The Future of FDI – an Irish perspective
As the old Chinese proverb goes ‘may you live in interesting times’ the past couple of years could definitely be described as this. Along with the pandemic, Brexit has certainly served up its fair share of ‘interesting’ over the past months.
The Central Statistics Office (CSO) released trade data which highlighted a surge in EU imports into Ireland and a fall in UK imports, falling by a third compared to March last year. While this on the face of it is large, the situation was much worse, where imports from the UK were down 65% in January and down 53% in February. There are various reasons for this levelling out, such as stock piling towards the end last year for one. The trend is however remarkable, once Ireland’s largest trading partner, the UK now accounts for 8% of all Irish exports, behind the EU at 39% and the US at 30%.
The Central Statistics Office (CSO) released trade data which highlighted a surge in EU imports into Ireland and a fall in UK imports, falling by a third compared to March last year. While on the face of it, this is is significant the situation was in fact much worse; imports from the UK were down 65% in January and down 53% in February. There are various reasons for this levelling out, such as stock piling towards the end last year. The trend is somewhat remarkable Once Ireland’s largest trading partner, the UK now accounts for 8% of all Irish exports, behind the EU at 39% and the US at 30%.Interestingly, imports from the Northern Ireland have risen by 44% in the first three months of 2021.
Ireland was the only economy in the EU to experience GDP growth in 2020 at 3.4%, which may sound like recovery is on the way but let’s take a closer look.
Due to Ireland’s globalized economy, FDI has become the country’s ‘golden goose’ and is critically important to the economy. With 20% of the private sector employed by FDI companies, this represents a large driver of national Gross Value Add and provides one sixth of all taxes paid to the annual Irish tax take. The strong export figures published are because of the key FDI sectors, pharmaceuticals, chemicals, MedTech and technology.
While much has been made of President Biden’s relationship with Ireland, The Biden Presidency and the OECD’s moves towards a global tax revamp is not what Ireland wants for its FDI sector. Ireland must offers investors more reasons than just tax incentives to locate here.
Covid has changed so much politically, socially, and economically across the world. It has changed how we work and where we work. It has accelerated technological advances and changed how we live our lives. In Ireland, the SME sector has experienced turbulent times, the government support schemes have been a lifeline for many of these businesses. Words such as ‘pivoting’ and ‘repurposing’ and indeed ‘resilience’ have crept into the business language for SME’s during Covid. The SME sector in Ireland accounts for over 99% of active enterprises, 65% of total employees within the country and 31% (2016) of exports. The indigenous sector is the life blood of the economy and it has suffered significantly because of both Covid & Brexit.
OECD figures have recorded that only 6.4% of Irish SME’s are actively exporting compared to the global average of 9.6%. This reflects poorly on Ireland’s indigenous export performance, and highlights a stark truth within the Irish economy;a high level of reliance on FDI for exports. More must be done to increase the number of Irish SME’s who trade on international markets.
This requires a sustained and long-term approach, there needs to be a mindset approach that makes exporting and international trade a natural ambition for all SME’s. This something which Enterprise Ireland has been working on for many years. Recent government SME and Entrepreneurship Growth Plan and export development initiatives have seen a stronger focus on supporting companies to export. Enterprise Ireland as a result is increasing their teams on the ground and enhancing supports to reach out to companies to assist and encourage export development and diversification into new markets. Creating awareness, providing skill sets and signposting companies to where they can get advice and practical support alongside financial assistance is important.
In addition to supports there are several areas where changes and enhancements are needed. A mindset change is required, instilling an ambition and desire for companies to export is essential, for new startups and nascent entrepreneurs to well established SME’s. Building on experience through providing upskilling in key business areas such as digital and finance management, while ensuring the correct skillsets are present within companies to help them grow. Given Ireland’s size and open economy any company seeking to grow, must consider markets outside Ireland to achieve this growth. Exporting must feature prominently in business and not seen as something ‘large’ companies do.
Offline has moved to online as result of Covid, this transition has happened almost seamlessly, as companies have had to do so to survive. Simple actions such as ensuring website visibility internationally and an e-commerce capability can be the first step in the export journey. Using digital marketing and appropriate social media can greatly enhance visibility in new markets. The unlimited potential of online should never be underestimated.
An area of significant opportunity for indigenous SME’s is supporting and collaborating with multinationals. As was seen early in the Covid 19 pandemic, critical supply chains were compromised. As a result, there have been significant learnings from this lesson. An opportunity now exists to assist SME’s grow and protect themselves from future shocks, to diversify and provide a role in the critical supply chain. By so doing, an eco-system could be developed with FDI companies helping Irish SMEs become more exposed to international markets and opportunities. From a strategic perspective this builds resilience into the supply chain for both and further cements FDI relationships and indigenous employment.
Ongoing innovation and R&D are at the core of international trade opportunities across all sectors of the economy. FDI companies seek out fertile innovation regions for new ideas to ensure continued growth. A culture of innovation has been fostered within Irish businesses through partnerships and collaborations with academic research institutions. This needs to continue with a focus on ensuring the research has genuine commercialisation potential, with entrepreneurial and commercial training and awareness provided to all involved within these areas. Also, different industries and sectors must have the opportunity to collaborate, and establish an eco-system of idea generation, technology sharing and the development of an innovation culture. From innovation comes invoices.
Education and skills are key to underpinning all future growth opportunities. Ireland has long been recognised for having the skills and talent required for FDI companies. Careful consideration and action must be given to ensure that the skill sets are available for the various sectors which require them. This involves looking at all educational assets within the state and clearly aligning them with the needs of the future Irish economy both for FDI and SME’s. Every effort must be made to avoid regional competition for skills and talent, each region should be strategically aligned with the needs of the businesses within that particular area. Regional specialisms have evolved throughout the country, however these specialisms require specific focus to ensure constant availability of talent. The way education and training is provided should also be assessed to look at more ways of integrating on the job learning through apprenticeships in a wider field of sectors such as Insuretech, Fintech and other emerging and fast growing sectors. Digital capability and access to learning need to be core principles which must woven into Ireland’s fabric. Remote working and hybrid working have yet to find their level however these will certainly have a major role to play into the future.
All the aforementioned are steps in a process required to achieve transformation for Irish SME’s. Support and advice are required from government bodies and also other companies who have travelled the export journey. Clusters and networks really matter also, when properly harnessed. There are an abundance of clusters for specific sectors nationwide. These networks must be correctly harnessed to maximise their effectiveness, as many companies who are part of these have shared challenges and also potentially shared solutions.
Traditionally Irish and UK companies first experience of exporting began by trading with their closest neighbour’s. This has been severely affected a result of the implications of Brexit. With the UK and EU negotiators continuing to look at ways to ensure trade can continue with the least amount of disruption while respecting the Protocol, borders, documentation and all the other Brexit related activities, UK and Irish businesses must get on with business.
It is widely accepted that it will never be as easy to conduct trade between Ireland and the UK as it was in the past. As a result we have seen trade with mainland Europe grow as it presents a less bureaucratic market for companies to operate in, however all economic studies and history has shown that countries always tend to trade most with their nearest neighbour. It is crucial for the Irish economy to maintain trade with its nearest neighbour and likewise.
The fact remains that here are still very real obstacles which including increased documentation, customs checks and regulatory costs which are all adding to the complexity of importing and exporting between Ireland and the UK. With the correct will and support by the EU and the UK, businesses can and will overcome these trading challenge
Ireland cannot rely on FDI, an export focus is required by SME’s, resiliency must be inbuilt to every aspect of the economy and digital transformation and ongoing learning will be crucial to facing future uncertainties and dealing with interesting times.