Exporters Urge Budget Provisions to Ensure Further Growth in Exports -
Some Recommendations Actually Require No State Funding

The brightest spot on Ireland’s economic horizon is the strong performance of exports. The Irish Exporters Association reports that exports of goods and services grew 6.3% last year and they are projected to grow 7% this year and on average 5% annually over the period 2012 – 2015. It notes that any growth in excess of this figure will be of enormous benefit in helping to achieve a reduction in the General Government Deficit to below 3% by 2015. The IEA in its pre-budget submission outlines a number of recommendations that will assist Irish exporters in exceeding that projected growth.

According to Mr John Whelan, Chief Executive at the Irish Exporters Association, the pre-budget submission stresses that a Comprehensive Review of Expenditure (CRE) is crucial. “This CRE must clearly identify sizable savings in voted current expenditure for Budget 2012 and for the full adjustment period to 2015,” said Mr Whelan. He noted that in this regard all efficiency gains must be clearly specified and quantified within clear timeframes. He added that the IEA believes that savings on interest payments arising from the interest rate reduction on EU loans should only be used to reinforce the fiscal consolidation programme. The IEA says that the planned reduction in gross voted current expenditure of €4.8bn over the period 2011 to 2014 should not now be eroded by escalating debt service costs due to savings arising from the interest rate reduction recently agreed on our EU loans. The IEA further urges that given weak domestic demand that cuts in voted current expenditure are preferred to increases in taxation. Mr Whelan said that it is hard to see how voted current expenditure can be reduced beyond what is already planned, especially post 2014, without tackling public sector pay which now accounts for some 35% of gross voted current expenditure.

“The global outlook has started to look increasingly precarious over the past few months with the path of the euro zone crises over the next several weeks set to determine whether we are passing through a period of weakened developed world growth or on the cusp of a renewed global downturn,” said Mr Whelan. He added that regardless of how it plays out the exceptional growth of exports that has driven the return to growth in the Irish market in the first half of 2011 is unlikely to continue at the same pace in the second half of 2011 as global trade is now clearly stalling. In these circumstances it is essential that Budget 2012 show real focus on supporting indigenous industry to continue to grow export sales and to ensure the best conditions to attract more Foreign Direct Investment. The IEA notes that there are a number of issues preventing exporters from realising their full potential and urges that they be addressed in the upcoming budget to ensure the maximum contribution to our export led recovery.

There is a case to be made for a greater focus on Indigenous Irish export companies as clearly seen from the simple statistic of the cost of jobs created. There is one job created for every €102,000 in export sales from indigenous industry, while multinational foreign-owned export businesses create one job for every €790,000 in sales. In times of full employment the focus was correctly on high value multinational businesses, however, in the current high unemployment era we need to create more jobs urgently. From this basic statistic we can see that the indigenous export businesses can create jobs eight times more rapidly than multinational companies. The government also needs to address the fact that a relatively small number of indigenous Irish companies reach the scale and size needed to remain competitive on international markets and those that do are often a takeover over target for large international firms and thus do not remain in Irish ownership. A greater focus on supports to incentivize Irish businesses owners to retain ownership in the long term and build larger sustainable export businesses is now needed more than ever.

IEA recommends to the Minister for Finance the introduction of a number of measures in the Budget for 2012 which it believes will help exporters to grow their sales:

Share option scheme for SMEs: Unlike shares in quoted PLCs, shares in SMEs cannot be easily turned into cash and this can lead to major management complications for its owner. Consequently many owners are reluctant to offer sharing schemes to employees. To overcome these problems the IEA is proposing that “SME-Shares” be issued rather than equity shares. The advantages of using SME Shares are that they give the employee an interest in the growth of the business without requiring the allocation/issue of shares to the employee. They allow the employer to reward employees based on performance or length of service or other selected criteria and the employee does not have to fund any purchase of shares. In accordance with the needs of our time this scheme will cost the State nothing in the next crucial three years. Yet is has the potential to strongly encourage a focus on the positives and breed a spirit of success within the business community and give a psychological lift to the SME sector.

Export Finance Guarantee Scheme: There continues to be a lack of finance for a range of indigenous export businesses that have inadequate capital to offer as security, or are developing novel services or trying to enter high risk markets. Many of our competitor countries have recognised the inability of banks to meet these requirements under the new bank loan risk assessments parameters and have introduced State guarantee loan schemes to help companies develop their products and markets and export more. The Dept of Jobs, Enterprise and Innovation has indicated its intention to put such a loan guarantee scheme in place early next year, but without specifying the size and nature of the scheme. The IEA recommends that the scheme should cover businesses with up to €25 million turnover and provide loans of up to €1.5 million with repayment periods of 2 to 5 years. We urge the Government to take early steps to have a new scheme in place for the start of January 2012.

New Enterprise Investment Incentive Scheme (EIIS): The IEA realises that a new Employment and Investment Incentive (EII) planned to replace the Business Expansion Scheme (BES) can only come into operation after the necessary approval from the European Commission. The IEA urges the Government to push this through as a matter of urgency, as a key measure to get cash-flow going in the economy again.

R &D: With only 18% of Irish companies claiming R& D credits (and most of these are larger companies) there is a compelling case for expanding the facility to ensure it works to the benefit of SME exporters to enable them to expand sales of novel products and services into emerging markets and create more jobs.

Encourage start up entrepreneurs: The IEA recommends an incentive be offered that provides an exemption from income tax for start-up entrepreneurs for a number of years – say 4 or 5. The IEA also recommend that a similar scheme be introduced to encourage mobile individuals from outside the state to establish enterprises in Ireland.

New Focus for State Export Development Agencies: Exports and FDI to and from Ireland are critical. However, the world market is increasingly global and Ireland’s focus has been largely on the traditional markets of the EU and the US. Ireland’s share of global trade has consistently fallen over the past decade (although share in services and a remarkably resilient 2009 show encouraging signs for the future), however, our share of trade in Asia has declined most prominently. FDI from Asia (besides Japan), Russia and Brazil is almost non existent, but businesses in these countries have been investing heavily in other EU member states. Put simply, we are losing share in the fastest growing markets in the world. The IEA recommends that the Government should ensure addition resources are found to stimulate businesses from Asia and the other rapidly growing economies to invest in Ireland, as well as assist indigenous exporters to focus their efforts on the rapidly growing BRIC markets. The IEA urges the Government to provide a detailed plan of Public Sector Reform, inclusive of transfer of resources to trade promotion agencies to replace key staff retirements. The IEA also recommends the transfer of addition staff into the Department of Foreign Affairs to support their overseas embassy network. This will be essential if Irish small and medium sized enterprises are to accelerate their entry into new markets and drive the jobs growth at home. The IEA has in its Asia trade Policy 2011-2015 document outlined the case for increasing the staffing of Irish Embassies in Asia, where current levels are very low and do not allow sufficient support to expand the reach of Irish exporters in these vast and rapidly growing markets. The IEA also recommends increasing the number of Government-led trade missions to these fast growing markets and urges the DFA to be more pro-active in repairing the recent damage to our reputation.

The IEA has for some time now been concerned about the current Irish visa policy and the lack of Schengen compatibility. The solution to this long standing issue has been identified, but it will require an investment by each of our embassies in a biometric passport encryption system similar to that in British embassies. The IEA urges the Minister for Finance to set aside the necessary funding for this vital investment.

There is a range of initiatives that could be implemented that will increase the Irish visibility in the rapidly growing markets of Asia. One suggestion that sticks out is the idea of ‘In country’ business parks in Ireland similar to schemes run by Shannon Development. These business parks would assist Asian companies by providing a ‘one stop shop’ for all their service and manufacturing needs. The IEA believes that such an approach would be helpful in increasing FDI into Ireland.

Conclusion
The IEA in its pre-budget submission calls upon the Minister for Finance and the Government to ensure that all elements of the budget be framed in such a way that Ireland’s basis export infrastructure is improved. Areas such as cost competitiveness and access to and from markets should be major considerations in drafting the final budget.

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