In its yearly poll, Forbes Magazine has named Ireland the best county in the world to do business. Undoubtedly, a great accolade, as the country becomes the first to exit the Eurozone bailout, but how does that translate into tangible benefits for the people who live there. The green shoots of recovery appear to be emerging in official statistics, but can the country ever achieve anything close to the prosperity enjoyed during the heady days of the ‘Celtic tiger’?
Ireland: Good news for overseas investors
Forbes’ staff writer, Kurt Badenhausen wrote:
‘Ireland scores well across the board when measuring its business friendliness. It is the only nation that ranks among the top 15 per cent of countries in every one of the 11 metrics we examined to gauge the best countries. Ireland ranks near the very top for low tax burden, investor protection and personal freedom.’
But, poignantly, he also notes:
‘Ireland’s recent troubles have made it more attractive for companies moving in. Nominal wages fell 17 per cent between 2008 and 2011, which helped keep labour costs in check. Unemployment remains stubbornly high – a recent 12.8 per cent -providing companies a large labour pool to pick from.’
The fact is, right now, the only winners in Irish business are multinationals making the most of lax tax laws and a highly trained workforce desperate for employment. The people are suffering under the weight of ever-increasing raft of taxes, the greater part of which will only kick in during 2014 and 2015.
For example, one of the most contentious measures, the local property tax, is payable in full for the first time in 2014 (this year, households only had to cough up 50% of the charge). Water charges won’t hit home until 2015. As the real effects of austerity measures take hold, those little green shoots of recovery could be easily stamped out. Will international business, then, be so willing to invest in a ‘dead’ economy?
A false dawn
Unemployment appears to have bottomed out. An inflow of foreign capital is helping there, but even middle earners are scraping to get by. There is nothing left to be spent in the high street or the hospitality sector.
The wider economic benefits of foreign investment are not being felt in micro-business. Small enterprises are still going under. The fact that starting a business disqualifies any entitlement to welfare should the business fail is a big disincentive for would-be entrepreneurs.
Unemployment figures have been creatively ‘slashed’ through ‘back-to-work’ schemes such as the much maligned Workbridge scheme, which forces the unemployed to take up internships for €50 per week on top of their benefits. It turns out many of these ‘internships’ were formerly ‘real’ jobs, now removed of the labour market. Even state agencies have been found guilty of using the Workbridge scheme as a source of free labour.
The figures don’t add up
Exchequer figures are okay, but there is zero growth and retail sales are flat. Those who have managed to hold on to their job or find new work, probably aren’t earning anything near what they did before the collapse. Average earnings fell 2.4% this year to date and significantly more in previous years. Rises in the cost of living and new taxes means that money won’t go nearly as far either.
This has been the fifth consecutive year of decline in domestic demand. Between January 2008 and June 2013, consumption shrank by €1,600 per head of population. Savings on deposits continue to fall, as does credit available to hard hit households.
Property prices have finally stabilised and are rising in the capital after falling more than 50%, but the more sceptically suggest that this is just cash rich investors and consortiums picking up bargains at the bottom of the market, rather than people buying homes. More than 50% of mortgage borrowers are in negative equity and won’t be moving anytime soon. The rate of repossessions is set to soar this year, due to pressure from the Troika on the banks and government.
Ireland may be about to exit the bailout, but the loan still has to be paid back, with interest, and that money will have to come out of the economy.
Where will Ireland’s growth come from?
Yet there are optimistic forecasts for growth next year. The OECD predicts 1.9% while the government’s own think-tank have somehow come up with a wishful score of 2.6%.
The government is eagerly awaiting Moody’s Corporation (NYSE:MCO) credit rating in the coming weeks to see if Ireland’s rating is finally elevated above junk status.
Michael Noonan told Bloomberg:
‘We’re hopeful that Moody’s Corporation (NYSE:MCO) will have another look at us early in the New Year. The mood from all the rating agencies is positive. Moody’s difficulty seems to be with the EU and the Eurozone, rather than with Ireland specifically. That’s what they’ve told us.’
‘We’re in a good place,’ he commented later. ‘We decided to exit the bailout and do it cleanly without any precautionary programs or any dedicated credit lines. We’re not jumping out of the plane without a parachute. We have cash buffers in excess of €20bn. That funds up to the second quarter of 2015 if we never entered the market.’
That will be all positive spin for the ruling body, as Taoiseach, Enda Kenny, makes a television appearance on Sunday to announce the exit from the three-year Troika bailout, but it’s hard to believe that the ordinary people of Ireland will be celebrating the event with him this Christmas.