Manufacturing continues to be Ireland’s star performer, with goods exports reaching a record €165.2 billion in 2021. However, the sector faces significant challenges with a survey carried out by Ibec among manufacturing companies identifying the costs of energy, materials, and labour as the top three issues facing the industry. On the other hand, the majority of chief executives surveyed intend to continue investment in sustainability over the next six to 12 months while acceleration of digitalisation also remains a priority for investment.
The survey results were published in the Ibec Manufacturing in Ireland 2022 Navigating Turbulence report earlier this month.
We have seen a significant increase in the number of companies expecting wage increases, up to 89 per cent from 83 per cent last year— Ibec director of membership and sectors Sharon Higgins
“The manufacturing sector is a very important economic contributor,” says Ibec director of membership and sectors, Sharon Higgins. “It employs 260,000 people directly, contributes €12.5 billion in wages and employment taxes annually, €4.4 billion in corporation tax, and €1.7 billion in capital expenditure. It is a key driver of the rural economy with companies based throughout Ireland. It is also a highly resilient sector, but it is coming under a lot of pressure. It needs to be supported through this difficult time to ensure continued sustainable growth.”
Energy costs came out as the single biggest issue facing manufacturing companies. “It is no surprise that 98 per cent of the companies surveyed expect energy costs to increase in the coming year,” Higgins notes. “But we have also seen a significant increase in the number of companies expecting wage increases, up to 89 per cent from 83 per cent last year.”
Despite these increasing costs, many companies are still planning to increase investment. “It is very heartening to see how forward-thinking they are, with 62 per cent intending on increasing investment in sustainability and 56 per cent planning to increase spending on digitalisation. It is also very welcome to see 47 per cent of companies planning to increase capital expenditure; 38 per cent of them intending to increase employment in the year ahead.”
The report calls on the Government to ensure energy cost supports provide sufficient cover for firms facing exceptional price increases and competitive pressure.
“Government supports like the Temporary Business Energy Support Scheme will run out in February and other mechanisms are due to run out this month,” says Ibec chief economist Gerard Brady. “The vast majority of companies in the manufacturing sector are going to see very big energy cost increases over the next year. This will challenge their capacity to invest in sustainability. The schemes announced in Budget 2023 are welcome and must be strengthened in 2023 if necessary. Ireland must also develop a robust long-term energy transition plan to avoid a repeat of the current electricity supply challenges and ensure Ireland transitions to carbon neutrality in a secure and cost-effective way.”
We are one of the few countries in Europe not to have a state-backed insurance scheme to help companies to open up new markets— Ibec chief economist Gerard Brady
Skills also emerged as a key issue. “If you look back 30 years to the 1990s, what we are doing now is completely different,” Brady points out. “And in 30 years’ time it will be completely different from what we are doing today. The pace of change is accelerating, and completely different sets of skills will be required for the future. Without the people with the skills in key technologies like AI, robotics, machine learning and so on, we won’t have a manufacturing sector. Ireland thankfully has a very good reputation in terms of skills, but if you lose a reputation it’s very hard to get it back. There is a need for increased investment in skills. There is a €1 billion surplus in the National Training Fund. This is money paid in by employers for the most part. It is not really acceptable that it is sitting there unspent at a time when there are skills shortages.”
Brady also points to the need for increased support for exporting firms in the post-Brexit environment. “Export credit insurance really needs to be looked at,” he says. “We are one of the few countries in Europe not to have a state-backed insurance scheme to help companies to open up new markets. This is particularly important for smaller companies who don’t have the expertise and resources to evaluate and take on the risks associated with entering new markets.”
These are among the immediate issues where the manufacturing sector needs support over the coming year, Higgins points out. “There are also a number of long-term issues, particularly at European level,” she adds. “For example, we need to make sure that new regulations don’t make the EU uncompetitive. It is also absolutely crucial that trading relationships remain open in the global economy, particularly at a time when the US is looking to increase support for its own industry. We don’t want a return to protectionism.”