Confidence has completely deserted us and this is an absolutely necessary ingredient to change the present 'doom and gloom' view, writes DEREK QUINLAN
THE CREDIT crunch that is currently gripping both the Irish and UK economies was not foreseen 15 months ago.
Irish people were initially unaware of the effects of the subprime crisis which started in America and has resulted in a very significant decline in liquidity for Irish financial institutions over the past year.
This has been compounded by aggressive short selling of Irish equities by select hedge funds, which has contributed to the unprecedented performance of the Irish stock market over the last 12 months.
The Irish market has now suffered the worst decline, in a single year, in the history of public markets.
Confidence has completely deserted us at the present and this is an absolutely necessary ingredient to change the present "doom and gloom" view which has immersed the country. The bears now tell us that there was too much debt in the market and that the economy is too polarised. The bears see no way out for Ireland. I do.
The first thing to recognise is that this is a business cycle. Business cycles are a fact of life. There has always been and will always be cycles. We have had 15 years of uninterrupted growth and, while a slowdown was always expected, the pace of the slowdown has been significantly sharper than anyone might have anticipated.
For now, we are in a bear market. Cycles and bear markets present threats but also opportunities. They can be managed.
Now is a time for cool heads, realistic government policies and, most importantly, in my view, recognition that we retain many of the factors that contributed positively to the great Irish economic success story over the last period, namely:
• A young and well-educated work force.
• The corporate tax rate is amongst the lowest in Europe.
• Our personal tax regime is entrepreneurial friendly.
• Interest rates are at historically low levels.
There are significant head winds in the form of current oil prices and broad-based cost inflation but in my view the fundamentals in Ireland remain positive. Government policy, business leadership and media coverage have to recognise that.
Ireland achieved economic success through a combination of pragmatic policymaking and a new-found sense of belief and confidence, cultivated during the years of the Celtic Tiger. This was reinforced by achievement in sports, arts and entertainment which engendered a belief that the Irish could compete and succeed globally. We must remain confident in our belief that we can continue to drive economic growth.
The Government must retain a pragmatic approach to policymaking and recognise that decisions on policy today deliver economic growth tomorrow. We need urgent changes to government policy to reinvigorate the construction industry and some innovative thinking which will incentivise investment in this sector. If this is done correctly, it will be more than matched by the significant benefits arising to the exchequer. We must give first-time house buyers the confidence to purchase now. The current uncertainty and negative media commentary force them to sit and wait, believing that prices have not yet bottomed out. There is a natural demand for 45,000 new homes a year. However, we will only realise demand for 20,000 new homes if we do not renew the confidence of first-time buyers.
The Government needs to incentivise first-time buyers to commit to purchase now rather than wait.
This can be achieved through a combination of grants and relief of stamp duty. We can do this with limited impact on the exchequer - the tax take from the housing sector in Ireland is one of the highest in the world.
To sustain longer-term growth, we must continue to invest in Ireland. We must continue to invest in education and innovation. We should continue to invest in developing a digital economy. We must maintain Ireland's low corporate tax rates to sustain foreign direct investment. We must invest in and incentivise the construction industry, which is key to the growth of the economy. Looking back to the Culliton report of the early 1990s, it highlighted the importance of education, technical skills, infrastructure, and the health of the general business environment to economic success. These factors are as relevant today as they were 15 years ago.
Ireland's economic success over the past two decades is not a consequence of any one action, event or policy. It reflects investment in education, sensible tax policy, balanced fiscal policy, continuing efforts to attract foreign investment and a successful programme of national partnerships.
These are key to the continued growth of the economy. However, there are a number of actions which the Government must take now to put us on a path towards growth. They are clear and, I hope, compelling:
• The Government must now lead to ensure that the construction industry is reinvigorated.
• It must take, in conjunction with the Irish banks, whatever measures are required to ensure that liquidity and confidence are returned to the banking market and
• It must stimulate demand for housing and renew confidence among first-time buyers through the use of grants or relief on stamp duty.
A friend once described perspective to me as "what you see depends on where you stand". From where I stand the Irish economic story remains positive. When government policy reflects this, when business leaders and the media believe this, we will resume economic growth.
Derek Quinlan is chairman of Quinlan Private, the international property investment and advisory group which owns Jurys Inns in Ireland and the UK, the Savoy Group in London comprising the Berkeley, Claridges, the Connaught and the Savoy hotels together with the Savoy Theatre and Simpson's-in- the-Strand. Quinlan Private also owns commercial property in Hungary and the Czech Republic and the organisation advises on structuring, financing, developing and managing office blocks, shopping centres, car parks and hotels throughout Europe and North America
Tomorrow: Philip Lynch chief executive of One51, the investment and advisory group