Tánaiste Leo Varadkar has made what could be his most significant contribution to Ireland’s economic development with his recent announcement of new initiative to create a new enterprise policy for Ireland, opening the process for public consultation last week.
Enterprise policy has been overdue a review. The impact of Brexit on many of our trading partners, the pandemic, the US/China trade war, and the Russian invasion of Ukraine have created an urgent need for an upgrade and perhaps a change of direction.
The EU has, in many ways, been the source of Ireland’s prosperity, having contractually secured the opportunities for Irish and other European companies to trade worldwide through trade agreements.
However, the Government must be conscious of different perspectives. For example, while just over one third of Ireland’s trade in goods is with the EU, over half of German trade was with the EU last year. And in relation to the US, one third of Ireland’s goods trade goes to that market, almost five times greater than Germany’s exposure.
The UK is also much more important to Ireland, taking 11% of our goods exports, whereas for Germany it is only 4%.
Also, Government needs to acknowledge that Brexit has splintered the EU and damaged one of our main trading partners.
Any future enterprise policy needs to consider and proactively engage with EU trade agreement management as it relates to our three largest markets — the US, UK, and China.
Challenges in this regard may arise, as many of the major EU economies have less to lose by pursuing an aggressive stance about issues of cross-border carbon adjustment, fossil fuel taxation, digital taxation, and technology protection.
The importance of very proactive engagement with these issues can be seen from the size of Ireland’s total export trade of goods and services, which reached €451bn in 2021, mainly derived from US multinational corporations located here, with only €27bn being generated by Enterprise Ireland clients which are in the indigenous business sector, according to Enterprise Ireland’s chief executive Leo Clancy.
On the one hand, we need to protect and support our non-EU foreign-owned multinational sector, while at the same time increasing the flexibility to gain investment and support for the SME sector.
Ireland’s EU Commissioner Mairead McGuinness pointed out the major weakness in our enterprise policy in her recent speech at the University of Limerick, stating that we are only scratching the surface of trade potential with the bloc, as currently only 6% of Irish SMEs export to the EU mainland.
Ireland’s economic development has been generally very positive since 2013, when we exited the IMF bailout programme.
However, closer analysis reveals clear structural weaknesses to which Ireland’s enterprise policy must respond if major potholes for our economy are to be avoided during the next decade.
The lack of qualified personnel in the digital sector, and especially in artificial intelligence, is making it difficult to introduce cutting-edge technologies. Ireland risks losing its attractiveness to inward investment by the major technology and healthcare corporations where data-driven and AI-based solutions are becoming the industry standard.
Lack of investment in electricity infrastructure is now hindering the expansion of data centres in the key Leinster area. Offshore wind farm investment is now two decades behind the UK, due to disastrously poor handling of foreshore licenses. As a consequence, renewable energy availability is far below the EU average and far behind the frontrunners — the Nordic countries.
A stagnant stock market and insufficient long-term investment funding are hampering the development of the indigenous sector and preventing the scaling-up of companies to offset the reliance on foreign multinationals located here.
These weaknesses are the backdrop against which Ireland’s enterprise policy must be shaped.
Ireland should focus on managing globalisation and economic interdependencies rather than aiming for decoupling.
For Ireland in particular, protectionism would entail considerable risks for our export-oriented businesses.
• John Whelan is a consultant on Irish and international trade
