Creaky infrastructure limits future growth

 

One would think those who determined the Republic's industrial strategy would be happy at last. One might presume that after setting yet another record this year for annual job creation, IDA Ireland executives would be content to hit the cocktail circuit this Christmas and boast about their role in a spectacular success story.

But no. They fret about the Republic's creaking infrastructure, about staying ahead of the game in telecommunications, about skills gaps. They have come to the conclusion that the current rate of investment by foreign companies in the Republic is unsustainable, and if the State is not careful, it could all end in tears.

In the history of the State, there has never been such a period of sustained growth. In 1993, the IDA helped create 8,258 new jobs; in 1994, 9,930 jobs; in 1995, 11,725 jobs; in 1996 13,296 jobs; and last year 14,930 jobs.

This year the IDA's total for job creation was almost 16,000, and all the indications are that Enterprise Ireland's tally will be at least a further 8,000.

The list of international companies that run large operations in the Republic looks virtually identical to a who's who of business: IBM, Intel, Microsoft, Hewlett-Packard, Dell, Compaq, Gateway 2000, Citibank, NatWest, Coca-Cola, Xerox, Pfizer, Warner Lambert, Boston Scientific, and more.

Even more striking is how much these companies seem to like it here. More than half the new jobs announced by IDA clients this year are in multinational companies that already have substantial operations in the Republic.

To meet the demand for labour, tens of thousands of emigrants have returned, many people have signed off the dole, and the rate of female participation has soared as more women re-enter the market. But how long can this ride last? Serious cracks have already appeared in the Republic's infrastructure. Despite Government action there is evidence of a skills shortage in some sectors and some companies say they cannot entice emigrants home.

Also, some regions still feel they haven't shared in the economic boom. IDA Ireland executives publicly admitted as much at the release of this year's annual report, saying that they would redouble their efforts - and offer extra incentives - to attract investment above an imaginary line between Dublin and Galway.

The agency's outgoing chief executive, Mr Kieran McGowan, has suggested that the absence of a proper main road network, as well as the limited choice of airports, is undermining the IDA's efforts outside of the Dublin area.

This month, a senior executive at Forfas, Mr Jim Bourke, made a link between Dublin's traffic jams, the increase in workers driving their cars, and the poor roads outside of the capital. He described the Republic's current infrastructure as "mediocre", adding that investment in roads and public transport had now become a matter of urgency.

"Effective transportation infrastructure and services are critical for sustained industrial development and economic well-being," he said. Even the sluggishness of the authorities in rezoning and supplying more land and services for housing around Dublin is damaging the economy. The lack of movement has contributed to the demand for housing in the capital, doubling or even tripling prices in just a short time. Foreign companies now complain that it has become much harder to tempt skilled Irish emigrants to come home because relocation involves paying exorbitant amounts for a family home.

The response of the Government and the IDA to all of this has been a significant shift of focus.

"Ireland is moving up the value chain," said one IDA executive. "We were a low-cost economy, now the only way to survive is in a major movement up that chain - and that's what we're doing."

This means that the days of the State paying grant money to low-tech, labour-intensive companies such as Fruit of the Loom and Krups are over, and that when such companies experience difficulties, the authorities will aim to upgrade the skills of workers made redundant rather than replace the factory with a similar operation.

In fact, employment in low-tech, labour-intensive industries has been in decline for some time, despite the economic boom. The Economic and Social Research Institute, which tracks employment in different sectors, says textile industry jobs have declined from 18,000 in 1981 to 10,000 in 1995, and predicts a further drop to 8,000 by 2003. It sees jobs in the clothing and footwear sector tumbling from a high of 20,000 in 1981 to 9,000 by 2003.

These estimates may be conservative. With the increasing liberalisation of global trade, more and more of these factories will choose to relocate in developing countries rather than within the European Union.

The IDA's strategy is to persuade companies to upgrade the skills of their Irish employees, and deepen their roots here by widening the range of activities the operations in the Republic carry out. It will push for more research and development centres, and greater investment in future technology.

The agency is now running a secret system, dubbed the "Subversives-not-Boy-Scouts" programme, designed to promote this aim. In brief, the high-level programme helps Irish managers of international companies based in the Republic develop their own skills, become agile in the area of internal corporate politics and add more power and investment to the company's operations in Ireland.

"We want the subversives, the high-level office politicians - we don't want the boy scouts, the ones who just obey orders and do what they are told," one source explained.

The drive to upgrade operations here can best be seen in the area of call centres. Four years ago, the IDA went about attracting call centres in a systematic way; it first ensured that the Republic would have the telecommunications infrastructure to cope with such businesses, established that Telecom Eireann was ready to offer deals to bulk customers and trekked around the world persuading investors that Irish tax rates and educational standards could guarantee them a successful operation.

This led to the creation of thousands of base-level call-centre jobs. But while the strategists welcomed this, they are now trying to push the businesses up the value chain - adapting and expanding call centres to shared services operations, administrative and financial control centres, data processing bases and software development units.

Although the strategy is to concentrate on high-tech industries, it is also to have a wide enough spread across several sectors that problems in one industry do not destroy the Republic's industrial base.

The main focus remains on information technology, software development, high-value electronics, pharmaceuticals, medical devices, chemicals, financial services, call centres and shared services.

While no one expects net employment growth in foreign companies to remain at its current level of almost 10 per cent, most analysts think that with careful planning and infrastructural investment, growth of 5 per cent is sustainable for the next few years at least.