Richie Smith, Business Director with Hays (RS) talked to the Irish Exporters’ Association CEO, John Whelan (JW) about job creation, tough decisions facing the government and prospects for the future.
RS: It has been well documented that exports have been one of Ireland’s few good news stories in the last few years, is that something you see continuing?
JW: To a degree. Even in these most challenging circumstances we are forecasting growth rates of 3% in 2012. Although this is below the 5% needed to meet the recovery levels implicit in the EU/IMF programme.
RS: What are the challenges to meeting that growth rate, or indeed the opportunities to exceed it?
JW: Well there’s no getting away from the overhanging impact of the Eurozone crisis and its effect on consumer confidence across Europe. There is a good chance that the wider Eurozone and the UK in particular could experience recession in the next 12 months and these markets account for 56% of our exports of goods or services. We need to broaden our horizons and maximise our exports to the BRIC countries (Brazil, Russia, India and China); these growth economies account for less than 4% of our exports and grew by a miserly 5% in 2011 where the EU27 countries saw export growth rates of over 22% in the same period. So there’s a huge opportunity there.
RS: It’s no surprise to hear that the Eurozone crisis features prominently in the forecast, is there no silver lining at all?
JW: The one potential bright spot for exporters is the weakening of the Euro. Whilst it does nothing to sort out the cost base within the EU it can certainly make us more competitive in other world economies.
RS: So, if we achieve growth, will growth rates translate directly into job creation?
JW: Yes, but we have to differentiate between job creation in indigenous Irish companies and foreign multinationals. One of the most interesting statistics is that a new job is created for each additional €100,000 of export sales generated by an indigenous Irish company whereas it takes almost €800,000 in sales to generate the same job in a foreign-owned multi-national.
RS: That’s an 8:1 ratio, so is the emphasis very much on the domestic companies?
JW: Foreign Direct Investment (FDI) is still very important to the long term future of Ireland and we have been calling for expanded roles for embassies. In addition, there should be more support for the IDA in trade missions to crucial new markets like Russia, Asia and South America. Ireland has been over-reliant on the US market and we need to replicate our success in these exciting new emerging markets where we are currently losing out to our EU neighbours.
RS: Of course that’s a double win as such emphasis on these markets can not only help to attract FDI into Ireland but also help to promote exports from existing Irish companies. So what do you think the Government should be doing to support the indigenous Irish companies?
JW: We’re calling on the Government to introduce five key initiatives to support Irish industry immediately. Export Finance Guarantee Scheme: The Department of Jobs, Enterprise and Innovation has indicated its intention to put such a loan guarantee scheme in place early this year, but without specifying the size and nature of the scheme. The IEA recommends that the scheme should cover businesses with up to €25 million turnover and provide loans of up to €1.5 million with repayment periods of 2 to 5 years. We urge the Government to take early steps to have a new scheme in place as soon as possible.
New Enterprise Investment Incentive Scheme (EIIS): The IEA realises that a new Employment and Investment Incentive (EII) planned to replace the Business Expansion Scheme (BES) can only come into operation after the necessary approval from the European Commission but we are urging the Government to push this through as a key measure to get cash-flow going in the economy again. R&D: Only 18% of Irish companies are claiming R&D credits (and most of these are larger companies) there is a compelling case for expanding the facility to ensure it works to the benefit of SME exporters to enable them to expand sales of novel products and services into emerging markets and create more jobs. Encourage start up entrepreneurs: The IEA recommends an incentive be offered that provides an exemption from income tax for start-up entrepreneurs for 4 or 5 years. Share option scheme for SMEs: Unlike shares in quoted PLCs, shares in SMEs cannot be easily turned into cash and this can lead to major management complications for its owner. Consequently many owners are reluctant to offer share schemes to employees. To overcome these problems the IEA is proposing that “SME-Shares” be issued rather than equity shares. The advantages of using SME Shares are that they give the employee an interest in the growth of the business without requiring the allocation/issue of shares to the employee. They allow the employer to reward employees based on performance or length of service or other selected criteria and the employee does not have to fund any purchase of shares. In accordance with the needs of our time this scheme will cost the State nothing in the next crucial three years. Yet is has the potential to strongly encourage a focus on the positives and breed a spirit of success within the business community and give a psychological lift to the SME sector.
RS: So, very much focused on job creation then John?
JW: Very much so, every job created takes another person off the live register and turns them from a net drain on state finances to a net contributor!
Read the full Issue 5 Hays Vision