Former IDA Ireland boss Kieran McGowan recalls being part of a high-level government group marketing the notion of Dublin’s IFSC in the Far East in the late 1980s, when his guests thought the visiting Irish delegation were ‘barking mad’. The ultimate success of this initiative, however, proved a key turning point for the Irish economy at the time.
On Sunday 18th October 1987, four of us landed in Hong Kong for a series of meetings the next day with representatives of the financial community there. We were the Government marketing Group for the International Financial Services Centre (IFSC) – Tomas O’ Coifigh, former Governor of the Central Bank, Seamus Pairceir, former Chairman of The Revenue Commissioners, Maurice Horgan, former Second Secretary of the of the Department of Finance and myself, Executive Director of the IDA. Our mission was to promote the concept of the new IFSC to companies and financial institutions in Hong Kong, Korea, Taiwan and Japan.
This was the very first marketing mission for the IFSC and our timing couldn’t have been worse. Monday 19th was so-called ‘Black Monday’ where share prices collapsed all over the world. We began our series of meetings with a courtesy call on the Financial Secretary (Minister for Finance). Piers Jacob. The Hong Kong Stock Exchange had been closed for the previous five days and when the markets opened that Monday morning, there was pandemonium.
During the meeting we could see the monitor on the wall relaying the precipitous fall in share prices; the Hang Seng Index was falling before our very eyes! We were announcing that the Irish Government had decided to establish a new International Financial Services Centre and was offering low tax, attractive rent reliefs, a well-educated workforce, access to Europe and so on.
Our guest listened politely. He was the very model of politeness but clearly thought that we were all barking mad. He wished us well and gently suggested that we might reconsider the timing s=of this new initiative!
From these humble beginnings, the IFSC has gone on to become a major contributor to the Irish economy. Some 33,000 jobs are provided there and the tax take for the Government is €2 billion annually. The Centre has been a major success for the Funds Industry, even though in those early days, we had no real idea as to what kinds of financial services we were targeting – the major objective was job creation in whatever sectors would deliver job numbers.
A particular feature of the marketing of the Centre in those early days was the way in which Ireland Inc including many representatives from accountancy practices, domestic banks and law firms contributed huge resources to the overall national effort.
This despite the fact that in 1987 when the IFSC started, not only was there mayhem on global financial markets but the Irish economy was also in recession, and in many ways in a worse condition than it was today. Unemployment and inflation both exceeded 15% and debt to GDP was 130%. Infrastructure, including telecommunications infrastructure, was very poor and there were significant levels of emigration. The mood in the country was one of deep pessimism. The image projected to the world was that of a country in a downward spiral, heading towards disaster.
Promoting Ireland as a location for investment in the 1980s was tough work, for a whole host of reasons. The recessionary environment in Europe and the United States during the years 1980 to 1987 was accompanied by high real interest rates, high inflation, labour disputes and a series of high profile factory closures at home.
Several new projects which IDA were chasing at the time, decided – despite our best efforts – to locate elsewhere. These included Siemens Semi Conductor (to Newcastle), Ford Motor Company (to Portugal) and Lucky Goldstar (to Wales). The General Election announced in January 1987 brought the world media to Ireland and their coverage reflected both the atmosphere of gloom and the sense of economic crisis.
The new Government set about correcting the public finances by cutting expenditure across the board in an austerity programme that included closing hospital beds and reducing the size of the public sector. The first ‘Programme of national recovery’ was signed by Government, trade unions and business in a joint initiative to subordinate their own individual interests to the national interest and this provided a very solid basis of competitiveness which made us much more attractive as a location for investment. The rapid pace of the Irish economic recovery accelerated and won greater international recognition and publicity.
The IDA capitalised on the better performance and the number and quality of projects in the agency’s ‘pipeline’ improved greatly, culminating in the decision in 1989 by Intel to establish their first and only European wafer fabrication operation in Leixlip. The Intel decision more than any other single investment transformed Ireland’s reputation as a location for investment, proving that we could sustain and support a business of the very highest level of technology.
The lesson from all this is that we have the ability to rise above prevailing climate when there is a vision and a commitment and a determination to do it. The drive to establish the IFSC was sustained through the economic crisis of 1987.
The success of the initiative stemmed from the powerful support of the Taoiseach and of the so-called IFSC Clearing House Group, under the Chairmanship of the Secretary of the Department of the Taoiseach. When the champion/driver has (a) the power, (b) the passion and (c) the perseverance to make a vision of this significance become a reality, it can happen, even against the odds.
In 1978, for example, in a different sector, CRH decided to make its first acquisition in the United States, one of the first Irish companies to do so. They acquired a small concrete operation in the State of Utah and did so against the express advice of a renowned international firm of advisors who felt that as a relatively small and unknown Irish company, they could never break into such a large and diversified market.
Nonetheless, Don Godson relocated as a true pioneer to the US and had the full support and backing of the chief executive of the time, Jim Culliton.
Today, CRH has operations in more than 1,800 locations across 50 states, four Canadian provinces and in Chile and Argentina. It is also one of the top three producers of asphalt, aggregates and concrete. It has achieved this position in large part due to acquisition activity and rigorous valuation metrics such that, while not all acquisitions have been successful, most of them have- and what’s at least as important, they know when to walk away.
Kieran McGowan is a former Managing Director of IDA Ireland and Chairman of CRH plc. This article was written towards the end of 2011 in a special issue of Decision focussed on how Ireland should re-build its economy after the global and national economic crash.