The appointment of Martin Shanahan to lead the IDA comes at a time of global economic change, writes Kyran Fitzgerald.
Martin Shanahan may, as yet, hardly be a household name but we will be hearing a lot more from this 41-year-old former hotelier in the years to come, following his appointment as chief executive-designate of the IDA.
The IDA is one the parts of the Irish State which has functioned pretty effectively over the years. Its travelling executives appear to understand the United States, which is particularly important as US companies account for the lion’s share of overseas investments here. American firms account for around 70% of the 160,000-plus people directly employed by foreign owned firms in the country.
The CEO designate is taking on a tough challenge, following four years at the helm at the state advisory body, Forfás which has been subsumed into the Department of Jobs, Enterprise & Innovation.
The US-Irish relationship has appeared to go from strength to strength. However, clouds are looming on the horizon, as the Washington political establishment, international agencies such as the OECD, and the European Commission increasingly question the tax avoidance strategies of multinational firms such as Apple and Google.
The straight-talking governor of California, Jerry Brown, openly mocked the “creative accounting” arrangements entered into by Apple in Ireland at a recent gathering attended by the Taoiseach.
The success of Ireland in attracting clusters of like-minded companies in key emerging sectors has been noteworthy and it could serve as a buffer should such longstanding tax arrangements be unravelled. Nevertheless, there is little room for complacency. The IDA will have to reshape its pitch and line up an even wider range of targets. The overall environment for foreign investment is being reshaped by the transformation in the global economy.
Global foreign direct investment rose by 11% in 2013 to almost $1.5 trillion ($1,500bn) following a fall of 18% in 2012 when, for the first time, global corporations invested more in emerging markets than in the core economies of US, Europe and Japan. In fact, sluggish, crisis-ridden Europe accounted for two thirds of the decline in foreign direct investment , that year.
Emerging States such as China increasingly serve as a key point of origin for foreign direct investment, but they tend to invest their money in a different way, with the Chinese opting to take stakes in strategic companies or sectors. They have shown a particular appetite for investing in natural resources rich countries such as Zambia or Angola.
Ireland’s breed of food companies may well interest them.
While the crisis in the Eurozone has abated, Europe remains a slow growth destination and this is not about to change any time soon.
Against this unpromising backdrop, Ireland did well, in 2013, to climb one place to tenth place in the global rankings with a total of $46bn (€33bn) being invested, here, by overseas firms setting up bases.
The country has attracted an exceptionally high proportion of leading pharma firms, an achievement with an important downside, at a time when the world of pharmaceuticals is being transformed with the end of patent protection on many household name drugs.
The IDA has been making a big pitch to emerging bio pharma firms, pointing to the huge investment — over €20bn — by the Irish State in science, research and development.
Critics of this policy, such as Michael Hennigan of FinFacts, point to a marked lack of bang for all this research buck.
This is where Martin Shanahan’s long background with Forfas could serve him, and us, well.
Forfas and its sister body, the National Competitiveness Council, have posed searching questions in a series of reports on the economy.
in a 2010 interview, Mr Shanahan said that when Forfas was established in 1994, the key issues were corporate tax, and the lack of research and development.
“Now, we need to make incremental improvements across a whole range of issues. That’s not as sexy.”
Shanahan, a native of Abbeydorney, Kerry, who worked for a decade in the hotel sector with Sinnott Hotels and later with the Great Southern Group, will not be Dublin centric in approach, but he faces an acute problem, here.
The pressure from the politicians is on the IDA to deliver jobs into jobs starved regions such as the midlands and south east. On the other hand, investors more and more are opting to locate in large urban centres where they are best placed to attract a cosmopolitan group of employees.
Much has been made of the fact that in 2012, the IDA paid out €89m in 2012, but spent nothing in grant aid in Cavan, Clare, Kilkenny, Laois, Longford, Monaghan, Sligo and Tipperary. The day when a factory plant could be located on the outskirts of a middle sized town employing lots of relatively low skilled labour in assembly type jobs is long gone, but tell that to local public representatives under pressure to deliver for their people.
The IDA can no longer wave the old magic wands, conjuring up several hundred posts in a rural advance factory. Those jobs have moved East, long ago.
That said, strategies aimed at boosting infrastructure such as broadband and increasing supply linkages to multinationals could pay dividends in helping to spread economic activity. However, the IDA’s role, here, is necessarily limited. Its real job is to sell Ireland and to ensure that the strategy for doing so is kept up to date.
Ireland has been able to trade on its reputation as a business friendly location — this is something that has been to the forefront in investor surveys.
The political climate is changing, however, as the recent local election results make clear.
The rise of Sinn Féin and Left groups advocating wealth tax and higher income tax rates may, or may not be a passing phenomenon. The fact remains that Ireland, through he IDA, seeks to attract high skill and by definition high paying jobs.
The average salary of a new IDA post is €45,000. The concern is that a shift towards higher taxes may deter the most skilled who act as driving forces, in areas such as IT and Finance, not to mention new economy entrepreneurs who are in short supply, and are also highly mobile.
In recent times, Irish cities have emerged as magnets for a generation of skilled young Europeans and people from other nationalities. This influx has helped to boost spending on rental accommodation, restaurants, and so on. It has boosted office rents to the point where Dublin badly needs a fresh supply of buildings if it is not to start losing out on new projects.
The British are stepping up their game, cutting corporation tax to the bone. Imitation, as they say, is the best form of flattery.
According to the publication, Foreign Direct Investment Intelligence, investment promotion agencies are focusing increasingly on start ups and not just the large multinationals.
However, the publication advises a different more hands off approach to this new type of client. The IDA would be well advised to build closer ties with young entrepreneurs.
The global investment game is changing fast along with the global economy.
Martin Shanahan may be a clever analyst, but his hotelier skills could also come in hand as it looks like he is going to need his wits about him.
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