TOP 1000/OPINION:TO PARAPHRASE Tip O'Neill, "all news is local". So it is understandable for Irish executives to be downbeat from a short-term concentration on the daily news diet of Irish redundancies, public finance deficit and uncertainty about the Irish banking system.
However, such a local concentration is self-defeating. As reflected in the markets of many of the Top 1,000 Companies listed here, Ireland is one of the most open economies in the world. Many of the top firms in the list are leaders in their markets – home and abroad.
Ireland’s climb out of recession will be driven by three processes: strong Government action to correct public finances; measures to address toxic assets in the Irish banking system; and a recovery in global markets.
The supplementary Budget and the establishment of the National Asset Management Agency (Nama) indicate a willingness by the Government to take tough decisions. And anecdotal evidence from around the world suggests that the global economy may be starting to see prospects for an end to the recession – vital given Ireland’s export-driven economy.
Leading Irish companies like CRH and Kerry Group continue to invest wisely and are among the 600 most trusted global companies, according to a recent survey. Irish-headquartered Primark is still outperforming the market and continues to open stores across Europe.
This comes on top of a statement by Intel that saw signs of a bottom in PC sales and a further vote of confidence in the Irish economy with a €50 million investment in research and development (R&D) last March. Even the financial services market was encouraged by better-than-expected figures from Goldman Sachs, while Citigroup posted its first profit in six quarters.
General economic indicators from around the world are also showing some signs of optimism including UK and US housing data, US factory activity and UK retail sales. The Confederation of British Industry has forecast a slow recovery, starting from as soon as spring 2010. We have
never seen such a concerted move by governments and central banks to take action that will minimise the length and depth of a global recession.
And there are indications that this unprecedented global effort is starting to bear fruit. Prof David Miles, who is the chief UK economist for Morgan Stanley, said that there were reasons to be cautiously optimistic about the way the UK economy was heading. He said that measures such as VAT cuts and increased government spending had taken time to have an impact but had managed to get the UK economy pointed in the right direction.
It is estimated that the US has been in recession now for 18 months so it is not as if we are at the start of the process. In recent weeks, there has been a marked slowdown in unemployment figures in the US. Some of the recent local news also indicated a slowdown in layoffs in Ireland.
At a time when companies are looking to cut costs and conserve cash it is tempting to delay investment in major capital projects and mergers and acquisitions. But a recent McKinsey study, The Crisis: Timing Strategic Moves, suggested that this approach “could be a recklessly cautious one”. The study points out that in past recessions stock markets recovered from the trough quickly
and with cumulative returns over the two years that followed, of between 50 and 130 per cent. Technology will have a role to play in the global and Irish recovery.
The Government has rightly pointed to the importance of developing a smart economy. Companies and the public sector can use technology to cut costs and boost productivity.
The importance of increasing productivity was highlighted by former Irish Timeseconomics editor, the late Paul Tansey. In 2005, in a study to mark Microsoft's 20th anniversary in Ireland, he wrote perceptively that Ireland is an expensive country in absolute price terms, business costs have risen substantially and wage costs rival those in Ireland's principal trading partners.
One of the drivers of an Irish recovery will be increased productivity not only in the corporate
sector but also in the public sector as the Government aims to deliver value from the taxpayer’s investment. There is some evidence that the public sector is adopting new technologies such as Agile Development to increase productivity and this will be an important part of public sector reform.
Perhaps the last words might be left to Paul Tansey, who wrote in his Microsoft report that “enhancing Total Factor Productivity requires an array of initiatives ranging from inducing technical change and encouraging the application and defusion of modern technologies to ensuring the adequacy of the economy’s infrastructural base”.
Peter Minogue is managing director of BearingPoint in Ireland
