Ireland fights to sell positive story despite gloomy mood at Davos
Vying with host of world and business leaders, Kenny and IDA chief are in diplomatic overdrive
Outside the Congress Center of the 46th Annual Meeting of the World Economic Forum, in Davos, Switzerland. Photograph: Laurent Gillieron/EPA
As he takes a seat in the Hotel Grischa in Davos, it’s clear that IDA chief Martin Shanahan has lost none of his characteristic enthusiasm, despite the sub-zero temperatures outside.
The IDA chief executive has had a busy week. The January pilgrimage to the World Economic Forum has become a staple of the IDA’s calendar – “a golden opportunity to meet a high concentration of top business leaders in the same place at the same time” as he puts it.
Last night he hosted a dinner for more than 50 senior executives with Taoiseach Enda Kenny. The affable Kerry man has also been engaging in media interviews with international broadcasters throughout the week, including a panel debate on TV channel France 24. He also found time to attend an exclusive tech event hosted by Daire Hickey and the Web Summit in nearby Klosters on Tuesday night – evidently there are no hard feelings between the Irish investment agency and the Web Summit after last year’s furore over the Web Summit’s move to Lisbon.
The World Economic Forum, a place where global economic policy is shaped and defined, has also morphed into the biggest networking event in the world. The opportunity for governments and NGOs to cross paths with the most senior figures from the world’s most valuable companies has been seized upon by investment agencies across the world.
While Kenny held face-to-face meetings with senior executives from Facebook, Google, Paypal, Uber and Microsoft among others yesterday, the fact that he was not a key contributor in the main Congress centre but rather at an event in the nearby Alpine High School indicates the challenges in getting audience time in Davos.
In an increasingly crowded market, how easy is it for Ireland to stand out from the crowd?
“It’s always difficult, the market is competitive, but IDA’s presence here is established, so that is definitely important,” says Martin Shanahan. Having the prime minister of the country attending the main networking dinner event is also an obvious advantage when one is competing with A-listers like Kevin Spacey, Tony Blair and a plethora of royals for dinner invites.
The IDA is also trying to expand its geographical reach this year, to target emerging markets. With US companies still representing about 70 per cent of inward investment into the country and Europe accounting for 20 per cent, only 10 per cent of the IDA’s investment derives from the “rest of the world” category, which spans Asia, the Middle East, Australia and South America. Last night’s dinner saw the largest-ever attendance of non-US companies, particularly from Asia, with the IT, financial services and pharma sector represented.
But is this focus on Asia wise, in light of concerns about China? “There is a level of concern about slowdown in China, in emerging markets in general, but from a direct investment perspective we are not directly exposed. Also, we feel that there is always business to be won. China will still grow at about 6 per cent, there will be Chinese companies that will internationalise – that will be part of their strategy – so we want to be on the receiving end of that.”
One company that has expanded its presence in Ireland in recent years is Indian tech company Tech Mahindra. While it recently closed its site in Belfast with the loss of 200 jobs, it has been increasing its presence in the Republic, opening a customer service centre in Waterford last year in conjunction with client 3 Ireland. It has also worked with Bank of Ireland and the financial services clients.
Chatting in the Congress Hall at Davos, its president and chief technology officer Atul Kunwar is upbeat about Ireland’s status as a foreign investment hub. Ireland’s main attraction is staffing, he says. “Right from simple processes to more complex domains, we find people of all calibre. Also if you need specialists from elsewhere in Europe, people are open to moving. Ireland is acceptable for a lot of people in the tech industry.” What about Ireland’s high labour costs, compared to say, Budapest, where it also has a presence? “Yes, the cost of labour is high, but the productivity is pretty good too. It balances out between the two, so obviously if you want something that is very labour-intensive you won’t go [to Ireland] but for anything that requires a combination of expertise and the availability of staff it’s a good place to go.”
While the tax regime was initially an attraction, it is less crucial now, he says. “It’s not one of the deciding factors, though government support otherwise is [important], in terms of enabling things, in terms of simplifying things”, he says, such as making it easy to allow people of other nationalities work in Ireland. As for further investment plans, he said a decision would be “opportunity-dependent” though he notes that having an established presence in Ireland makes it easier to expand staffing as required.
Davos: the global perspective
Away from the world of business networking and investment deals however, the mood this year in Davos is pessimistic, as concerns about the global economy loom large.
If last year’s meeting was dominated by the European Central Bank’s landmark announcement in Frankfurt of quantitative easing, this year the main focus is on the turmoil in markets, prompted by concerns over the slowdown in the Chinese economy and the slump in oil prices. Wednesday’s market-sell off and slide into bear territory – prompting some to dub it “Black Wednesday” for higher-risk emerging markets – has overshadowed this year’s World Economic Forum.
The fact that a number of key reports and statistics emerged this week just as the WEF summit was getting under way also served to push the issue on to the agenda, quite apart from the turmoil unfolding on trading floors. Delegates arrived to the Alpine resort to be greeted by news that Chinese economic growth slowed to 6.8 per cent in the fourth quarter of 2015, its slowest rate in a quarter of a century. Hours later the International Monetary Fund had cut its global growth outlook from the 3.6 per cent predicted in October to 3.4 per cent for this year.
While all eyes will be on European Central Bank president Mario Draghi’s assessment of the outlook for the euro zone when he addresses delegates this morning, following the ECB’s governing council meeting yesterday, many of the most senior figures in US banks and finance have been sharing their thoughts on the possible threats to the global economy during the week. Most have been at pains to stress that talks of a new global slowdown are overblown. Blackstone chief executive Stephen Schwarzman, insisted China was not in freefall, pointing out the consumer and service economy is holding up pretty well.
There were similar sentiments from Jacob Frenkel, chairman at JP Morgan Chase who cautioned that China was not on the verge of recession. “The financial markets in China are mirroring a very small fraction of the Chinese economy,” he told Bloomberg television, arguing that focus needed to be on the real economy. “China will continue to grow. It will continue to grow at a slower rate that what it has and it is by design.” The country is changing its growth strategy away from manufacturing and export reliance s and more towards domestic demand, “which means they do not need to grow as rapidly”.
The collapse in the oil price to levels not seen for over a decare was also a key discussion point. Iran’s top diplomat, Mohammad Nahavandian, said Iran expects to “certainly go back to its share in the oil market” before the sanctions were lifted, adding that Opec countries should come together and make a decision on supply “on a fair basis”.
Dr Fatih Birol, the head of the International Energy Agency (IEA) struck a pessimistic note. “Three years in a row the supply has exceeded by far the demands. I see no reason that oil prices can go up this year,” he told the BBC. While most commentators pointed out
the low oil price would of course benefit major importers such as Europe, China and India, the big fear is what the drop in price was saying about the lack of demand in the global economy, quite apart from its impact on the economic health of oil-producing countries, particularly in the Middle East.
Running through the debate at Davos this week is a key theme: the world may not be heading towards a major recession, but there is no clear sign of where the engine of economic growth is coming from. That is a key worry for investors as they look ahead to 2016.
Another source of concern at this year’s World Economic Forum is the main theme – the Fourth Industrial Revolution, a concept that refers to recent rapid advances in technology, particularly in the spheres of artificial intelligence and robotics. A number of sessions this week have considered the economic impact of this transformation and the effect on labour markets as machines and computers become more intelligent. The findings do not make for good reading. A report released this week by the World Economic Forum estimates that seven million jobs will be lost by 2020 as a result of changing technologies, while two million will be added.
The effect of this labour displacement on the world economy has yet to be seen, though its impact on labour-intensive economies such as China and India is likely to be significant.
Irish officials are quick to point out Ireland is well-placed to weather this storm, given its manufacturing industry is already on the high-skill end. Nonetheless, Sheryl Sandberg’s appeal to people at Davos to put “hope” over “fear” as they await the next front in technology could be wishful thinking as the world awaits the impact of the next industrial revolution.
Word up: Davos in quotes
French Prime Minister Manuel Valls
“Seeing Britain leave the European Union would be a tragedy. “We must do everything for Britain and the British people ... to stay in the European Union. But of course not at just any condition, that wouldn’t make sense.”
“The question I always ask is, was there an alternative better policy and would you have been better off if the ECB had not forced you to take on some of the debt from the private onto the public. My answer to that is you would have been better off if you didn’t have that debt, you would have been better off if you had had the assistance for a growth policy rather than an austerity policy.” “I wouldn’t call it a victory yet, you’ve turned the corner, which is great, and I have got to commend you for that. Among the countries that had austerity, you did the best.”
– on Ireland’s prospects
“False, baseless and untrue”
– on charges that Ireland is a tax haven
“We defend 100 per cent the authenticity of the way we do business with international companies.”
“As a small country we are a small model demonstration of how far you can move in a short time. The challenge is to put in place the process, the longer term economic strategy to be able to continue that for those that come behind us.”
Like “entering a room full of dynamite with a lighted candle”
– on asking governments to change the agreement over the IMF with Greece
“If there’s a good deal on the table, I will take it and that’s what will happen. But I do want to be very clear — if there isn’t the right deal, I’m not in a hurry. I can hold my referendum at any time up until the end of 2017, and it is much more important to get this right than to rush it.”
– on the Brexit debate