We can’t simply rely on FDI to get us out of jobs recession again
WHEN it comes to the economy this really has been a tale of two pandemics. The lockdown has been catastrophic for companies in the hospitality retail and tourism sectors. Yet export figures show how resilient some of our foreign multinational stalwarts have been when it comes to the likes of technology and pharmaceutical firms.
Recruitment firm CPL Resources underpinned the two trends when it said in a trading update during the week that flexible hiring in areas like tech, life science and pharma had been resilient.
It said the environment for permanent recruitment remains uncertain but there has been solid demand across those added value, multinational-dominated sectors.
Yet, there is huge uncertainty around what will happen next when it comes to attracting new investment projects from abroad. The slowdown in permanent hiring highlighted by CPL and the uncertainty around what will happen next year, prompted Davy Stockbrokers to cut its forecast profit for CPL for full year 2021 by around 20pc.
Once again in the teeth of another recession, everybody looks towards IDA Ireland and the possibility of fresh foreign direct investment to get us out of it.
Yet, chief executive Martin Shanahan gave a pretty sombre message about next year.
The fact so few people have been able to visit Ireland to check out investment potential, means a gap is left in the pipeline of projects.
IDA Ireland, with occasional help from the likes of Bono, has been able to get significant projects over the line once the executives land in Ireland. No travel. No site visits. No Bono. And there is a big gap emerging for next year.
Shanahan said there had been a 6pc dropoff in projects won so far this year, which is a very strong performance in the circumstances. But the lack of closure on deals will start to bite into the figures later in the year.
The FDI goose that lays the golden eggs is looking tired.
Meanwhile, hotels, some bars and restaurants are back but there is very little good news knocking around. The Irish Hotels Federation put occupancy levels at 23pc and 26pc for the peak summer compared to an average of 90pc last year.
The British have indirectly put it up to our government here for its stimulus package by slashing Vat from 20pc to 5pc and giving 50pc discounts in restaurants worth up to £10 per person. As the IHF points out, the UK is a massive tourism competitor as well as source for foreign visitors. But the government will be reluctant to offer too much on Vat given the backlash to putting it back up to 13pc the last time.
There are still question marks about whether it delivers cheaper meals for customers to stimulate business or whether it ends up being a subsidy directly to the businesses where they don’t pass on the cut with cheaper prices.
In need of a hotel for last Friday night in Dublin for work, I was quoted €130 for B&B in a mid-range hotel in Dublin 2. Parking would have been charged on top of that. The hotel is probably still losing money at those prices, but it ain’t a giveaway.
All eyes will be on the Government’s stimulus package due to be announced shortly. Reports suggest it will focus on youth unemployment and getting people re-trained and back in education. Noble, but it implies there won’t be jobs for many young people any time soon.
Central will be the issue of grants and financial supports. Will sectors get them and what will the criteria be like? Tánaiste Leo Varadkar said it would be “radical and far-reaching”. With unemployment at 22pc, that is the least it needs to be.
Banks have Government over barrel on mortgage breaks
BANKS are in the dock once again. Even as the Central Bank probes into the behaviour of specific institutions in the tracker mortgage scandal have yet to be completed, there is a clear difference of opinion around whether banks were supposed to, allowed to, or simply chose to charge interest on customers availing of a mortgage break.
At a meeting in March between bankers and the government, minutes quoted by Sinn Féin TD Pearse Doherty, suggest the banks said they had to charge interest to avoid having these loans treated as being in default.
The European Banking Authority and the Central Bank have said they do not have to charge interest. The banks seem to believe the recent clarification by the EBA represents either a change of policy, or they may have misinterpreted the situation at the time in March.
There appears to be some disagreement over the interpretation of the rules at the time.
I would have thought that where there is a different interpretation between a regulator and the regulated, the regulator is always right.
If it was an interpretation issue, just like in the trackers, then the banker interpreted it in the least favourable way for the customer.
But it begs the question of what was said at this meeting by the politicians. If some bankers said they had to charge interest to be in line with regulatory policy, did the politicians say, “that’s OK then. We understand rules are rules.”
Surely the government figures present should have questioned it and sought clarity about precisely what the situation was.
It sounds a bit like the line fed to the government in 2008 by bankers that they were rock solid.
The amount of money at stake here is estimated to be somewhere between €150m and €300m across the banking sector. Foregoing interest means somebody carries the cost. Right now, it is the mortgage holders who are in need of a break rather than the banks’ shareholders.
But bear in mind, the state (taxpayers) own more than 70pc of AIB, 75pc of PTSB and around 14pc of Bank of Ireland.
If the Government cannot force banks to carry this cost, they may feel they can get them in the long grass on something else.
But getting them in the long grass blows back on taxpayers through the enormous shareholdings still held by the state.
The new stimulus package from government expected later this month is likely to have a state guaranteed loan scheme for SMEs.
More than a quarter of SME loans are on a payment break and more than two thirds of those are in the hospitality sector.
The banks want the state to guarantee 100pc of loans under the scheme. The state would prefer if the banks took some of the risk.
If the banks take some of the risk, there is a good chance that more loans will be turned down. It will be a lot easier for banks to give a green light to loan applications fully guaranteed by the state.
The banks have the Government over a barrel again.