IDA-backed firms must cut salaries 'to survive'

IDA IRELAND chief executive Barry O’Leary has warned that the pay of thousands of workers in companies backed by the inward investment agency will have to be cut by up to 15 per cent if their Irish operations are to survive the recession.

Reporting “tough” conditions in the market for inward investment projects, Mr O’Leary said he did not know whether the likely level of job losses this year would exceed the record number of jobs lost in 2001 and 2002 in the wake of the dotcom collapse. In some cases, the actual elimination of jobs did not happen for months or years after an announcement.

Ireland needed to drive costs down further, he said, adding that 5,000 to 6,000 workers in some of the top-20 multinational operations here would have to take pay cuts to boost the competitiveness of their Irish business.

“In some cases, salaries will have to come down by up to 15 per cent,” he said. “If you’re 20 per cent more expensive than two sister plants, unless you do something about that, you’re going to be in trouble.”

IDA Ireland has supported the creation of 2,300 jobs since the start of the year. But the loss of 6,000 jobs in the same period reflects large-scale redundancies at big employers such as computer giant Dell and aircraft maintenance firm SR Technics.

With 136,043 workers employed by IDA-backed companies last year, the agency’s newly published annual report shows that 8,837 new jobs were filled in 2008 while 10,044 jobs were lost.

Minister for Enterprise, Trade and Employment Mary Coughlan said 2009 was “going to be a more difficult year” from an inward investment perspective.

While noting downward trends in labour, energy and building costs and professional fees, she said Ireland had a “reputational difficulty” as a result of the banking crisis and regulatory failure.

With potential international investors sometimes citing “every” negative article in the regional and national media in discussions with Irish officials and Ministers, she said a considerable amount of time was being spent going through the Government’s response to the problems it faces.

Mr O’Leary disagreed with an assessment in a recent report by the International Monetary Fund that “Ireland has become the most expensive location in the euro zone” for foreign direct investors, with the possible exception of Luxembourg. “I wouldn’t say it’s the most expensive, certainly not from a multinational point of view.”

While rising business costs meant Ireland had been priced out of contention for mid-level investment projects in recent years, he said the downward cost trend was starting to present opportunities at that level again. However, he said there was no deviation from IDA Ireland’s stated focus on the pursuit of projects at the very high end of the “value chain”.

Despite Ireland’s economic problems, Mr O’Leary said there were definite opportunities for significant inward investment, and US firms continued to be the dominant target for such investment.

Silver lining: IDA's recent successes

IDA IRELAND chief executive Barry O’Leary pointed to major new projects by internet firm Facebook, semiconducter company Microsemi, orthopaedic manufacturer Zimmer and Coca-Cola as among the highlights of the agency’s investment “wins” last year.

Highlighting new research and development projects initiated last year by software firm SAP Business Objects and banking group Citi, and similar projects this year by IBM and HP, he said the agency believed incentives introduced in the Finance Bill last May would stimulate further interest in locating such projects here.

The Government now allows the Irish units of multinationals to write off the cost of acquiring intellectual property assets against taxable profits for 15 years. The provisions are designed to incentivise multinationals to boost their investment in the intellectual property deployed by their Irish operations with reliefs against the corporation tax due on profits.