financial Timesrecently referred to it as "Dire land", while comparisons with Iceland abound. Moreover, at the recent Farmleigh economic forum, the nationalisation of Anglo Irish Bank was described as a "PR disaster leading to the unfair view abroad that all Irish banks are corrupt".
Whether fair or not, the fact is that perceptions matter. Ahead of the recent Lisbon referendum, outgoing EU Commissioner for Internal Markets Charlie McCreevy told an audience in Dublin that on a visit to Tokyo shortly after the last referendum, he was asked by Japanese businessmen if Ireland was leaving the EU. As he said, “when it comes to international investors, sentiment and perception very often trumps fact and reality”.
Nevertheless, as the IDA gears up for its latest, greatest, marketing campaign, chief executive Barry O’Leary says that such criticisms aren’t filtering in to how multinationals perceive the economy.
“International investors don’t look at such things. They are more interested in talent, tax, track record and ease of doing business,” he says. “This is evidenced by the IBM global location annual report published last month which highlighted Ireland as the most successful country in the world for attracting foreign investment last year when measured by jobs per 100,000 population.”
The report, which bumped Ireland up to first place from tenth last year, ahead of countries such as Hungary and Singapore, said that despite its economic difficulties, Ireland had experienced “significant absolute and relative gains in inbound investment as a result of the country’s strengths in services and RD”. Indeed Ireland also placed well in terms of RD jobs, moving up to 11th from 19th last year, behind India, the US and UK, and entering the top 20 for services jobs, in 14th place.
O’Leary sees efforts to stabilise the public finances as helping to restore Ireland’s international image, while the resolution on Nama is helping to create more stability in how Ireland is perceived internationally. “Whether people like it or not it’s an action and it’s being put in place and this is acknowledged by the international business community,” he says.
While he acknowledges that it is a difficult environment in which to attract foreign direct investment, “the current global economic situation hasn’t stopped the flow of companies”.
So far this year, 43 new IDA projects have been announced. Some recent examples include McAfee’s expansion of its Cork operation with the establishment of an inside sales operation for Europe, Middle East and Africa and the creation of 120 jobs, Bermuda funds firm Butterfield Fulcrum setting up a Dublin fund administration operation which will generate 40 jobs, and IBM’s expansion of its software lab, with the creation of 100 new jobs.
But, as O’Leary points out, while the volume of new projects hasn’t declined, the scale of these in terms of investment and employment is down on previous years. “This should not be a surprise to the business community given the economic backdrop of the past year,” he says. Indeed, of the IDA projects announced so far this year, only about seven will see job creation in triple figures, and most of these are closer to 100 than 1,000.
The days of the IDA targeting big employers in the manufacturing sector, by promoting Ireland as a low-cost, well-educated location, are gone. Instead, the IDA is now specifically targeting more innovative projects, and while Ireland is still attracting manufacturing projects, O’Leary says it’s more at the high end.
As O’Leary sees it, the IDA’s strategy is now about “new sources of foreign direct investment in emerging geographies and novel technologies and business models. It also involves working closely with existing clients helping to support their transformation agenda.”
This is the message behind the IDA's new marketing campaign, where the focus is on selling Ireland as an island of innovation. The campaign, which is being called the largest ever from the agency with an estimated budget of $3.2 million, has already attracted the attention of the New York Times, which ran a feature on the advertisements.
Where once the IDA sold Ireland on the basis of its young, educated workforce, in campaigns such as, “The young Europeans: Hire them before they hire you”, and “People are to Ireland as Champagne is to France”, now the theme is “Ireland. Innovation comes naturally”. It’s about using multinationals already based in Ireland to attract others in, and features executives such as Paul Rellis, managing director with Microsoft Ireland, and Facebook chief operating officer Cheryl Sandberg.
This drive towards innovation is also apparent in the Government’s recent €4 million investment in the establishment of the Financial Mathematics and Computation Cluster (FMC2), which is designed to create a centre of financial research excellence and will bring together complementary expertise in financial mathematics, financial economics and computer science.
The move up the “value chain” – a recent survey by National Irish Bank and the Irish Management Institute indicated that only a quarter of foreign-owned multinationals now have basic production operations here – means that Ireland is no longer competing with cheaper, low-cost centres in Asia, or eastern Europe, which is where Dell’s manufacturing base has moved to.
“Ireland hasn’t competed exclusively on costs for years. However, high value manufacturing still plays a critical role in the economy,” says O’Leary, pointing to the fact that the closure of Dell’s manufacturing base in Limerick, and the associated loss of those jobs, is something which “could have happened years ago”, given Ireland’s competitive pressures globally in the PC industry.
“It depends on the sector, whether it is high-tech or financial services for example, but in general, Ireland is competing for projects with countries such as Luxembourg, Singapore and Switzerland,” O’Leary says.
However, it is not competing for companies looking to relocate their corporate headquarters for purely tax reasons.
While Ireland’s continued commitment to a 12.5 per cent corporation tax means it remains attractive for multinationals looking to set up operations, it has also led to a proliferation of companies, coming largely from Bermuda and the UK, to set up their headquarters in Dublin for tax reasons. As a result, Dublin has been dubbed “Liechtenstein by the Liffey”, given that many have little or no activity conducted in Ireland, with boards of directors just flying in and out for regular meetings.
O’Leary is not impressed where projects don’t have substance, noting that so-called ‘brass plate’ operations is not an area IDA is pursuing. Nevertheless, the flow of companies keeps coming, with Ingersoll Rand one of the latest arrivals from Bermuda and Aviva from the UK, which means the Liechtenstein tag might be around for some time yet.
What the experts think
Geoff Morris- Medtronic
IRELAND HAS done well in the medical devices sector, attracting major multinationals to build a strong manufacturing and R&D presence here and witnessing the international success of home-grown companies like Creganna.
So what does a medical device giant like Medtronic, which has had a base in Galway for 10 years now, think of Ireland as a place of science?
The recession hasn't altered the basic elements that make Ireland attractive to international companies. The skilled workforce and strategic framework, including the academic institutions, are still available despite the economic downturn," he says.
While he welcomes the Government's commitment to nurturing talent, Morris believes they need to be proactive now and build on existing partnerships to sustain the foreign direct investment.
"Continued upskilling of the workforce is crucial to meet the needs of the industry and ensuring that there is a pool of trained and motivated people will be critical if Ireland is to continue to be seen as a desirable location for science and research," he says. "As we face the challenges of the current economic situation, continued collaboration with industry and international academic and research institutions is also crucial."
People in Ireland should also be able to benefit directly from the healthcare innovations that arise here, he stresses. "There needs to be a strong connection between the contribution the country makes to the development of new technology and the uptake of new therapies for people living in Ireland."
He is upbeat about Ireland's ability to compete internationally in the field - as long as the Government support continues.
Steve Myers -Director, Cern
IRELAND'S international reputation in physics was poor before the economic crash, and it is even poorer now.
That's according to Dr Steve Myers, director for accelerators and technology at Cern, home of the Large Hadron Collider.
But Myers sees a straightforward way to impove Ireland's international standing in science, to avail of sophisticated training for students, teachers and graduates and to put Irish enterprises in line to win valuable commercial contracts: join Cern.
"Ireland is the land of saints and scholars but this is outdated now, we need to be into science and technology - I firmly believe that if a small country like Ireland wants to compete economically the only way is by scientific and technical excellence. And the problem for me is that Ireland is not now and never has been a member state of Cern," says Myers, who has been putting the case for Ireland's membership for several years. "Countries like Romania and Israel want to join, Poland is a recent member state - but not Ireland."
Originally from Belfast, Myers has been with Cern in Switzerland for 37 years, and points out the advantages that membership of the organisation would bring.
Cern, like Nasa, enjoys instant recognition among the public and has cachet outside its own field of expertise, he notes. It also employs contractors, and you have to be in the club to bid on jobs.
"At Cern we spend 60 per cent of our budget on contracts, building engineering components and IT," says Myers. "Those contracts only go to member states and they have a very high value for going on to win other contracts outside Cern. A lot of the companies bid just so they can put on their CV that they have built equipment for the Big Bang machine."
Then there are the spin-offs, where technology developed at Cern has spawned innovation in other areas, says Myers - the world wide web found its feet there.
Cern also provides training for scientists and engineers, and membership would increase Ireland's access to placements, he adds.
Michael Mainelli- Z/Yen
"DUBLIN has been hammered by the fact that's it being perceived to be a country that's going bankrupt slowly," says Prof Michael Mainelli of Z/Yen, referring to the poor placing of Dublin in the latest edition of the Global Financial Centres Index, in which it has dropped back to 23rd.
The last time the survey, which Mainelli publishes, was conducted, Ireland was in 10th place. Since then, much has changed and while Dublin may have just dropped by five points in a thousand point scale, to earn its new position, Mainelli feels that it's unlikely that Dublin can ever be as high again.
Indeed, the real story of the survey, he says, is that international investors have shut the door on Europe and the US and that the "future's in Asia".
"The survey isn't about what you're doing today, it's about where do you think you're going to go in the future. And the scary thing for the west is that it looks so unattractive as a place to invest," he says.
In addition to Ireland's rating as a global financial centre, Mainelli also raises concern about the levels of concentration in the domestic banking sector. "If the issue is that Irish banks became too big to fail, then why were they let get so big? One would argue that a much more narrow, mutal bank structure would be better."
To get around the problem whereby the banks will once again become too big to fail, Mainelli puts forward a suggestion of making them stick to leverage ratios of about 10:1, which will effectively cap how big they can get. This means, he says, that "Ireland will attract the right sort of business, people who are prepared to build for the long-term".
Mainelli is also not a fan of the proposed "super-mutual", which is expected to be created from a merger of EBS, Irish Nationwide and Permanent TSB, arguing that more and smaller institutions are what's needed to drive competition.
Dr Bill Harris -Scientist
IRELAND has done well to attract scientific minds, but now international interest is focussed on how we keep them here.
That's the view of Dr Bill Harris, who directed Science Foundation Ireland between 2001 and 2007, a period of unprecedented State investment into basic research here.
The carrot of increased funding in strategic areas in recent years has worked well, according to Harris.
"In my opinion, Ireland's progress in the past decade has been nothing short of outstanding. The talent that has been attracted is significant, and Ireland's universities are now being recognised for their importance worldwide," he says. "While Ireland now 'expects' this type of recognition, be assured it is not easy to get such international respect for university work that quickly. This should be a source of great pride and fuel an ambition to be better."
Harris does not believe the economic crash has altered the perception of Ireland as a place to do science, even though we have fared particularly badly in the downturn.
"I do not think the scientific reputation has been affected to date," he says. "In Ireland, with its open economy and reliance on the construction sector, the impact has been greater than in some other countries. But I can assure you there are individual states in the US that are in a far worse situation than Ireland as they had similar real estate 'bubbles'."
Instead the real international interest is in watching how Ireland will respond to the crisis, and whether we will stay committed to building a smart economy, according to Harris.
"Will Ireland continue to invest? I hope so, as there are no alternatives given its cost structure. Ireland depends on innovation. It depends on discovery and transformation to enterprise. If you do not do competitive R&D, how does one get innovation? How do you get the next Google or drug breakthrough," he asks.
"The most damaging impact of a R&D policy change would be if Ireland lost one or more of its truly 'star' researchers due to budget reductions. For example, if Prof John Boland of TCD or Prof Chris Dainty of NUI Galway were to return to the US or UK, respectively, this would send a signal of concern to the entire research community in Ireland and abroad. Talent is the key to success."
Paul De Grauwe -Professor of economics
PAUL DE GRAUWE, an economics professor at Katholieke Universiteit Leuven, Belgium, and research co-ordinator for international money and finance at CESifo, is taking Ireland's economic deterioration personally.
"In a way you can say that we have all been misled, very much like we have been mis-led by the US. Ireland had been the role model for many countries in Europe and countries had tried to learn from Ireland . . . Somehow so many people failed to see that the foundation of that growth was based on bubbles and excesses financed by credit. It was quite a shock for many and for me," he says.
"We failed to see that this (the boom) was not soundly based. We failed to see it because mainly it was this idea coming from the US, that all you had to do was be flexible and this would lead to productivity miracles. Sometimes you see the world through glasses that are coloured, and can't see very well."
While he notes that the UK will find it easier to get out of the slump, "because it can export its problem", Ireland has no such options given it is part of a monetary union.
"You just now allow budget deficit to support the economy for a while, but given the size of the deficit, it is becoming increasingly difficult to do so in Ireland, although it is still away from debt levels which exist in other European countries."
"Of course Ireland will recover. But it will not be able to go back to the growth levels it experienced, because that was unsustainable."
Jim O'Neill -Goldman Sachs
FOR JIM O'Neill, head of global economic research for Goldman Sachs, Ireland's international reputation is "the same as another country with one different letter, the euro is the difference between the two".
While we all may be sick of that reference, O'Neill points out that it was a "very smart decision that Ireland took in the late 1990s, that it wanted to be part of the euro. I think that it's clearly been an important support mechanism in this mess . . . Without the euro Ireland would have been in serious trouble, the risk of sovereign default would have been much much higher."
However, O'Neill doesn't see the euro as being all good for Ireland, as "arguably, but in a strange way, it encouraged Irish policy makers to believe the Celtic Tiger stuff too much themselves".
While the euro has saved Ireland in one way, because of its general strength at the moment O'Neill says it is "limiting the potential fresh interest in investing in Ireland" and will "definitely" hinder competitiveness going forward.
"People would be looking at Ireland again, possibly, if it were cheaper, but with the euro so strong it's just not the case."
This is particularly evident in the property market. "You would imagine in the US case, where the dollar is so cheap, there are already people looking at the property market. But you won't get any overseas investors looking at Ireland with the euro at this price.
"It's a patient on the slow road to improvement. The right policies have been put in place and the problems will start to get better, but you can't ask for miraculous solutions," he says.
A weaker euro will be key to Ireland's recovery, says O'Neill. "I think this time next year it could look very different."
And have international investors gone to ground for good or will they come back? "Greed and fear are very close cousins."
Garret FitzGerald -Boyle medal winner
AS A country, Ireland needs to focus on one or two areas in science in which we can excel, and we need to keep funding science.
That's according to Prof Garret A FitzGerald, who trained at University College Dublin, and is now professor of Medicine and Pharmacology and McNeil professor in Translational Medicine and Therapeutics at the University of Pennsylvania.
FitzGerald's own area of research looks at the processes of inflammation in the body and also how our internal "clocks" regulate bodily functions. His work on the effects of new generation anti-inflammatory drugs has earned him global recognition.
So, from that vantage point, what are his views on Ireland before and after the economic crash?
Before the crash, Ireland was perceived as a "rising star" in terms of science and research, he says. "There were a few internationally-rated groups, but also a high cost base for co-location and it was too early to say how it would play out." Comparisons were made with Singapore, which made an early splash with the international biomedical research centre Biopolis, he notes, but property prices forced Ireland down the slower indigenous university-based model of growth.
So what has changed now about how Ireland is perceived internationally? "Not much," says FitzGerald. "Most places like the US are focussed on their local markets first." If Ireland is to grow its reputation in science and compete internationally in research, the key is to zone in on one or two areas, he states. "Keep focus on excellence - it's time to pick a couple of areas at most in which we might excel."
But the biggest challenge to the Irish body politic is to sustain funding through this crisis, says FitzGerald.
"This conveys a crucial message of consistency in their commitment to science," he says. "Wavering in that commitment . . . must be resisted. The world is watching, skeptically."
Kevin Gardiner -Barclays Wealth
BACK in 1994, Kevin Gardiner, then an analyst with Morgan Stanley, coined the term Celtic Tiger, to describe the Irish economy's similarities with the Asian tiger economies. Fifteen years on, however, he is keen to put the metaphor to rest as, despite the recent knock the economy has taken, he says Ireland has moved on from those days.
"The whole thing with a tiger economy is that it is relatively poor and needs to grow very quickly to catch up with its more prosperous neighbours. Ireland has long since caught up, and it doesn't really need the assistance of some fancy label from here on in. Ireland can stand on its own two feet."
Gardiner, managing director and head of investment strategy for the Europe, Middle East and Africa region with Barclays Wealth, is also keen to downplay the impact recent events in Ireland have had on international investors.
"I think investors internationally have had so much on their plate these last few years. In a way there has been so much bad news around that I wouldn't say people are that aware of just how bad things have been for Ireland," he says.
"I think investors will recognise that it was a boom that went on too long. It's now being corrected and there's a sort of even keel that the economy and the markets will eventually get back to."
Despite the frequent comparisons to Iceland, Gardiner maintains that international investors can differentiate between the two countries.
"The activities of Icelandic banks outside their borders was a little more visible. It was an international dimension that was missing to some extent from what happened with Irish banks," he says.
But there is reason for for hope. "It does look and feel very bad at the moment, but if the global economy stabilises and it's led by a revival in international trade and exports, direct investment will eventually come through," says Gardiner. "International investment will come back."
Derek Scott -Vestra Wealth
A "SLEEPING Celtic Tiger" is how Derek Scott, advisory board member of Vestra Wealth LLP in London, sees the Irish economy, noting that a lot of other countries in Europe, such as Spain, Italy and Greece, are in a "much worse position".
"Ireland's position is less dire as it has a more open economy. If it improves its competitiveness, then it will benefit relatively more than others," he says.
A former economic adviser to Tony Blair, Scott lays a lot of the blame for Ireland's current woes on its membership of the European monetary union.
"If Ireland had been able to set its own interest rates, then the boom would not have gotten out of hand in quite the same way," he asserts, adding that while Ireland's membership of the Eurozone has protected it, it has also given it less room to manoeuvre.
"The difficulty for countries like Ireland, is that attempts to get to grips with public finances by raising taxes or cutting expenditure, which in a sense is what the IMF would recommend, would normally involve a third element, and that's a depreciation in currency. But Ireland can't do that. The only way the real exchange rate in those circumstances can adapt is by deflating your economy, and the only advantage Ireland has is that it will probably have to deflate the economy less than some other countries," he notes.
"But at the moment there is still a danger, in my view, of a European-wide/worldwide deflation, rather than inflation, so they're in a very difficult position."
While Ireland's financial regulatory environment and, in particular the role of the Financial Regulator, has received a lot of scrutiny during the crisis, Scott says it isn't the regulators who are the only ones at fault.
"Regulators all over the world have come in for a bad press and clearly there needs to be some changes in the regulatory environment. However, you could make the case that some of the issues have stemmed from too much regulation," he says, adding, " . . . in my view the main failings are central banks."
"The single currency has created an asset price boom in Europe, on top of anything made in the US. In that environment, mistakes were made by regulators, rating agencies, households that borrowed too much - all these excesses were allowed to fructify because of mistakes on monetary policy.
"At the moment, everyone wants to regulate everything in sight and the danger is that if we're not too careful, they'll over-regulate and, like everything, you regulate on past crisis rather than future difficulties."
And when does Scott think the "sleeping tiger" will wake up again? "It took a decade to get into this mess - and it's not just Ireland I'm talking about - and I think it will take five to 10 years before it gets to anything like can be considered normal again."
Padhraic Garvey -ING Bank
IF IRELAND'S performance in the bond markets is anything to go by, its reputation is slowly but surely on the up. Last month, the Government borrowed €1 billion in its first issue since the "Yes" vote in the Lisbon Treaty. The deal was considerably over-subscribed.
"Right now, the perception with regard to the Irish story has improved markedly. A good example of that is Ireland has done five syndicated deals already this year," says Padhraic Garvey, head of debt strategy with ING Bank in Amsterdam.
While he acknowledges that this year's first two shorter-term deals were quite tough, even though "typically it is far easier to sell short-dated paper", the last few deals, for longer-term paper, went smoother. "The positive thing is that the book was full of top quality accounts, types of accounts which were scared to buy Ireland up until now," he notes.
Before the crisis, Ireland was trading broadly flat to Germany. At its worst, it was 250 basis points over the German bund, but since then it has improved to the extent whereby it is now trading at about 150 basis points over.
"It has converged by 100 basis points, which is pretty impressive," says Garvey. "I would say right now that, certainly relative to where we were, six or nine months ago, Irish bonds are being regarded as offering a very generous spread. There is still risk, but it's a very palatable risk given the improvements over the past number of months."
So far this year, the National Treasury & Management Agency (NTMA) has raised some €32.5 billion.
