Dáil Éireann debate -
Thursday, 22 Mar 1990

Vol. 397 No. 4

Ceisteanna—Questions Oral Answers. - Company Closures.

Seán Barrett

Question:

3 Mr. S. Barrett asked the Minister for Industry and Commerce, in view of the recent announcements regarding the possible closure of such firms as the Sunbeam group and the Skerries Shirt Company employing large numbers of people, if he is concerned that the continuing increase in interest rates together with fluctuations in exchange rates are having a detrimental effect on current industrial policy; and the plans, if any, he has to prevent further closures and resulting loss of jobs.

Bernard J. Durkan

Question:

58 Mr. Durkan asked the Minister for Industry and Commerce whether he expects fluctuations in interest rates to affect the IDA proposals for industrial investment in this country; the action, if any, he intends to take to ensure the continued and increased location of industry in this country; and if he will make a statement on the matter.

Mr. O'Malley

I propose to take Priority Questions Nos. 3 and 58 together.

One of the most notable effects of Government economic policy in recent years has been the improvement in the cost competitiveness of Irish industry resulting from reduced inflation, lower interest rates, competitive wage increases, a stable currency within the EMS and reduced public utility costs. This improved competitiveness has been reflected in increased employment and output and record export levels.

Recent changes in interest rates reflect an international trend designed to keep inflation under control, while the fluctuations in the sterling/punt exchange rate are a reflection of events in the UK rather than any problem in the Irish economy.

Since the beginning of 1987 there have been significant improvements in the differentials between Irish interest rates and those in other countries. While in March 1987 the key three month rate in Ireland was nearly 3.5 per cent higher than in the UK it is now considerably below the UK rate. Similarly, differentials vis-à-vis German rates have improved dramatically. The stronger punt/sterling exchange rate will inevitably have some adverse effect on the competitiveness of Irish industry on the UK market. However, against this must be considered the considerably higher UK inflation and wage rate increases. Overall the competitive position of Irish industry has improved considerably in recent years both generally and more especially over UK industry.

The priority for Government policy is to continue the efforts to restore order to the public finances and create a favourable economic climate in which interest rates can be kept as low as possible while maintaining the value of the punt within the EMS. This will create the right environment in which industry can invest with confidence.

I do not believe that the recent increases in interest rates will have any adverse effect on our ability to attract inward investment. Quite the contrary, the strength of the Irish economy and our clear determination to maintain a competitive environment for industry will make Ireland more attractive for such investment.

Mr. S. Barrett

Listening to the Minister's reply one would swear everything was rosy. Is he aware that the clothing industry is going through a very difficult period and that this industry depends on the British market to the extent of 60 per cent of its exports? Given that employers' PRSI rates in Britain and Northern Ireland are 5 per cent less in this industry, would the Minister agree that something must be done to assist this industry which has a high employment content? Would he also agree that it unwise at this point to consider the abolition of Fóir Teoranta, a body which could assist the two companies mentioned here and many other companies? The uncertainty of the future of Fóir Teoranta with no replacement is detrimental to Irish industry.

An Ceann Comhairle

The Deputy is obviously bringing in a new matter.

Mr. O'Malley

As far as Fóir Teoranta are concerned, I think the Government decision to wind them up is the right one and I support that fully. The decision had been taken about a year ago.

The Deputy mentioned in his question two companies who have run into difficulties where receivers were put in the last six or eight weeks. In the case of the larger of these two companies the problems were caused by the receivership of the UK parent and the receivership of the UK parent was caused by the fact that they were a very highly geared company as a result of a management buy-out in Britain. Because of the high interest rates in Britain, which are very substantially higher than they are here, the British company were unable to continue in business. It had the consequential effect here that because these were subsidiaries of the British company they had go into receivership as well.

As far as the other smaller companies the Deputy mentions are concerned, I do not think interest rates were a problem that contributed to their decline. There were some deeper, more long-term difficulties there which they had experienced for some time.

It is worth noting that the number of closures of this kind in the UK is much greater than it is in this country. Irish clothing companies have been in the happy position of being able to avail of some of the opportunities that have been created in Britain by the closure of a number of long-established companies there.

Mr. S. Barrett

Is the Minister not aware of the fear being expressed by Irish industry in relation to the increase in interest rates? Since the Government the Minister is now part of have taken office interest rates have increased considerably, which is detrimental to the development of Irish industry and the creation of jobs. The Minister's reply indicates that they have no proposals whatsoever to deal with this. To say that our environment is conducive to expansion, ignoring the fact that interest rates continue to increase and that there is every likelihood of further increases, leaves a great deal to be desired. Also——

An Ceann Comhairle

Let me appeal for brevity so that I may be enabled to deal with the remaining priority question.

Mr. O'Malley

I think it is worth drawing the Deputy's attention to the fact that three years ago interest rates in this country were 3.5 per cent higher than they were in Britain. Interest rates in this country today are 4.5 per cent lower than they are in Britain. The competitive advantage has swung enormously towards Ireland in this regard and it is very happy for us. We should be very glad that this is the case. There have been interest rate increases in recent months, as the Deputy is well aware. He is equally well aware that they have happened for reasons that are external to us and to the policies being pursued——

Mr. S. Barrett

I do not agree.

Mr. O'Malley

——in this country and that they have been replicated throughout the European monetary system and, indeed, throughout the Western world.

Mr. S. Barrett

What about German interest rates?

Mr. O'Malley

We are now much closer to German interest rates than we are to British interest rates. The fact that German interest rates are a bit below our interest rates——

Mr. S. Barrett

A good bit below.

Mr. O'Malley

——is not that surprising. There was a time when our interest rates were more than double German interest rates.