IRISH semi state companies should be privatised, allowing pension funds to invest over £3 billion more in Irish assets and the Government to cut the national debt, according to report, published yesterday.
The report, which was commissioned by the Department of Finance at the beginning of the year, calls for the range of investment opportunities in Ireland to be expanded. The Irish association of Investment Managers and the Irish Association of Pension Funds also sponsored the report.
The study, carried out jointly by Deloitte and Touche and economic consultants Peter Bacon Associates, examines the scope for investing more in the Irish equity market, infrastructural projects in the public sector and in commercial state sponsored bodies.
It warned that inaction on the part of the Government would lead to even more than the current £6 billion of Irish pensioners' money being invested abroad.
The report calls for the Stock Exchange to become much more active in the marketing of the exchange and in attracting more companies to list.
Ms Ann FitzGerald, secretary general at IAIM, said she welcomed the report. "It vindicates our view that there are simply not the opportunities in Ireland for the finds to invest in," she said.
The study identifies a number of problems with the Stock Exchange. There are a very small number of large companies and these are mostly financials or other very cyclical stocks like paper (Smurfit) or building materials (CRH). Private companies need to be targeted and it made more attractive for them to take a listing, according to the report.
The feasibility of establishing smaller companies investment vehicles, also needs to be looked at. This would improve access to smaller tucks and could improve their ratings" his could induce companies to seek listing on the market".
It also called for the Developing Companies Market to be implemented without delay.
The market should also seek to attract companies which are currently "listing on overseas markets such as Nasdaq, said Mr Peter Bacon. "What is happening is that stock exchange listings are becoming an internationally traded service. The Stock Exchange needs to market its service in a wider and more concentrated way."
The report also points out that there is up to £3 billion in investment which could be realised through privatising the semi states. Although it doesn't it use the word privatise it calls for the Government to "widen the ownership of equity share holdings in Commercial State Sponsored Bodies to include Irish pension funds."
Mr Bacon pointed out that utilities have been privatised across Europe. Although much restructuring would need to be done some companies could be readied to be sold off within a year. The favourite targets would be ESB, the banks, Bord na Mona and Aer Rianta as well as possibly Aer Lingus.
The bonus for the Government is that the resulting capital inflows from the pension funds could be balanced by capital outflows to pay off the debt. That would keep the balance of payments in surplus by around the same amount. "Instead of pensioners increasing net external assets the government could cut debt" Mr Bacon said.
The third prong of the recommendations is that the Government should such actively encourage private sector involvement in public sector projects.
The key there is that the private sector takes on some of the risks of the project and is not just used to provide finance, Mr Bacon said. The report recommends an objective of realising around £100 million to £200 million on an annual basis over the next few years.
