Trade and Marketing Promotion (Amendment) Bill, 1994: Second Stage (Resumed).

Wednesday, 25 May 1994

Dáil Éireann Debate
Vol. 443 No. 2

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Question again proposed: “That the Bill be now read a Second Time.”

Mr. Deenihan: Information on Jimmy Deenihan  Zoom on Jimmy Deenihan  I recognise the work of An Bord Tráchtála on behalf of the country and our exporters. I compliment it on its expertise and level of commitment to ensuring the continuing success of our exports. It is recognised to be a professional body and statistics show it has been very successful. We should recognise [419] also the high level of expertise of our exporters and their good efforts. Our trade performance has been one of the best in the world. Therefore, we can be justifiably proud of our efforts in the export field. It is encouraging that our exports continue to perform strongly in 1994 and the indications are that it will be another record year.

Despite the world recession and the currency crisis, 1993 was a record year in terms of exports, particularly for our indigenous sector. The rate of growth in 1993 was not as good as 1992 but that was due mainly to the world recession and the currency crisis. While world trade grew by only 2.6 per cent in 1993 Irish exports grew by more than three times the world average. To achieve this our companies had to increase significantly their market share despite the increase in competition. In a recent statement An Bord Tráchtála expressed the hope that there will be a 10 per cent increase in exports from indigenous industries. This year our total exports are expected to grow to £19.8 billion, an increase of 9 per cent. The indications are this target will be reached. There are some concerns regarding our indigenous sector, especially in regard to the present strength of the punt against sterling. That will pose difficulties for those who export to Britain.

The GATT agreement will have adverse effects on some sectors of our economy. The agricultural, food, textile and clothing sectors will face challenges. The estimates on the consequences of the GATT Uruguay round for agriculture indicate that Ireland will feel the impact of the loses before we can expect to experience any gain from increased trade. The GATT will present great opportunities to our exporters but they will face intense competition from countries with which they did not compete previously.

The value of our exports is equivalent to 63 per cent of our GNP which leaves us second only to Belgium in the EU. Proportionately Ireland's dependence on international trade is six times greater [420] than Japan and eight times greater than the USA. We export two-thirds of our gross manufacturing output and 130,000 manufacturing jobs result from export sales. Therefore, it is important we maintain our great export performance. If we want to create more jobs we will have to sell more of our products abroad. To do that we will have to market more aggressively. We may not be able to win the markets we had in the past because of increased competition. We must be vigilant and cannot be complacent. Although we are performing well at present and our trade figures are positive, we will face challenges in the future and we will have to overcome obstacles in an energetic and constructive way.

Export growth is related to many factors from competitive advantage to markeing drive. The GATT agreement will present increased opportunities for our exporters to win new business. However, like the Single Market, it will mean challenge and intensified competition. We must compete to boost our sales and market share. I cannot understand why the budget for the administration of An Bord Tráchtála was reduced this year by 8 per cent from £37.828 million in 1993 to £34,781 million in 1994. That reduction is regrettable. The successful conclusion of GATT opens up world markets to our exporters but will encourage competition from Third World suppliers to our traditional markets.

There has been an economic recovery in western Europe and the USA in 1994. In those circumstances the Government should be making extra funds available for market prospecting and development rather than reducing the fund. Exporters have reported that the lack of funds available to the ITB is causing that body to curtail its international marketing activities. That factor may affect our industrial drive and our export figures towards the end of this year and next year. Our exporters are experiencing difficulties in the marketplace due to the reduction in funding for marketing initiatives.

Another indication of this negative policy is the decision to reduce the provision [421] for export credit insurance from £11.4 million in 1993 to £5.97 million in 1994. This will seriously affect our exports to non-OECD countries. Some of our exporters are concerned at the credit export insurance and lines of credit made available to their competitors by the UK and other European Governments. This brings me back to a point I made already: the fact that we won markets in Europe and around the world does not mean that we are guaranteed to hold them forever and we must continue our aggressive drive in that area. Limiting resouces can affect our efforts. The Minister should remind the Minister for Tourism and Trade, who is out of the country, that any restriction in the amount of money made available for our export drive will not help export performance.

I agree with the Minister that £1 worth of exports from our indigenous sector is worth £2 from the multinational sector. The level of repatriation of profits by the multinationals is of major concern to all of us but if our very successful performance in exporting could be translated into jobs it would certainly help in tackling the jobs crisis. However, the money being made here because of the performance of Irish workers and, in some cases, Government incentives, is not being translated into jobs because it is being repatriated to multinational company headquarters in Chicago, other parts of America, Germany, etc. Although we must recognise the contribution of the multinationals to the workforce, we are not benefiting to the extent we should. The indigenous sector is a proven provider of jobs and we must place more emphasis on it in future. The decrease in funding for An Bord Tráchtála will have a greater effect on the indigenous sector than on the multinationals because, of its nature, it is composed of small operators who got small grants, perhaps £5,000, to market their products and these grants are no longer available because of the decrease in funding. If we are committed to helping the indigenous sector we will have to subsidise their visits abroad to market their products and seek niches in the European [422] market and this financial restriction will inhibit that sector in expanding and seeking more markets.

I raised a matter yesterday in the Dáil to which I would like the Minister to rsepond in greater detail than he did yesterday. As we are discussing trade, it is right that I should again bring up the matter. An editorial in The Irish Times today dealt with our export performance and the strength of the IR£. In March of this year the IR£ stood at 95p sterling, its value rose to over 98p today, having topped almost 99p two days ago. This 4 per cent increase is seriously affecting our exports to the UK and Northern Ireland. It is also aversely affecting the competitiveness of Irish exporters against UK suppliers in third markets, by which I mean European, American and other world markets. Last Monday the Irish Dairy Board stated that the IR£ had now risen to an unrealistic level and was causing it to switch product from the commercial market to intervention sales. That is serious. It is because we abandoned commercial markets and resorted to intervention that we did not in the past gain market niches and space on the supermarket shelves in Europe. I hope selling into intervention will not again become the trend because of the strength of the IR£.

Thirty per cent of our total exports go to the UK and Northern Ireland. Fifty per cent of the exports of the labour intensive indigenous manufacturing sector also go to those markets and the indigenous sector will be most threatened, it is vulnerable because of the strength of the IR£. Any loss of market share in this sector will have an immediate impact on jobs. A survey carried out in the last few days among exporters showed that a 99p pound will result in a drop in sales averaging 7.68 per cent while employment in those companies could drop by as much as 7 per cent. That is something about which the Government should be concerned. As pointed out in The Irish Times today, the value of our currency is a major element in our international competitiveness and it is worth mentioning that the negative effect [423] of a strong IR£1 is compounded by the tax-PRSI wedge. Companies maintaining operations in Ireland and the UK report that the Irish operation is becoming uncompetitive mainly because of our tax and PRSI rates. We have to be competitive in many areas but particularly in the area of tax and PRSI rates. Pretty Polly in Killarney experienced considerable difficulties recently with the result that staff had to go on short-time working. The social cost to the parent company of employing people in England is £20 less than here. Straight away we are less competitive. If we are to be competitive and give our exporters a greater chance we must tackle the issue of the tax-PRSI wedge. Our exporters need every encouragement and if they are hamstrung by the very unfair and punitive tax regime here they are struggling against even greater odds in taking on their competitors in the marketplace.

I welcome the Bill to which Fine Gael certainly has no opposition. It is refreshing to see that our balance of trade is so healthy. However, to continue this good performance we must finance An Bord Tráchtála properly. It has responded by its very fine performance. On many occasions public servants criticise these bodies, but An Bord Tráchtála has had a very fine track record in recent years. It received good encouragement from the Minister, unlike another State agency. It is unfortunate that State employees should be demoralised, but that is a matter for another day.

It is important that we continue to encourage Irish exporters to improve their performance. We must assist them in every way, not alone by providing incentives to market their produce but also by introducing a regime that will not penalise them and that will provide a better environment for the production of goods. We must address the problem of the tax-PRSI wedge so as to improve the environment for employment creation.

Miss Quill: Information on Máirín Quill  Zoom on Máirín Quill  On behalf of the Progressive Democrats I welcome the Bill. it is a significant step in the right direction. I [424] wish to pay tribute to An Bord Tráchtála and its predecessor, Córas Tráchtála, for the sterling work carried out down the years in promoting and finding good markets for Irish produce abroad and in underpinning Ireland's export drive, as it did with cost efficiency and effectiveness. That body deserves to be highly praised. It is a cause of optimism that it has a degree of sophistication and skill not always evident in their opposite numbers in other countries.

It is important that such a marketing body be adequately and properly resourced, and that is the reason for this Bill. We are a small island nation with a tiny home consumption market and in order to survive we must trade with other countries. If we are to find jobs for our people and provide the standard of living demanded and expected by them we must maintain and intensify our exports levels. We must not be niggardly and mean-minded but must provide adequate budgets for An Bord Tráchtála to carry out its work efficiently. If we do not do so, there will be job losses and a failure to create new jobs, which would cost us dearly at the end of the day.

We are entering very challenging and testing times in our export trade, but there are certain things we can predict with certainty. For example, traditional markets are being flooded with goods that are cheaply produced in other parts of the world, particularly south-east Asia. That is a reality we cannot afford to ignore. It is important that we not alone market aggressively and intelligently but also give great attention to research and product development so that the product we offer can compete on the shelves not only of Europe but of the Third World. It is important that we do not seek to cut down on the expertise necessary in research and product development. We must underpin the marketing drive of which we all warmly approve.

A point that has not been made is that we must not ignore the realities of the home market. The recent report on small businesses launched by the Government identified the expansion of market opportunities [425] on the home market as a critical priority for small business. Despite this, however, an important marketing development programme for Irish companies has been discontinued by the trade board, An Bord Tráchtála, due to lack of funds. Given that the task force report states that Irish companies have been losing their share of the domestic market — import penetration increased from 35 per cent in 1980 to 47.5 per cent in 1990 — it is amazing that a marketing development programme precisely geared to help companies win more sales in the Irish market through greater marketing professionalism is suspended.

Anyone who buys toys at Christmas-time, a peak time for consumer spending, will be aware of the number, volume and value of foreign made toys that flood the Irish market. This is an indication of the size of the import market and of the scope and potential for developing and marketing Irish products. It is a major blow to Irish companies not to have the resources to employ full-time marketing personnel.

One of the measures recommended by the task force on small business has been axed. How can the Minister defend that decision? The marketing consultancy programme enabled small firms to obtain the part-time services of an experienced consultant to draw up a marketing programme for the home market. The programme has been suspended by the trade board following a cut this year in grant in aid from £38 million to £35 million. I hope that can be redressed by this Bill. Under the axed programme small companies could avail of a marketing consultant for at least 32 days per year. For this service the trade board gave a grant of £9,000. The programme was based on achieving measurable results in terms of marketing development. By any standards, it was a good programme.

In the last five years about 400 small firms availed of the programme and the consensus in business is that it had been very beneficial in helping these companies develop marketing expertise and increase sales on the home market. While the trade board has axed the consultancy [426] programme, it has retained a marketing graduate placement scheme under which small companies can avail of the services of a graduate on a full-time basis for one year. That scheme is also subsidised by the trade board. Many people in business believe that this trade-off between the two programmes is misguided. Understandably, marketing graduates are inexperienced whereas the consultants to whom they had previous access are experienced in marketing and a proven track record in boosting sales for their clients' firms. Those two schemes should not be mutually exclusive.

I welcome the scheme that helps to place graduates in that manner by giving them one year's experience but the high level of emigration among our graduates is a great loss. Young people who have acquired a high standard of education, skill and expertise are forced to emigrate and work for competitive countries abroad. If action is not taken to stop that haemorrhage, it will exacerbate our difficulties in competing successfully in an open market and a competitive world.

The marketing graduate placement scheme is not an adequate replacement for the existing programme. In the light of this new estimate, the Minister should discuss with An Bord Tráchtála the possibility of reintroducing a marketing consultancy programme. Proposals have been brought forward to set up a special division within the Department to assist small business. There is great potential in that area for the creation of badly needed jobs but if we do that on the one hand, we must be consistent and not give the impression that we are making advances in the area while tolerating cutbacks in a service that has proven its worth to small businesses. I ask the Minister, as a matter of urgency, to consider the reintroduction of this successful programme.

I wanted to raise a number of other matters but the Minister asked us to keep our contributions brief to conclude the Bill tonight, with which I agree. There were references by previous speakers to the potential of indigenous industries and the need to assit them. It is important [427] that they are given the same level of grant-aid offered to foreign companies in the past. That matter should be carefully examined.

I agree with the points made by Deputy Deenihan. Unless we examine the way we tax employment we cannot hope to continue to trade on an equal footing with our competitors. We have penal levels of taxation on employment here and while there were changes in the employers' PRSI in the last budget, they were merely at one level, cancelled out by increases on PRSI levels at the other end of the scale. That is tinkering with a system fundamental to our economy and job creation. Unless there is radical, across-the-board tax reform as well as reform of employers' PRSI, it will become increasingly difficult for Ireland to trade and the task we set An Bord Tráchtála will be made more difficult.

There are areas over which we have no discretion but others, such as the cost of energy and transport, make our exports less competitive. The Minister would be well advised to discuss the state of our county roads with the Minister for the Environment. I realise it is almost imperative for a politician to refer to the condition of our county roads but companies based at a distance from our air and seaports find it extremely difficult to get their products to the markets on time. Much of that difficulty is due directly to the scandalous condition of our county roads. The Minister should convince his colleague, the Minister for the Environment, of the need to tackle this problem. In addition to all the other arguments — equally valid — we must appreciate the problems experienced by our exporters who must contend with this additional problem while trying to compete with markets abroad.

Minister of State at the Department of Agriculture, Food and Forestry (Mr. O'Shea): Information on Brian O'Shea  Zoom on Brian O'Shea  I thank Deputy Deenihan and Deputy Quill for their contributions. There is no conflict between us in relation to the Bill but a number of interesting points were raised during the [428] course of the debate to which I wish to refer.

Deputy Quill referred to the problem in regard to transport. Obviously, the fact that we are an island nation is a great disadvantage. There is provision in the plan submitted to Brussels to address the problems in that area. Deputy Quill referred specifically to county roads. There is a provision over the term of the plan for the upgrading of roads of strategic importance and I hope that is an adequate response to the Deputy's point. Road and rail structures, as well as air and sea transport facilities, must be improved in terms of competitiveness because that will be reflected in the price of goods when they are marketed. In regard to the Deputy's point concerning the marketing consultancy programme and the present marketing graduate programme, I will ask the Minister for Tourism and Trade to raise that matter with An Bord Tráchtála.

Deputy Deenihan raised some interesting points. He referred to the reduction in the annual allocation to An Bord Tráchtála but that reduction must be seen in the light of the exceptionally large grant of £37.828 million in 1993 which was made at a time of difficult trading conditions internationally and currency realignments. Those funds enabled the board to intensify its efforts, and those of Irish firms, in targeting prosperous high growth regions with growth potential for Irish exporters.

Because of the sluggishness of our main markets it was not a question of holding market share, rather we had to displace competitors in order to make progress. That area, which is outside the sterling area, is where there was the greatest concentration. The 1994 allocation represents the second highest to An Bord Tráchtála. Their grant and incentive schemes were streamlined and rationalised last year. This will greatly assist towards the more efficient use of resources.

Even with the reduced grant in aid in 1994 the Minister for Trade and Tourism remains confident they will manage the available resources effectively with no [429] harmful reduction in support to companies. I am aware there will be scope in 1994 for a modest increase in receipts to ABT which should help alleviate the position to some degree.

Deputy Deenihan stressed how ABT programmes could have an effective impact on employment and exports. Export sales must be fought for and won each year in order to maintain existing jobs. Growth in exports from indigenous companies is essential for job creation. They are almost twice as labour intensive as multinationals. Deputies Quill and Deenihan alluded to this point at some length.

Irish companies increased their market share in key EU markets despite the recession. As these markets recover the outlook is positive for growth in export sales and, therefore, jobs. As set out in the National Development Plan the targets for indigenous industry are an increase in indigenous exports from £3.7 billion in 1992 to £6.8 billion in 1999, a doubling of the number of indigenous manufacturing firms with a turnover in Ireland in excess of £100 million from 16 in 1989 to 32 in 1999, and the creation of 11,000 gross jobs per annum. In the case of the multinational sector, the target is to create 9,000 gross jobs per annum on average through inward investment and by the expansion and development of foreign-owned companies already located in Ireland.

Deputy Deenihan implied that small scale exporters are denied access to grants to enable them visit markets and this I reject. It is not so. The ceiling on the level of such grants was doubled. He also alluded to the exchange rate which is a matter for the Minister of Finance and the Central Bank. Obviously the Minister for Tourism and Trade would be concerned about developments which would make our exports less competitive. That is why following the 1992-93 currency crisis he exhorted firms to take steps to improve their treasury management capability and placed particular emphasis on the need to explore the possibility of collective action by small to medium [430] sized enterprises on a sectoral or geographical basis.

Both Deputies praised the professionalism of ABT and I echo that. There was a degree of scepticism about our export boom and certain commentators claim it is all down to the multinationals. That is not so. While they make a vital contribution to the economy and account for three quarters of our industrial exports, the indigenous sector on which ABT focuses its efforts has outstripped overall export performance. Deputy Quill suggested ABT is inactive on the home market.

Miss Quill: Information on Máirín Quill  Zoom on Máirín Quill  Not sufficiently active.

Mr. O'Shea: Information on Brian O'Shea  Zoom on Brian O'Shea  I take the point. I heard this suggestion from other quarters and it seems to be based on the merger of the Irish Goods Council with An Córas Tráchtála in 1991. It is suggested that the home market focus of the Irish Goods Council was lost as a consequence of this merger. In fact, ABT is extremely active on the home markets and its developmental work is intrinsically related to their promotional activity. The first is a platform for the second. That was one of the reasons for the merger.

During his contribution on the previous Bill Deputy Deenihan spoke about the small indigenous food companies that may be producing a product and servicing a small local market making a quantum leap into the export market. It is a difficult step, particularly in the food area where there are high setting up costs. The Government and State agencies realise how important it is to nurture emerging companies and ensure they get their share of the home market. With the assistance of State agencies they are brought to the stage where they can win substantial markets abroad and achieve high levels of exports, with consequential high levels of employment.

I thank Deputies for their contributions and commend the Bill to the House.

Question put and agreed to.


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