Ibec CEO Conference 2016
Address by Danny McCoy
Thank you Claire, and let me start by adding my own welcome and thank you all for joining us today. I’ve no doubt it will be a really enjoyable and thought-provoking day.
I want to also thank our event partners Accenture, eir and Merc Partners, and our media partner CNBC for their ongoing support.
Today’s theme, Bold Ambitions, is close to my heart. Trying to instil and promote a greater sense of ambition for the country has been a real priority for Ibec over recent times.
Ireland is doing well and has a great future. But we don’t hear that often enough. And if we don’t think it and really believe it, how are we going to make it happen?
As Gerry referenced, four years ago, Ibec set out a vision of a country that could grow at 3-4% every year; a country among the most prosperous regions of Europe; and a country with a quality of life and a standard of living to match.
At the time many were sceptical; perhaps understandably.
However, after a second year where Irish growth outperformed the rest of Europe, and with key economic indicators pointing in the right direction, it is clear such a vision is there for the taking.
If current demographic trends continue, in less than fifty years the island of Ireland will have a population of 10 million.
We’re now at about 6.5 million. This is a comparatively low figure when seen beside populations of a range of other smaller EU countries such as Sweden (9m) and the Netherlands (16m), where population and population density is much higher.
But the figure has been growing fast over recent years, even with the outward migration sparked by the economic crisis. Current projections from both sides of the border point toward the possibility of a 10 million strong population by 2065.
This brings with it new and exciting opportunities, but also challenges.
The question is: What do we need to do now to plan for an island of 10 million people? An Ireland with state of the art infrastructure, the right skills mix and the level of income and economic activity to underpin such ambition.
Of course, first we need a government, and one not preoccupied with fighting the next general election.
The next government needs to have an unwavering focus on the significant challenges we face as a country: One with the mandate, authority and capacity to plan ambitiously and take difficult decisions if needed.
All parties and TDs have a part to play in supporting the creation of a stable environment for policy making and legislation over the coming years. The business community, and the public, will not thank them if they fail in this task.
There has been much talk in recent days of a new type of politics, one that is more inclusive and less divisive. It remains to be seen if this is just post-election positioning, suffice to say that business is ready and willing to play its part. We come with fresh ideas, new solutions and the firm ambition to forge a sustainable recovery and a more prosperous country for all.
We need to move beyond political wrangling and posturing, and focus on the big challenges facing the country. Not least, how we plan for a rapidly growing population, and manage the pressures that come with a successful recovery.
I want to touch on some of the big issues in the few minutes I have this morning.
Firstly, how can we provide the necessary infrastructure to thrive and succeed into the future?
As a starting point, we need to radically rethink how we plan and invest in infrastructure. As it stands, we’re not investing nearly enough.
Massive spending cut-backs during the crisis years have left us playing catch-up. We now have the third lowest level of investment in the EU. Yes, we need to keep a firm grip on current expenditure and eliminate the deficit, but we also need to ensure the country has the transport, education, housing and broadband infrastructure it needs to prosper in the years ahead. And there has never been a more opportune time.
The Irish government debt-to-GDP ratio peaked at over 120% in 2013. Since then it has been on a steady downward path. The boost of 13.5% turnover growth in the economy in 2015 saw Ireland’s gross debt to GDP ratio dip under 100% for the first time since the crash, and it is now down to 94%.
Our current forecast is for debt to GDP ratio to drop close to 80% by 2017. This is before taking into account the large reserves of cash the state has built up and the value of our stake in the pillar banks. Ireland’s current debt position is still elevated compared to pre-crash levels, but it is on a firm downward path and is now at levels which are on par or below norms in other developed nations.
On top of this, the average maturity of Ireland’s debt, at 12 years, is among the longest in the developed world with roll-over costs at all-time lows.
In this context of historically low interest rates, normalised state debt and massive demographic and growth pressures, it is incomprehensible that state investment is at an all-time low.
We need to take full advantage of this once in a generation opportunity and ramp up public infrastructure investment to 4% of GDP by 2020. And we need to find new financial ways of connecting the stock of private capital with productive investment to achieve this target.
At the seam time, we need to seek further flexibility in the application of EU fiscal rules to ensure that they don’t put in place an unwarranted barrier to necessary capital investment.
Of course, we have to invest wisely.
Economic activity continues to gravitate toward Dublin in particular, stretching the city’s resources, pushing up costs and leaving other parts of the island behind.
It is creating a worrying economic and social imbalance. At 40% of GDP the Dublin area is responsible for a disproportionate share of national economic activity, and far beyond that of other capital cities across Europe.
The task of ensuring that all parts of the country benefit fully from the fruits of recovery is an issue that emerged during the course of the general election, and it is a concern shared by business.
The next administration should set out clear proposals in the next programme for government. The issue demands a determined, focused response, matched with ambitious capital commitments.
And what should we invest in?
A new Atlantic cities strategy is needed to ensure complementary growth between Dublin and the cities of Waterford, Cork, Limerick and Galway, in terms of size, infrastructure, population and other resources. We also need investment that facilitates urban regeneration in brownfield sites in all our major cities.
Our transport network, for example, is far from complete. During the boom years we successfully connected Dublin to the other main cities, but not to all the regions. There is still a job to do to better connect all of our major cities to each other.
Housing is also a massive concern. Under supply in key urban centres is already having an impact on competitiveness and is making it more difficult for firms to attract and retain talented workers.
A new national investment plan needs to be supported by a streamlined planning process and a new spatial strategy: a strategy that sets out a blueprint for a better balance of social, economic and infrastructure development across the entire island for the next five, fifteen, fifty years.
Of course having a vision is one thing, but we also have to manage the more immediate pressures of recovery.
Over the last three years Irish businesses have put 125,000 people back to work; in jobs that have provided families with new opportunities, and entire communities with a fresh sense of value and purpose.
This year unemployment looks set to fall to 8%, from a peak of over 15% in 2011. It is still far too high, but we’re moving in the right direction.
As the economy improves, wage pressures have reemerged. This is a good thing and a sign of a normal, healthy economy and labour market.
Thankfully, most companies have been in a position to award modest pay rises this year and this is helping to lift the wider economy and boost consumer activity after many years of stagnation and decline.
The combination of pay rises and budget tax cuts increased the average worker's take home income by over 3% in January and will result in a net take home pay increase of about two weeks pay over the course of 2016. Compared to 2014, the average worker will be better off by almost one month’s pay by the end of the year.
This is at a time of historically low inflation with the cost of goods and services across the economy similar to what it was in 2008.
However, not all companies are recovering or growing at the same rate; and some parts of the country have yet to feel the full benefit of recovery. The average turnover in retail businesses, for example, is still 15% below where it was in 2007.
This reality needs to be reflected in wage expectations; and individual companies have a part to play in managing expectations at enterprise level.
In Ibec, we’re here to help you and your business by providing the professional HR and industrial relations support that you need to successfully manage these issues as they arise.
One of the big mistakes of the boom years was the awarding of significant pay increases that did not accurately reflect the underlying health of individual businesses or the economy as a whole.
The economic crash resulted in a very painful adjustment, many faced having their wages frozen or cut significantly. Many others lost their job. It is vital we don’t repeat past mistakes.
However, much of the current debate around wages is ominous.
The repeated proposition that wages should be increased to make property more affordable suggests one of the most obvious lessons of the crisis and the property crash has not been learnt.
Yes, it is true that a minority of workers are under significant financial pressure, trying to get on the property ladder. Others have to contend with rising rents and high property prices in key urban areas. But this is not a sound reason for economy-wide pay increases, detached from the economic realities that employers are facing.
Yes, a major and immediate new approach is needed to improve the supply and affordability of new housing. However, wage hikes are not part of the solution to this particular problem.
Unfortunately, it now looks like we could be moving into a period of greater industrial discord, after a period of relative calm. This is not surprising given the difficult crisis years and the pent up frustrations that have built up. But in many cases pay claims go far beyond what is reasonable or affordable.
The Luas dispute is a case in point, but it is just one example of a series of ongoing, exaggerated pay claims that risk undermining the economic gains of recent years. There can be no return to bubble-economy wage inflation or spiralling relativity pay claims, because ultimately everyone loses.
Industrial disagreements are, of course, not just restricted to parts of the private sector. A number of public sector unions are now calling for the Landsdowne Road Agreement to be renegotiated, even though it still has two years to run.
Under the current agreement, around €900 million has been allocated to pay and it provides for increases that are comparable to those that are being agreed in the private sector.
Of course pay must rise over time; and public sector pay and conditions must be comparable with private sector roles, but this must happen at a sustainable rate, and it must balance the legitimate expectations of workers with the pressing need to invest more in the quality and capacity of our public services and in much-needed capital infrastructure projects.
This year we have the chance to further cut unemployment and attract back migrants that left during the crisis. But if costs spiral and we lose our competitive edge, we will pay for it in jobs.
Now is not the time for a one-size fits all national pay agreement and enterprise level pay bargaining is set to remain a feature of the Irish economy over the coming period.
At the same time we all have a responsibility to ensure that when disputes arise, they are resolved in a timely and responsible way. Ibec, as the national voice of Irish business and employers, is committed to playing its part at a local and national level.
Finally, before I finish, it would be remiss to not mention some of the very real threats on the international horizon. Threats that will no doubt feature prominently in the presentations and discussions later in the morning.
The coming weeks are likely to focus minds on risks rather than opportunities.
A vote on 23 June by the UK to leave the European Union would be a massive leap into the unknown for Britain, but also for Ireland. It would be an overwhelmingly negative development for Ireland, Britain and Europe, and, as the IMF recently pointed out, the economic fallout would be felt at a global level.
A UK departure would be a blow to the Irish recovery and result in a protracted period of uncertainty for business. It would undermine Europe's ability to act collectively and decisively in the world and would push the EU back into a dangerous period of crisis management, when it should be looking to the future.
Ireland and the United Kingdom are close allies in Europe across a wide range of issues. The UK's EU membership is of key strategic importance to Ireland and to Irish business. An EU without the UK would be a lesser Union and this is a message we intend to actively communicate over the coming weeks.
A vote to leave would demand an immediate, considered and sophisticated response to minimise instability and ensure Irish interests are safeguarded in any subsequent negotiation and settlement.
Hopefully this scenario will not arise and as the campaign continues in the UK, Ibec will continue to respectfully highlight our concerns in the debate.
Of course, notwithstanding uncertainties on the horizon, our economic recovery is and will continue to be a firm foundation on which to plan ahead.
Over the coming months and as we look further out towards 2050, we have an opportunity to lay the foundations for a new phase of our country’s social and economic development.
A phase that should be characterised by world-class infrastructure, productive investment, an education system fit for the twenty first century, and a tax code that supports growth and rewards work.
We need to be smart, nimble and ambitious. And we need a relentless focus on competitiveness.
Ibec, on behalf of Irish business, and working with government, is ready to play its part.
Thank you and enjoy the rest of the day.
Thursday, 21 April 2016