I thank the joint committee for giving me the opportunity to make a presentation to it. As the Chairman indicated, last evening I sent it an economic overview. Even since then, the position has changed and taken a bad turn.
Let me introduce Mr. Pat O'Donnell whose reason for being here is to take the opportunity to advise members on the importance of a specific piece of infrastructure in the Mayo region. He is managing director of Allergan, a company which employs 800 people in County Mayo. He will speak on behalf of a group of companies which, collectively, employ 3,000 people directly and a further 6,000 indirectly in the region. Together, they account for a sum of approximately €1 billion in contributions to the State.
As of this morning, we are faced by a significant crisis. A currency crisis has taken over from all of the other distractions in the economy. The old Irish pound exchange rate is £1.10. If we thought earlier this week that the economy was facing a threat from the United Kingdom in shopping baskets and that it was something we had to deal with as a priority, the position has changed significantly in the past 24 hours.
As members are aware, Ireland is unique among eurozone countries in that most of its trade is with the UK and the US. We export 84% of everything we produce and the UK is the largest market for our goods. The UK is engaging in competitive devaluations in order to assist its economy in becoming more competitive in export markets. The difficulty for Irish exporters — not just those exporting into the UK — will be in circumstances where they will be obliged to compete directly with UK companies in third markets. They will not survive if the exchange rate stands at €1.10 to £1. In the early 1990s, when we were last obliged to deal with a situation of this nature, the Government of the day introduced a fund which provided an extremely useful accommodation to companies that had exposure to sterling. I do not believe it will be possible to introduce such a fund on this occasion.
I wish to highlight for the committee the stark choices we face. There are two major crises with which we will be obliged to deal. The first of these relates to the exchange rate and the second to employment. If there is one thing that is paramount, it is the protection of every job that exists in the economy. When a job is lost, we do not know when the opportunity will arise to create a replacement. Some 4,000 jobs are being lost each week. The figures for notified redundancies, which were issued this week, indicate an increase of 52% on the position last year in this regard.
In the past three weeks I have spoken to representatives from 16 sectors in the economy. I must inform members that while it has been widely reported that economic conditions are difficult, the reality is that the position is far worse. Early next year the retail sector is going to shed a significant number of jobs. Consumer confidence is declining, as is our ability, as a nation, to believe in ourselves. Action must be taken. It is important that the body politic be involved in this regard. It is fine to state that we are going downhill. If, however, everyone believes that to be the case and is of the view that we cannot do anything about it, then we will end up in dire straits. I hope, and am confident, that the committee and the Oireachtas will do everything possible to get us through these difficult times.
At the beginning of the year, I indicated — perhaps at a meeting of this committee — our hope that the economy would continue to expand this year and that there would be some level of economic growth of perhaps 1% or slightly less. However, we are ending the year in negative territory, with a contraction of approximately 2%. The outlook for the next 12 months is far worse. Our projections indicate that the economy will contract by a further 4% next year. These figures are significant. If we are very lucky, average unemployment next year will stand at 10%. However, that may be a conservative estimate and the figure could be as high as 12%.
As already stated, we now face a further crisis. Difficulties with the public finances are keeping the minds of members exercised. This the first matter with which we must deal. The Minister for Finance quite rightly stated yesterday that we are living beyond our means and that a response different from that we have seen heretofore is required. In my view a collective, national response will be needed. Under this, we will all be obliged to face up to our responsibilities. At an individual level, it may be someone's neighbour who is losing his or her job this week but the former could find himself or herself out of work next week. We are losing companies, entrepreneurs and, most of all, the spirit that brought us through the past decade and a half to where we currently stand.
There are some positives and we possess some important tools. However, such tools — one of which is corporation tax — will no longer be adequate. The global downturn has highlighted the fact that Ireland's is a small open economy. Being part of the eurozone and the EU is extremely important. In that regard, one need only consider the example of Iceland, the economy of which did not have the same protection as that afforded to ours, to see what can happen. We will be obliged to deal with the Lisbon treaty and our position at the centre of the EU. I know that this matter will be dealt with in 2009 but it is vital that people understand the importance of the EU to our economy.
The position with regard to sterling is becoming intractable. Last week we were concerned with regard to the number of Irish consumers heading north of the Border to buy goods. People have a huge propensity to spend every extra euro they earn on importing goods. If we continue to behave in this way, we will create jobs but those jobs will be created in the UK economy. As a result, the contraction in the employment market here will continue unabated.
I have had a great deal of experience representing small companies for many years. These companies are finding it extremely difficult to cope with the credit conditions relating to working capital. In the 1980s, financial institutions would diminish the overdraft facilities of small businesses and eventually convert them into term loans. Due to the fact that small companies are price takers and not price makers, those supplying such companies would limit their credit terms and seek cash payment in respect of the delivery of goods. Customers always sought to extend the credit they had taken. This type of scenario will come into play in the coming months and many small companies, particularly those in the domestic traded sector, will not survive. The pressure on such companies will be immense. For small companies, it is often not the cost of the funds but rather the availability thereof which becomes an issue. In my view we are going to witness a return of difficulties in this regard. Small companies are in an extremely precarious position.
There is no silver bullet as regards the support side and I am not making a special plea to the committee. There is, however, a clear message which everyone must take on board, namely, that we can hopefully get through this together. Hard work will be required. Every opportunity and advantage we have should be maintained. A great deal of debate is taking place with regard to pay deals and changing circumstances. I must state in the strongest possible terms that this country has never needed social partnership more than it does at present. Social partnership is the greatest advantage we still possess.
Forfás is due to publish a report on retail issues in the near future. This report will show that operational costs in the economy are approximately 32% greater than those which obtain in the UK. The cost of energy is just one of a raft of costs that must be considered. The indication from the CER earlier in the week was that the second tranche of energy price increases will not take place and that there will be a slight reduction for some consumers. Our energy prices are far beyond those of our competitors. We take account of the fact that we are overly dependent on fossil fuels. We also take account of the need for investment in and the construction of new infrastructure. However, in the current climate, we cannot allow the price to be king. The price of electricity in Ireland is and will continue to be much higher than that which obtains in competitor economies.
Where do we go from here? In the short term, all of our energy and focus must be directed towards maintaining employment. I will now ask Mr. O'Donnell, who is the manager of a company that employs 800 people, to address the committee. The company in question is a foreign direct investor. It makes world-class products but it now finds itself in a difficult situation, particularly as it appears that most areas outside that in which it is located in Ireland have done well in infrastructural terms. Mr. O'Donnell will outline his story and that of other companies in the region in question. He will also indicate the importance of a specific item of infrastructure for that region and the need for the project in this regard to be advanced with increased speed.
