19 Jan Interview with Danny McCoy, CEO of Ibec
BF: Ireland has done extremely well over the COVID-19 pandemic, being the only economy in the EU to grow in 2020 and having projected GDP growth of 10.1% this year. However, there are still challenges. Ibec recently downgraded its estimates for GDP growth in 2023. To begin the interview, what are the reasons Ireland has done so well, and how is it positioning itself for further growth in the coming years?
Danny McCoy: The economy, uniquely, grew through the three years of Covid. In GDP terms, it may have grown in the order of 25% to 30%; remarkable in itself. But actually, as remarkable, is that between the six years up to 2020, it grew by 100%; it doubled in size. The reason for that is a very long history of being open to foreign direct investment and receiving FDI for over two generations. We have have seen an increase over the last two decades of foreign direct investment, particularly US investment. But in the last 10 years, we see that this remarkable growth has been driven primarily by changes in global corporate taxes.
This was a game changer for Ireland. We saw back in 2015 that the corporate balance sheets that moved into Ireland had an increase of nearly 40% in a single year, bringing controlled balance sheets of above €1 trillion and then P&L extraction from that increasing by €60 billion. That increase of €60 billion in that one year alone was a 35% GDP growth. Many international commentators, including Nobel laureates like Paul Krugman, labelled this leprechaun economics, showing quite a heavy ignorance of what was happening globally, which was that intangible assets were the new driver of wealth, integrated in corporate balance sheets. It’s very explicable what was going on. Ireland is an attractive base. It’s a secure base for foreign investment, and it can show that the more you practice, the luckier you get. So there’s been a build up over nearly 60 years at this point; the last 10% of that has been pretty dramatic. Those are the numbers you’re observing.
BF: Ibec is Ireland’s largest industrial lobby group, and its members cover 70% of the country’s workforce. What key milestones has the group passed in the last few years, and what kind of fresh goals and initiatives does Ibec do to support key sectors under its Strategy 2020-2025?
Danny McCoy: Ibec is a reflection of the Irish business model itself. Our growth over the last decade has been correlated quite heavily with what’s been going on with our members, and Ibec has more than doubled in scale and turnover. It is a €40 million turnover business with 285 staff. We have 39 brands that we hold, we operate in nine locations, and we have seven offices and two training centers. This makes us the largest of its type in Europe, which is, again, a reflection of the Irish business model. We’ve just opened a very large office in Brussels. We’ve been in Brussels for 50 years, but we’ve expanded our footprint and so we’ve set up a new brand called Ibec Global, as well, which is to be a lobbying organization for US businesses directly into Brussels. It has just opened in the last couple of months and is led by our colleague, Jackie King.
BF: Ibec has also called on the government to raise support of SMEs in 2023, citing heightened energy bills and volatile economic conditions. What kind of supports exist for entrepreneurs and small businesses in Ireland and what more needs to be done to ensure these entities succeed?
Danny McCoy: Again, the framework and the backdrop for supporting SMEs have always been quite strong because they’ve had to coexist with very large FDI entities. A lot of the spillover effects from those international investors have meant we’ve got a talent pool in Ireland of entrepreneurs. Sometimes creative destruction occurs as well. We saw that in the med tech sector that grew up in Ireland very heavily indigenously (over half of it is indigenous). There was a spin out in the west of Ireland from technology companies like Digital.
We might be going through some of these creative destructions at the moment in the tech industry. We can expect that some of the talent that’s already embedded in those companies now will have new ideas, and they’ll have some capital built up to spawn off new measures. The taxation model here for capital gains and for share options is really an important part of the proposition; also the fact that, as companies start into intellectual property research and development, tax breaks become significantly important.
In the more short term, however, with the high energy costs, the government has shown the capacity to actually directly put money into businesses to keep them afloat (as opposed to incentives like tax or subsidies). We would see a role for that particular type of mechanism domestically for the SMEs. At a European level, the European Commission is talking about helping with state aid rules to ensure that some of the larger businesses actually can get direct supports from their individual governments. That’s one scheme that’s now in place and, governments had to sign off and the European Commission had to do it. But for the smaller SMEs, that’s really coming from the budgetary paths we have right now. We expect the government to be able to not just help the households, which they’re attempting to do, but also these firms.
Two things that Ireland hasn’t been short of is growth and money. One of the challenges in Ireland is how to ensure that the investment that’s in the economy, the money that’s in the economy, is actually put to sustainable use. There are some pressure points for international investors that can help out in terms of infrastructure, with huge opportunities with our wind energy, particularly offshore wind (for our own use and as an export platform). Last week, the government announced an electrical inter-connector, the Celtic Inter-connector, directly between Ireland and France , which ultimately can take energy both ways. We can benefit from the nuclear energy that France will be producing and also reduce our dependency on the natural gas that comes in through the northern inter-connector with Scotland.
BF: We’ve just spoken about the tech sector, and how that’s going to influence new startups. Especially as Ireland is the world’s second largest exporter of ICT and IT services. However, due to these huge job cuts in the sector, can you give a bit of an overview of where the country currently stands in the technology sector? What makes it so robust? And what kind of future do you project for tech in Ireland?
Danny McCoy: It’s one of the features of investment where the Irish business model and Irish economy by extension has done well, as there are increasing returns to scale. We see this right across the world: that particular jurisdictions build up a critical mass, and at some point then, this becomes self-fulfilling. We get this with the car industry or financial services, or, at another level, educational establishments (like in Britain in the triangle of Oxbridge and London).
Similarly, Irish technology, over what has now been a 30-year build-up of high tech companies, keeps going through various iterations and generations. Firstly, tech obviously has got a great future, even in things like chip manufacturing. The trend is the Internet of Things, which has gone to making computer chips in everything. However, just like with a signal or a trend that comes from that, there are blips. For instance, as the current overhang on a lack of demand for computer chips happens, we just seesaw within the year.
But ultimately, the trend is for technology, and we know the future is going to be technology driven through the environmental issues of tech. Tech is definitely the future in various things that we don’t know about yet. I’m pretty confident that it will remain in our location because we’ve got all of those attributes that had success in the last 30 years, and these have not diminished. In fact, they’re becoming much more secure. Our location away from the hotspots of Eastern Europe right now, the issues around climate and a steady climate, but also a system which is actually very open and English speaking; all of those factors keep us very strong.
Some other factors that would have been jurisdictionally interesting for tech companies to go through are proving to be less reliable. We’ve seen the flight away from China; we see US strategic autonomy on things like chip production. But there is also like what goes into telecommunications in terms of technology. These issues of open strategic autonomy favor a country like Ireland greatly. We’re confident in the tech sector, but also confident in our location for that tech.
BF: Ireland is aiming to have net-zero carbon emissions by 2050, which is a pretty ambitious goal. What is required of both the public and private sectors for Ireland to meet this deadline, and what kind of fresh opportunities are we seeing in the market attached to the rise in green investment?
Danny McCoy: Like in other jurisdictions, these targets for net zero require a shift away, obviously, from fossil fuels and finding alternative sources, but we’ve observed in the last 30 years in Ireland that our GDP has probably more than tripled, possibly quadrupled, but our emissions have actually remained static. We’ve had a huge decoupling from our economic activity of carbon emissions already. Obviously, it gets harder and more expensive near the end. But again, it’s the technological advances that are going to deliver this outcome. This is the tension globally: how to decouple to get to net zero economic activity from fossil fuels without actually stalling economic activity. That’s the big challenge. But again, building on our track record, Ireland has shown spectacular decoupling in that phase. And also, with that 130% increase in GDP, we’ve seen our emissions actually flat line.
BF: The US is undeniably one of Ireland’s largest supporters, whether through trade or investment. FDI inflows from the US stood at $390 billion dollars in 2020 alone, more than the US total for Brazil, Russia, India, China and South Africa combined. What are the reasons for such a strong relationship between the two countries, and what kind of fresh opportunities are we now seeing that are leading investments from the US into Ireland?
Danny McCoy: It seems pretty remarkable that a small island, five million in the Republic and two million in Northern Ireland, could be such a hub for such investment. There are a couple of things that are explanatory there. First of all, it’s an accumulation of activities that build up the value chain. Ireland is very expensive for production at this stage because it’s migrated to being a trusted trader, but also a trusted source of actually getting things done. We see that in terms of the Initial investment here or the big pharmaceutical investments in terms of cutting-edge drug and medical devices and food, etc. What happens here is very expensive investment. That’s part of the reason compared to being down in the value chain in other jurisdictions.
It’s also a reflection of the educational standards that are here in terms of access to that kind of talent; but it’s also a favorable regime in terms of taxation; and also an idea of stability, that your assets are protected here. But the relationship between the US and Ireland, as Ireland is a gateway into Europe, is really significant. Sometimes you’ll hear some stats say that Irish employers employ as many people in the United States as US employers employ here. While that is true, it inspires incredulity. Just because my dog has four legs and my cat has four legs, it doesn’t make my dog my cat. US investment in Ireland is here to be an export platform; it’s not here to service the Irish population. But Irish employers of large amounts of people in the US are there to service the domestic market, so not an export platform. They’re fundamentally very different things.
One of the features, is that Ireland has found itself to be a significantly rich country; in contrast to the United Kingdom, for instance, it’s pretty stark. The lowest decile, the lowest income households in Ireland, now have 63% more disposable income than in their UK equivalent.
This is a function of kind of a wealth effect that’s coming from the business model in Ireland. One that doesn’t get talked about enough, but it’s been dramatic change. Then there’s also lots of pressure points in our society, which is the result of this fast and uncontrolled growth, as we put huge pressures on our infrastructure, particularly our social infrastructure, housing or access to education.
It was a similar problem that Britain had, as well, in terms of the last 20 years. The uncontrolled migration issue from Europe, as those identified in the Brexit debate, and a relatively uncontrolled migration from non-Europeans at the moment, is obviously a feature that Ireland is now experiencing as well in the short term. In addition, for people who don’t go to the UK, Ireland is an attractive location, both for coming to work, but also in coming for asylum, coming as a refugee in terms of economics. Our population is surging very dramatically, at a point where the tensions were already there, pre-Covid. This is a big tipping point for Ireland as well, and one to be navigated carefully. That’s one of the big interfaces between government and business right now.
BC: You’ve been running Ibec since 2009 and have successfully led Ireland’s industry through many recent trials and tribulations. What are your current top three goals as CEO of Ibec, and what kind of vision do you have for Ireland’s industrial landscape in the next five to ten years?
Danny McCoy: Over that time, it’s been really interesting in macroeconomic environment because my background is as an economist. Starting to lead Ibec towards the end of that Celtic Tiger and into the great financial crash, and the arrival of the Troika, and then being here for that base erosion and profit shifting, then into Brexit, then COVID, and now into the cost of living. It’s never been uninteresting in this environment. Being the leader here, I can give voice to that in a kind of a confident way, in terms of just drawing on my experiences.
But also, as the CEO of Ibec this is quite a big business. Ibec will be much bigger than the vast majority for our members. Ibec itself will be in the top 800 companies in the country. Running a business has also been really interesting because, again, we had huge challenges at the start. We had to do a lot of wage cuts, close down pension schemes, etc. We’ve had to trade our way out of that. The longer you live, the more you see.
Clearly we’re going back into a much more difficult environmental context now again, but we’re doing so from a great position of strength. We’ve been courageous in making some big calls, some that seem very at odds with the business. One of the calls that we’ve made is that businesses need to pay more taxes. The scale of the public sector is too small for our society. This seems at variance with some of the kind of proceeds, Punch and Judy type positions, that business would take versus trade unions. Even on that front, trade union recognition or collective bargaining is something that, again, we would acknowledge needs to be finessed because we can see, internationally, a move from shareholder capitalism toward stakeholder capital.
But also, we’re watching in horror as to what’s unfolding in the United Kingdom. We can see, again, the industrial unrest in terms of level of strikes, but also the social unrest that may be coming from an economic model that is fraying as a result of a really catastrophic decision that was Brexit.
BF: My last question is a final message to the readers of USA Today. And also, if my questioning hasn’t brought up something that you feel that you’d like to mention, this is the opportunity now to deliver any final message.
Danny McCoy: I guess one of the big things for next year is that the Belfast Good Friday Agreement is 25 years old. This is really important for the business community. The peace process at 25 is a peace process for both UK and Ireland. It means peace and prosperity. Peace was obviously to give that stability, but peace had to be for something, and the peace was for the prosperity of both islands.
I go back to the point I made that no small part of the renaissance in both islands was due to a peace dividend. The peace process had as much to do with London than with Belfast or Dublin. Some of the investments in Canary Wharf and so on, people feeling secure, would not be the case without that peace process. So the prosperity peace of celebration in the Belfast Good Friday Agreement will be an emphasis. We’ll be going next year. We’d be in the United States doing that as well because the prosperity doesn’t get acknowledged. There’s a kind of a sense that this is somehow stopping the Irish from fighting among each other. This is a bigger spillover effect for the two Irelands as beacons of stability and prosperity.