INWARD INVESTMENT has once again moved centre stage as the economy passes through what may prove to be the trough of the recession and talk of recovery becomes more plausible. There are encouraging signs that the multinational sector – which exports nearly everything it produces – has held up better than domestic industry and by one measure may already have come out of recession.
This assessment, based on growth figures for the first quarter that were released last week, was bolstered by industrial production numbers yesterday.
This represents good news on several fronts. Not least for what it might say about the security of the 136,000 jobs in companies backed by the Industrial Development Authority (IDA), although specific subsectors and individual firms will no doubt remain vulnerable. The IDA was quick to dampen expectations in this regard this week when it published its annual report, warning that it simply cannot predict the full impact of the global downturn on jobs in multinationals here.
Also important is the message that the relatively strong performance of the multinational sector sends internationally. Ireland’s reputation has taken a battering in the last 18 months and, as the Tánaiste Mary Coughlan acknowledged, this has had knock-on effects on inward investment. As the US economy turns and its big corporations start to look outward again, it will be helpful for Ireland to point to the relative health of the sector here, despite our wider economic difficulties.
But, as the IDA has pointed out, the issue of competitiveness remains the key issue in winning and retaining inward investment. This is despite the significant fall in costs that has already taken place – evidenced by yesterday’s inflation data. The agency believes that wages in multinationals will have to fall, by up to 15 per cent, to both attract and defend jobs. Given the painful cuts already felt by most households, this represents a very stiff price to be paid by the workers involved.
The IDA’s call comes as doubts are starting to emerge about the effectiveness of pursuing a policy of deliberate deflation in order to regain competitiveness. The unions, in particular, whose members are bearing the brunt of this policy, have become increasingly sceptical. If the agency, with Government support, is to pursue a policy of pushing down wages in the multinational sector then it must deliver on its side of the bargain, retaining the existing jobs and winning new projects.