"If our tax code must be tweaked to make Ireland more attractive to companies, regardless of whether doing so engenders more criticism from members of the US Senate's finance committee, a place of which I have some experience, I would feel better, not worse."
September 19, 2013
Discussion with IDA Ireland | Mr. Barry O'Leary (CEO) called and examined.
Deputy John Deasy: As someone who worked on the issue of the US Senate finance committee dealing with trade, I am not too bothered about the angst of the members of the US Senate finance committee. I believe I know the motivation behind those hearings, which comes down to a competitive world in attracting companies to one location as opposed to another. I think we know that and have been very good at it. We annoy countries by being so successful in attracting so many companies into Ireland in the past 25 years. The reason the Netherlands, Singapore and the United Kingdom are changing their tax regimes is that ours has proved to be so successful. Waffling on about conduits and transfer pricing, etc. is naïve when everybody here understands why Ireland has become such an attractive location for such companies, particularly those from the United States. To pretend otherwise is disingenuous.
My concern - I have spoken to Mr. O'Leary about this over the years - is the level of our attractiveness now and how we can make ourselves more attractive considering what the United Kingdom, the Netherlands and others are doing. It is becoming more of a danger as far as our attractiveness is concerned. The number of companies that can be attracted to particular locations is tightening. There is a global downturn. Considering what other countries are doing with regard to the patent box and lowering their corporation tax rates, how can we become more attractive for inward investment?
In general, companies with an investment in play look around the world and set out the top ten to 20 areas. They might put a weighting of 20% on one aspect or 2% on another and this is how it is done. We never get a free run at any investment and there is always plenty of competition. The only question is who the competition will be and how many different countries will be involved. We try to present what Ireland offers and its value proposition, which is complex. Looking back, 20 years ago we would have been sitting here speaking about companies such as Fruit of the Loom having 4,000 people in Donegal and Farah slacks. The success of Ireland has been constantly changing. We did not have an Internet company of scale before 2004 and we have the top ten in the world now. We had two bio-pharmaceutical companies in the early 2000s and today we have 11. Much is done to enhance the offering, such as getting strategic sites. With regard to the Glanbia investment in Waterford, the IDA acquired the Belview land a long time ago and spent a fortune on putting in water infrastructure. This water would be there for a major project, whether it was going to be Glanbia or something else.
John Deasy: I do not expect Mr. O'Leary to second guess the reasons the IDA has been successful; I expect him to come up with other reasons to be more successful.
Barry O'Leary: This is my point. This is what we constantly do in our offering. We have a team of people working on the value proposition all the time, down to sector specifics and business models.
John Deasy: Based on these comments if I thought Mr. O'Leary was developing a conscience about issues raised by US Senate members or others within the European Commission I do not think he should be in the position he is in. He needs to drive on and find other reasons companies locate here. To consider anything otherwise is naive and, frankly, disingenuous because the public understands the reasons companies locate and remain here.
With regard to our technical capability, Mr. O'Leary mentioned Google and other technology companies which are more likely to locate in Ireland now than they were in the past. Do we have the type of capability required? Are there any issues with regard to engineering skills or technical expertise? Are there policy issues? Are there issues for us as a Parliament which we need to consider?
Barry O'Leary: With regard to technical capability it is important to recognise we have a balanced portfolio of businesses. We have Internet, technology and medical devices businesses and different skill sets are required for different sectors. There is no doubt with regard to engineering skills in particular. There is a global shortage of engineering skills and those countries which produce more engineering talent or create the environment where they can bring in talent will win a disproportionately strong part of foreign direct investment. It is a key area.
John Deasy: I spent the past couple of days in Budapest where I met Enterprise Ireland, Irish business individuals, the Prime Minister, the President, Ministers and others. The meeting with the Prime Minister was interesting. He was very clear about where he felt his assets lay with regard to attracting industry. He underlined technical ability in the young workforce as a huge asset. It is a very cheap labour source compared to ours and there are very low utility costs. Where are our danger areas? Where are we weak and potentially vulnerable with regard to being competitive and attracting industries from abroad? Are there issues of which we need to be aware outside of tax issues? There is nothing we can do about the UK lowering its corporate tax rate to 20%. Where are the areas we need to identify and give more attention?
Barry O'Leary: On the top of any company's list of criteria is talent. It is a huge driver of location decision. Ireland has been very good in general at producing the talent base and we have been pretty good at bringing in talent where we need to do so. Part of any modern economy today is a mixture of staff from within the country and also people who have been brought in. It is an important part of the model. Of course there are needs, and the more thousands of engineers we have the more thousands of jobs we will be able to create. It is one area where investment needs to continue. The talent is the most important issue.
John Deasy: How are we doing with regard to talent?
Barry O'Leary: Those who consider coming to Ireland examine the talent pool here and in other countries, and make a judgment call that the situation in Ireland is better than in most other countries. Of course the talent race is global and there are approximately 700,000 vacancies for engineers and technology people throughout the European Union. New and existing initiatives in Ireland and the European Union, and visas beyond this, are part of the model.
John Deasy: The witnesses coming before this committee are in a very difficult position; the Secretary General of a Department here does not exactly compete with the Secretary General of a similar department in France, but I know when I ask Mr. O'Leary a question he does not want to state we have a problem here. He needs to be careful with regard to how he expresses where we are because it is a competitive environment and I understand this. I will change my questioning and discuss the regional aid guidelines or incentives. Approximately nine months ago Mr. O'Leary made a comment which was picked up by a number of people including me. He stated the incentives were not working and that when it came to areas outside of Dublin and Cork the incentives in place based on unemployment figures were not attracting companies to those locations which received the least amount of foreign direct investment. The map has been redrawn and there is an extension of six months which, as I understand it, will allow a transition phase while the old incentives continue. What type of input did the IDA have with the Department and the Commission when it came to redrawing the map for these incentives?
Barry O'Leary: To the best of our knowledge the geographical areas have not yet been re-drawn. I understand the current regime has been extended by six months.
John Deasy: That is right.
Barry O'Leary: There will be a new regime after this which will still allow certain regional aid support to the current geographical footprint. In addition there is a small increase of a couple of percentage points which will allow some new areas to be brought into the regional aid guidelines. The current footprint will work until the end of June next year and it will be up to the Department and the Government to come up with the new map. There is scope for a small increase in the geographical areas.
John Deasy: Mr. O'Leary commented that it was not working. How has it changed and what input has the IDA had with the Department in the intervening period?
Barry O'Leary: If I recall, my particular comment was that there are many examples of where we have brought companies on a tour of Ireland and made them substantial financial offers based on the regional aid guidelines to locate in certain areas but they declined, stating they will invest in Ireland but will not avail of any grant aid. A company locating in Dublin or Cork does not receive the traditional type of grant aid. Even if a few million euro for a couple of hundred jobs are involved it is not enough to sway companies to make a decision to go to-----
John Deasy: So they are not working. This is the point. I agree with Mr. O'Leary's comment; I know they are not working.
Barry O'Leary: They are working in certain cases. Nypro in Waterford is a clear example. In Donegal, United Healthcare and Prudential are examples. Different companies put different values on grant aid.
John Deasy: Information on John Deasy Zoom on John Deasy Mr. O'Leary knows which region I am from. It is expected that I will take a bash at the IDA - I will not do that - regarding the reason there is not more foreign direct investment, FDI, into my region. In the Horizon 2020 document, the IDA expressed the view that 50% of FDI should be outside of Dublin and Cork, the areas that have received most of it. How will the IDA achieve that target? A tweaking of the regional aid guidelines will not move companies. They may only consider it as part of the overall picture. Some people might doubt that 50% is achievable and simply view it as a governmental document intended to appease the likes of me - that is, people who are quite cynical about expressions of future success and aspirational comments from the Government. The track record has not been great.
I know the constraints on the IDA. It cannot make up CEOs' minds. However, it inserted the figure into the Horizon 2020 document. How will it achieve the target?
Barry O'Leary: We will not and we have not. We have achieved many of the metrics, including FDI in its total volume for Ireland as a whole, but we are not getting enough regionally and will not do so. We inserted the figure to drive the ambition to get as much as possible. The Deputy is correct in that the CEOs make the decisions for their companies. We can incentivise companies to use a certain location.
Dublin, Cork and Galway have received a substantial portion of FDI, but real progress is being made in some regions. For example, Dundalk and Drogheda in the north east have seen a great deal of investment. There has been a fair bit of investment in Limerick. There has not been the same level of investment in Waterford, but the south east - the Waterford-Wexford-Clonmel area - enjoys a healthy pipeline of investments. There will be a few more in that area in the coming months. If one tracked planning permission applications in the region, one would be able to find information in that context.
John Deasy: Mr. O'Leary has been making the case for some time now that we need to focus more on the developing markets of Korea, China, Japan and India. What sort of success has the IDA met in them?
Barry O'Leary: In the Horizon 2020 strategy, we set out that 20% of green-field business would come from the growth markets by the end of 2014. While we may achieve that, the projects are small in scale. We have put a great deal of effort into trying to win business from those countries. Practically every country in the world is in those markets and we have a relatively small presence. We are continuing to invest in their development, but that will take more time.
I referred to emerging companies in New York, Silicon Valley and San Francisco. We enjoyed an almost immediate payback on that initiative. There was an immediate payback from the transformation agenda. However, we are not getting an immediate payback of scale from the growth markets. Strategically, though, we must be in them in the medium to long term.
John Deasy: I will not take up more time, but I will outline how I perceive Mr. O'Leary's role. I do not expect the CEO of the IDA to second-guess the reasons for Ireland's and the IDA's success in attracting industry, particularly from America. Rather, I expect the CEO to do everything with the people who change the laws in this country to ensure that we are more competitive... If our tax code must be tweaked to make Ireland more attractive to companies, regardless of whether doing so engenders more criticism from members of the US Senate's finance committee, a place of which I have some experience, I would feel better, not worse. Mr. O'Leary's role is to make us more competitive within the rules and guidelines. I do not expect him to second-guess the fundamental reasons for the IDA's success.