Joint Committee on the Implementation of the Good Friday Agreement díospóireacht -
Thursday, 1 Jun 2023

Business Opportunities and Differences: Engagement with Irish SME Association

An Cathaoirleach

On behalf of our committee, I welcome Mr. Neil McDonnell, chief executive officer of the Irish SME Association, to discuss opportunities and differences facing businesses on both sides of the Border.

Before we begin I will explain some limitations to parliamentary privilege and the practice of the Houses as regards references witnesses may make to other persons in their evidence. The evidence of witnesses physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. However, witnesses and participants who are to give evidence from a location outside the parliamentary precincts are asked to note that they may not benefit from the same level of immunity from legal proceedings as a witness giving evidence from within the parliamentary precincts does and may consider it appropriate to take legal advice on the matter.

Witnesses are also asked to note that only evidence connected with the subject matter of these proceedings should be given and that they should respect directions given by the Chair and the parliamentary practice to the effect that, where possible, they should neither criticise nor make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the person's or the entity's good name.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

Before I call on Mr. McDonnell, I will explain a couple of things. We rotate the speaking order, so it will be Fianna Fáil, Fine Gael, Sinn Féin, SDLP, Alliance, Greens, Sinn Féin, Labour, Independents, Aontú and so on. This will be a relaxed, informal discussion, and normally each group takes ten minutes. Mr. McDonnell should feel free to speak as he wishes. I now call on him to make his opening statement.

Mr. Neil McDonnell

ISME thanks the members of the Joint Committee on the Implementation of the Good Friday Agreement for the opportunity to address them. As representatives of traders, importers and exporters, we know that agreement on matters of business will usually triumph over matters of politics where livelihoods and profit are concerned. That is to be celebrated. While Enterprise Ireland has worked hard and successfully for many years to expand Ireland's trading networks beyond the UK, the fact remains that the typical first market of export for an Irish SME remains Northern Ireland. From there, the next step is into the far larger GB market, typically before SMEs export to the Continent. Most of our trading members expect cross-Border trade to increase in the years ahead.

However, this expectation is grounded in current trading conditions.

While we all wish to see a deepening of the trading relationships on this island, we must voice a note of concern about UK divergence from EU standards. There is huge goodwill in the Republic towards a deepening trade relationship with Northern Ireland. This goodwill will evaporate, however, if there is a diminution in workers' rights north of the Border, particularly in respect of issues such as the working time directive. Wage rates are already lower in Northern Ireland. Were businesses there able to extend working hours beyond those businesses here must observe by law, it would have serious implications for services businesses, especially those that can operate on a cross-Border basis such as distribution, electrical, plumbing, energy and insulation services. Irish businesses have benefited from the UK’s failure to implement its side of the customs arrangements agreed under the UK-EU trade and co-operation agreement, TCA. As the UK moves to fully implement those, we need to ensure that progress on the Windsor Framework does not impede cross-Border trade.

We note the recent census figures that put the current population at 5.2 million. This puts the Republic of Ireland population at 1.38 million below its 1841 figure and the Island of Ireland population at 1.28 million below its 1841 figure. Ireland is most certainly not full and we have a way to go before we even match our population of 180 years ago. We remain an attractive destination for inward migration. Ireland, North and South, has a bright future ahead.

An Cathaoirleach

I thank Mr. McDonnell from raising those points. We begin with the Fianna Fáil slot.

Deputy Brendan Smith

Like the Cathaoirleach, I welcome Mr. McDonnell and complement him on the work he has done advocating on behalf of Irish SMEs over the years. I compliment him and his colleagues for highlighting many issues of concern to the people within their sector.

On his point about the census, the returns are welcome. I am thankful there had been population growth in every county over the past number of years. For those of us who come from an area devastated by emigration in the past are heartened to see the population of my own county of Cavan and neighbouring Monaghan increase. Fortunately, Cavan's population has grown in each consecutive census since the mid-1990s. We have always been concerned about too much growth on the east coast, and that must be counteracted. An important way of counteracting an imbalance in the population of the country is to ensure that there are job opportunities in particular areas. We are all very much influenced by where we come from. In my constituency, our economy and labour force are dependent on SMEs. I am thankful that we have many companies which are international corporations now but which started off as one-person operations. Advocating for and representing the views of SMEs is especially important for the rural and regional economy as well.

Mr. McDonnell mentioned that when an Irish SME exports, its first export market is Northern Ireland and it then looks to the British market. That is what we learn from engaging with businesses. Mr. McDonnell says there is a great willingness in the Republic to grow trade with Northern Ireland. I hope there is a similar willingness in Northern Ireland to grow trade with us, because, fortunately, since the signing of the Good Friday Agreement, the all-Ireland economy has developed, evolved and grown remarkably. A sister organisation of ISME, IBEC, gave us some figures on some of the companies that have an all-Ireland presence nowadays, are exporting north and south and have manufacturing bases both sides of the Border.

I return to the areas that are less developed, like the central Border region. The Dublin-Belfast corridor will always look after itself because it has the population and the two major cities. Derry-Letterkenny-Donegal has a strong population base and educational presence as well. Those of us in the central Border region, North and South, which includes Cavan and Monaghan as well as Leitrim and our neighbours in Fermanagh, Tyrone and Armagh, are dependent on SMEs and local indigenous enterprises. It is important, therefore, to ensure that those types of enterprises are supported as strongly as possible. On trade with Northern Ireland, I think of companies in my constituency that have a presence on both sides of the Border. Their trade is very much North-South and South-North.

Mr. McDonnell mentioned a diminution of workers' rights north of the Border, which is an issue of concern to all of us. It is sad to be hearing that at this time. In fairness to the Oireachtas, from 2016 onwards much of the time of the Dáil, Seanad and their committees has been taken up with engaging parliamentary groups from Britain and elsewhere on the possible impact of Brexit. The thing we heard from British representatives was that there would not be a race to the bottom in the context of standards. At that time, we were maybe talking about standards of food production, provenance and all that. We were being assured there would not be a race to the bottom and diminution of standards. It is very disheartening to hear of a diminution of workers' rights. That would be deplorable if it is happening.

Are any of ISME's constituent member companies based in Northern Ireland or is the organisation totally based in this State? Mr. McDonnell mentioned the good work of Enterprise Ireland, which I wholly endorse. At one time, establishing an all-Ireland enterprise development agency was being considered. It would have encompassed IDA Ireland and Enterprise Ireland. That would have been a wonderful development for all of the island. Does Mr. McDonnell see merit in an all-Ireland investment development agency? My understanding is InterTradeIreland does good work on an all-Ireland basis. Will Mr. McDonnell comment on his interactions and those of his members with it?

Mr. Neil McDonnell

I will respond in the rough order those things came up. On regional growth, the Deputy is absolutely right that the east has been a perennial problem, especially around the Dublin area. The first thing the census says is the population has gone up in every county. In our view, some of that has been exacerbated by the pandemic, in a good way. People were allowed work from home. That has allowed people to do good jobs with Dublin-level salaries while living down the country. That has been a good thing.

I hasten to add we have not heard anything advanced in Westminster which suggests that this is going to happen yet. However, there is a narrative in the UK about a bonfire of red tape and withdrawal from EU legislation, and there is a very political element to that at the moment. That would obviously impact on us, in the first instance, around the working time directive. Consider the average 48-hour week and max 60-hour week and what we refer to as man-in-van or blue-collar services, which are in exceptionally high demand at the moment between construction and the green economy with insulation and so on. Members can imagine how a local business would be severely disadvantaged were a business, notwithstanding our fraternal relationships across the Border, was able to lawfully under UK law work someone 60, 65 or 70 hours a week doing construction services down here. It would have obvious implications for us.

We do not have a membership structure in Northern Ireland, though we have businesses with offices there. We have good relations with the Federation of Small Business, FSB, in Northern Ireland.

We also have a European footprint, SMEunited. I am delighted to say that FSB UK has a representative in SMEunited. Despite the fact that the UK is not in the European Union, FSB in the UK sees the future of British small businesses in the EU. It wants to maintain trade relationships. Its policy representative discussed with us setting up a standing committee to consider how we are going to manage imports in particular. The British have avoided the issue of inbound freight under the TCA and the Windsor Framework by having the barriers up for the past three years. We understand that will draw to a close in the next six months although we have not seen the fine detail as to how that will happen. That is far less the case in respect of Northern Ireland as long as the Windsor Framework arrangements remain in place. However, anyone who is exporting directly to Great Britain may have an issue and we do not want to see those arise. I hope I have covered the questions.

Deputy Brendan Smith

I also asked about InterTradeIreland.

Mr. Neil McDonnell

InterTradeIreland was of considerable assistance during the pandemic. It assisted businesses that had pandemic issues. In preparing for Brexit and in its aftermath, it was helpful in the context of issues around customs, excise and VAT. It remains a very valuable entity but it only functions for those businesses with a footprint in Northern Ireland or which trade across the Border. Not all of our people are engaged with IntertradeIreland but it is an excellent agency.

Deputy Brendan Smith

What about the idea of an all-Ireland enterprise agency?

Mr. Neil McDonnell

That is an interesting concept. The Deputy may have seen our pre-budget submission. The IDA does an excellent job for foreign direct investment, FDI. Enterprise Ireland does an excellent job on behalf of high-performance start-ups and exporters. We see a gap in the market. We can consider the Irish business demography of approximately 275,000 businesses, of which approximately 600 are large. Most of those large businesses are IDA Ireland clients. They are non-national businesses. Enterprise Ireland is looking after the next tranche, down to approximately 3,000. In round numbers, there are a remaining 265,000 businesses, of which 130,000 are sole traders, including taxi drivers, solicitors, accountants and butchers. Our view is that the bit in the middle is not best served at the moment. In last year's White Paper on Enterprise, the Government stated that the local enterprise offices, LEOs, would no longer just look after microbusinesses, comprising fewer than ten employees, and would expand to include companies of up to 50 employees. There are issues around capacity in the LEO network to do that.

I am giving the Deputy a long answer. We would like an agency to look after SMEs and whether it is solely in the Republic or on the whole island is irrelevant to us. Our formal pitch to Government and to the Oireachtas is that SMEs that are not currently exporting or high-performance start-ups or in the tech industry are not best served by the current dispensation and we would like that to change. It is up to politicians to effect that.

Senator Emer Currie

Mr. McDonnell is welcome. I thank him for all his advocacy over the years. It has been interesting to hear what he has had to say about Brexit and the Windsor Framework. Perhaps we can get into that issue but my first question is whether ISME has put any work into the impact of constitutional change on the island. Has it thought at all about what would happen if we were to become a 32-county country instead of a 26-county country?

Mr. Neil McDonnell

We do not have the resources to do so. Even if we had, we would not get into the political or constitutional elements. However, we have said in our current pre-budget submission that work needs to be happening now. We specifically referenced in that submission, for example, that we have been carrying out national risk assessments since 2014. It is great that we are having national risk assessments. The first national risk assessment in 2014 was completed shortly after Russia annexed Crimea. At that stage, the Government recognised the potential for a severe spike in energy prices as a result but, unfortunately, nothing was done to mitigate our exposure. We did not build up any natural gas storage. The final chapter of this year's pre-budget submission is what we call a look over the horizon. The demographics that can be seen in Westminster elections and local elections suggest that at some point in the foreseeable future, a majority in Northern Ireland is going to be in favour of reunification with the Republic. There is no point attempting to resource that at the time the vote takes place. There will be economic and political implications to that. There will also be security implications because there are people for whom that is not an attractive proposition. We need to be working on that issue now. There is no point in trying to do that down the road. We are a trade association for profit-generating businesses. I mean no disrespect but we see that ball as being firmly in the politicians' court. We want the body politic to look at that issue.

Senator Emer Currie

In order to help in that regard, I will ask if there are any issues that ISME considers it would be important for us to consider.

Mr. Neil McDonnell

I can give a parochial view of where we are now. The Windsor Framework means that a dispensation has been given to Northern Ireland whereby it is both within the Single Market and the UK. I find some of the stuff I hear from UK politicians ironic. Their response to Northern Ireland's position is a great advertisement for remaining in the EU. It would be a pity for businesses in Northern Ireland and the Republic if that were to be undermined for theological political regions, if I can put it that way. A great many of our businesses trade in finished goods and foods or intermediate products. I am not going to presume to lecture anyone in Dáil Éireann about what happens milk on the island. It goes over the Border and comes back. The same is true of some alcohol products. If anything were to occur to disrupt that, it would hurt the people on both sides of the Border. However, in the longer run, we are going to have to understand not only the commercial relations either side of the Border but at the point where the political dispensation changes in Northern Ireland, we must understand what would happen. You can get funny results with this sort of thing. Similar issues have arisen before. I served in the Defence Forces in Cyprus for a year in the 1990s when the political situation there did not look dissimilar to that in Ireland.

There was a large entity Greek Cypriot entity that wanted reunion with the north of the island and a Turkish Cypriot minority behind the buffer zone that did not. When the Annan plan was put together by the UN for the reunification of the island in anticipation of Cyprus's accession to the EU, bizarrely enough, it was a complete reversal of the political norms. The Greek majority voted against reunification and the Turks voted for reunification because they saw that as their way into the EU as opposed to the Turkish mainland, which is just a part of the customs union. You could see situations in which taxpayers in the Republic might consider themselves disadvantaged so these are the long-run issues it is necessary for the body politic to address. You can see the way a really simplistic narrative developed over Brexit in the UK, which people spent a lot of time researching. Apparently people looked up "What is the EU?" in the UK. We do not want that sort of thing happening in or around a border poll that results in a majority for reunification because that could lead to all sorts of problems.

Senator Emer Currie

How does Mr. McDonnell think the EU would react to the whole island of Ireland having access to the UK and EU?

Mr. Neil McDonnell

I genuinely do not see it as an issue. Funnily enough, this came up this morning. What we do in SME United is look at the output of the major directorates in Brussels. With the best will in the world, the countries bordering the Celtic Sea and the North Sea all have an interest in Brexit and the UK. France has an interest to an extent while Belgium, the Netherlands, Denmark and Sweden also have an interest. Thereafter interest wanes. It really does. Obviously, the Germans have a big interest in selling cars but even their small businesses told our secretary general this morning that it is not really top of the agenda any more. The Austrian representative said the same thing. We are so consumed by Brexit that we think everyone in the rest of Europe spends a lot of time worrying about it when they do not. Britain is gone. I will not say they do not care. It has made trade very difficult but they have enough to be getting on with. They are worried about the corporate sustainability reporting directive, CSRD, and the due diligence directive. That is what we spend most time talking about.

Senator Emer Currie

Regarding divergence of regulation and law between North and South because of UK policy, Mr. McDonnell mentioned working time. Has that been floated as a potential idea or is Mr. McDonnell hypothesising?

Mr. Neil McDonnell

I have not seen it floated in a legislative sense, although I have seen it in the British press, as in "Who are they to tell us how many hours we can work?" There is a substantial emphasis on US thinking where hours of work for static workers are not regulated and even in the US, where mobile workers are not regulated. I spent 12 years in the trucking business. Regulations on mobile workers have a European context beyond the EU so we would really be into a safety issue if we had drivers breaking the mobile working time directive. I have seen it floated in the press. I have not seen it as a formal proposal anywhere.

I will give the Senator a really good example of what is current. Having been in petroleum in for years, I never wanted to touch the registration, evaluation, authorisation and restriction of chemicals, REACH, regulation because it is such a difficult, technical and geeky area. I do not know if the Senator has ever heard of that with regard to the regulation of chemicals. It is a regulation governing the labelling, quantities, containering, transport and storage of chemicals throughout the EU. The UK has said it wants to diverge from REACH. The UK chemical industry is saying it was a massive headache for the ten or 12 years it took the EU to get it through and that it would be mad to try do this and asking whether the UK is going to change the regulations, for example, on chlorine or peroxides. Everyone thinks all of this stuff only goes into factories. The entire hair and beauty business revolves around large amounts of peroxides moving around all the time. If the British diverge from that, are we going back to stopping a truck in a warehouse in Holyhead and re-labelling it before it comes over here to go into hairdressers? That is the extent to which REACH could affect us. An awful lot of what we see on the high street in terms of grooming has UK labels and is from UK chains. UK industry does not want to diverge again from that sort of stuff but, for its own reasons, the body politic is taking this very theological stance that it has to diverge and that this was what Brexit was about - the bonfire of red tape. If the UK does diverge on something as technical and granular as REACH, that could be just the beginning, although I do not think the UK will diverge. The same applies to aircraft. Having written most of the regulations that cover flying and aircraft maintenance, the British now say they want to diverge from them. It is difficult.

An Cathaoirleach

It is a very serious issue in terms of where Britain will export to apart from what it uses internally. It puts the British at a particular disadvantage if they do that and also creates issues around the credibility of the product and whether it will ever be bought again. How would anyone know where it is coming from? There would have to be clear identity markings on those products.

Ms Michelle Gildernew

I thank Mr. McDonnell for his contribution thus far, which has been interesting. As a Border dweller, I certainly know how difficult the Border has been. I have known people in Tyrone who have never been to County Monaghan and I have known people in Monaghan who have never been to County Tyrone so the Border has certainly very much affected lives. Brexit has been another enormous game changer in a number of ways relating to all-Ireland trade and we have seen the figures that show that. We must recognise the new trading relationship between Britain and the EU has definitely presented challenges to businesses operating on both sides of the Border. I would have seen this in particular in agrifood. The current arrangement is certainly very difficult for that sector.

We have seen reports that goods imports from the North to the South rose 10%, which is almost €820 million, in the first two months and exports from the South rose 1% to €750 million in the same period. What has been the experience of ISME's members in terms of operating on an all-Ireland basis? Is this a trend? Are we likely to see it continue or will it slow as trade regularises over the next period? How do ISME's members feel about the challenges they face?

Mr. Neil McDonnell

It is very sector dependent. On the export side, it tends to be what we would call artisan food and drink such as cheese and small batch whiskey.

We are not speaking about the large multinational brands that are on both sides of the Border. There is a special EU category for less than 500 hectolitres. They are the people we do not want to see affected. It is unlikely that alcohol products would be affected.

With regard to food we heard the debate in Westminster about chlorinated chicken. There is goodwill on the UK side in that it does not want to get into this. There is a significant amount of pressure coming from those quarters where the UK is trying to do a deal with the US on food and the US sees an opportunity in asking the UK to diverge from EU standards. If Great Britain departs from EU food standards, particularly in areas such as GMO, hormones and antibiotics, we can see how it could affect the green lane proposals for transport between Great Britain and Northern Ireland. We have not seen this yet. We also have not seen the proposals I mentioned earlier with regard to the UK starting to enforce its obligations at points of import. We take legal advice and customs advice on this and I am not the best person to speak about it. It is extremely technical. This is what got forgotten about in the emotion of the Brexit debate.

The establishment of the Single Market was substantially a British initiative driven by Margaret Thatcher. In trying to move away from it people do not realise how much friction was removed from trading relationships over the past 30 years. The highest degree of regulation is in food, agricultural products and phytosanitary standards. If we start to diverge, particularly on products that have a high degree of regulation, these issues become very dynamic very quickly. We have seen this with the empty shelves debate. I know it did not happen north of the Border and we do not want to see it happening.

Let us not forget that while certain politicians in the UK passed insensitive remarks about how the Irish would be forced to go a particular way because of food, Ireland is a very substantial net exporter of food to the UK. It tends to export unprocessed food to the UK and it tends to import from the UK processed foods. If we look at our breakfast tables, a large quantity of the cereals and certain packaged products are from Britain. This got forgotten about in the Brexit debate. I am not knocking that but the focus was on the concerns of the Irish agriculture industry. The exposure to Brexit for my members is on the import side. Our businesses import a large amount from Great Britain. Luckily, we seem to have managed this relatively seamlessly, with a few creases around rules of origin. As the UK begins to impose at ports its border controls on exports from the Republic of Ireland direct to Great Britain, we do not want to see material barriers going up. Nor do we want to see the green lane proposals between Great Britain and Northern Ireland presenting a difficulty.

Mr. Francie Molloy

I thank Mr. McDonnell for his presentation. In the Mid Ulster constituency I represent, and in Tyrone in general, the engineering sector is a big player with regard to economic development. It came about largely because of unemployment west of the Bann and local people trying to create employment in the area. They created industry out of this. There has been very successful exporting around the world. By and large, they did it on their own. There was little or no support from government, North or South, with regard to how it developed. In fact, most of the engineering companies received no support from any government investment source. The Governments were more interested in inward investment and trying to get industry in there. Most of the companies here are from the US and countries throughout Europe. Is there an angle whereby we can encourage North-South trade more by supporting and investing in sectors such as engineering?

Many of the regulations south of the Border are curtailing people with regard to their qualifications and employment practices. The regulations are different in the South. People working in various ways in trades are finding their jobs are being restricted. The same qualifications and regulations as in the North do not apply and they are not recognised in the South. Do Mr. McDonnell's members find this? Does it curtail businesses in various ways in how they operate North and South? How do we create an economic corridor to allow businesses to operate on both sides of the Border without restrictions? I am speaking about harmonisation, more or less, of the regulations North and South to prepare for Irish unification in such a situation.

Mr. Neil McDonnell

When it comes to manufacturing it depends on what is being manufactured. A classic example of an engineering product that comes from north of the Border is buses. Many of the buses we see here come from Wrightbus. This is a highly regulated area. If Wrightbus suddenly decided it would not manufacture to EU standards or produce certification on CO2 or NOx, those buses could not be bought. If agricultural machinery is just for use on a farm and will not be used on roads, that will be fine but vehicles that are to be put on the road are different.

Mr. Molloy raised the point of white-collar and blue-collar professional qualifications. We have seen issues with qualifications and rights of representation before the courts. This has affected solicitors and barristers. There will also be issues regarding regulated apprenticeships such as electrical and plumbing apprenticeships. I referred to this earlier. If there is a divergence in electrical or plumbing standards and a Republic of Ireland business uses a County Tyrone or County Armagh electrical subcontractor, there is a danger a major site developer here will tell firms to certify that all of their people are qualified to EU standards. These are the very annoying details that were never considered when the UK went down the Brexit path.

We are seeing that this is already having an impact on major public contracts. Someone cannot be let on to the national children's hospital project or the Dublin Airport runway development who is not qualified to EU standard. That stuff is really complex.

An Cathaoirleach

We will now move on to Ms Hanna of the SDLP.

Ms Claire Hanna

I thank our witnesses. It has been very interesting. I am sorry, but the Cathaoirleach caught me slightly on the hop. I thought there was another group in the middle.

Has Mr. McDonnell done any or is there any comparative analysis of the different operating environments businesses are facing North and South? Three of the big variables would seem to me to be around skills and infrastructure for a start. There has been a consistent level of investment in third level and further education in particular in the South that has been lacking over the last 15 years in the North.

I am originally from County Galway and I travel up and down the road numerous times in the year. When I pass places like Athlone, I always think how different a comparably sized town is in the North in terms of road links and other infrastructure. It is about those aspects of the trading environment. Similarly, there is what we would call the rates environment. There is not the same level of local government taxes. I remember doing a comparative analysis of small businesses in the Republic and the North and England, Scotland and Wales. There is a unique burden on small businesses in Northern Ireland on rates as a specific levy outside of corporation tax and other taxes that are being levied on them. Does Mr. McDonnell have any sense of the different picture and attractiveness of investment between the North and South in that regard?

Mr. Neil McDonnell

All I can say is that Ireland has the dubious honour of having exceeded Denmark as being the most expensive consumer price jurisdiction in the EU. SMEs are exposed to an awful lot of those.

Ms Claire Hanna

Yes.

Mr. Neil McDonnell

I know Northern Ireland is in a different rates regime. Here, any of our members would bite your arm off to get the energy prices people get north of the Border. That has been intensely difficult here. Then, as we said regarding the banking environment down here, we are down to 2.1 banks now. There is no consumer power or shopping power, and there is no switching power. Our FSB colleagues north of the Border will always complain about those issues that are worse for them. They are not necessarily the same issues that are worse for us. Everyone looks to better their current position. In the long run, which is what I was saying to Deputy Currie, if the long-term direction of travel includes the possibility of reunification, which at some point looks likely, then there is an onus to try to converge those commercial impacts as well as consumer. If we do not do that, then someone is going to experience a lot of pain at some point.

Ms Claire Hanna

That is exactly the angle I was coming from. It is that need for some degree of convergence about the different environments we are facing. Would Mr. McDonnell be able to comment on how things stand? The wall that many employers in the private sector and elsewhere are hitting is a lack of access to labour, talent and skills more generally. What are Mr. McDonnell's members in the South telling him? He mentioned banks and the withdrawal from the market. There seems to be a weird mismatch in banks. Are there any solutions Mr. McDonnell thinks are achievable? Is there anything that we as a committee or others could potentially focus on to try to improve the access to banking and credit for small businesses?

Mr. Neil McDonnell

One of the biggest differences between the Republic of Ireland and Northern Ireland has probably been the difference in the labour market. We are now at the lowest rate of unemployment ever. Our rate stands at 3.8%, which is the lowest since 2001 when it was 3.9%. We still have a significant degree of long-term unemployment or what they call in the EU not in education, employment or training. The labour shortage is actually a European phenomenon to be absolutely fair.

Within the UK, it is slightly different because there has been a border closure issue about which some of the large employers that are pro-Brexit now have some buyer's remorse. In the Republic, it is slightly different because we did open our borders to the accession states when they came into the EU. One of the outflows of EU membership is, for example, that the economies of Poland and the Baltic states are doing very well. They were traditionally a really significant source of labour in the Republic. The census down here we were talking about earlier shows a net outflow of Polish people certainly. I cannot recall the exact figure but I think it is a 24% outflow of Poles from the Republic and something similar in terms of Estonians and Lithuanians. They have been significant contributors to our construction, distribution and warehousing functions. We would have members who are asking a lot for visa waivers and employment permits beyond the EU but the EU's and Ireland's first position is that we recruit in the local market first and the EU market second. Then and only then can we go to the rest of the world.

That point was reiterated yesterday by the Minister, Deputy Coveney, at the enterprise forum. However, we are experiencing difficulties in getting even people from south-eastern countries such as those in the Balkans and Czechia, Slovenia and Slovakia. Therefore, we have real constraints. However, another interesting outflow of all of this, and this is a pandemic issue, is that many businesses are bringing in back-office staff who are not based in Ireland at all. We have businesses that have an engineering function in Portugal, a payroll function in Bulgaria or a purchasing or engineering function in the Czech Republic. The pandemic has brought in flexibilities that were not available before from a labour market perspective. We did see the labour market really substantively change during the pandemic and we are still getting our heads around the impacts of that.

Ms Claire Hanna

I thank Mr. McDonnell very much.

An Cathaoirleach

I thank Mr. McDonnell very much. That was very informative. On the question of the shortage of workers here as opposed to service providers, it seems that people who are seeking international protection may have the skills that are needed. Does Mr. McDonnell have a view on whether they ought to be able to work here if we need somebody-----

Mr. Neil McDonnell

Absolutely.

An Cathaoirleach

-----and they have those skills and they are here?

Mr. Neil McDonnell

Yes, there is substantial goodwill to try to get some of those people into the labour force. The Ukrainian Embassy is assisting the Department of Enterprise, Trade and Employment with the process of identifying skill sets. There is a substantive issue around the composition of those people coming in. There are a lot of females who have exclusive responsibility for childcare and an absence of males.

That is a particularly difficult issue at the moment.

An Cathaoirleach

I accept that. According to surveys I have read, however, 40% of the Ukrainians intend to stay here in the medium term. Obviously, many of them would have partners. There is an issue we have to think about. If people seeking international protection have the necessary skills, is there a reason they should not be able to work if we need them?

Mr. Neil McDonnell

Absolutely not. Recruitment and retention comprise a significant issue for very many businesses. If they can avail of labour from a given source, they will do it. This matter is second or third after business prices in what is represented to us daily and weekly.

Dr. Stephen Farry

Good afternoon. I will start with a few observations before asking a couple of questions.

From a Northern perspective, we are taking an increasingly envious look at some of the economic indicators in the South, including the productivity gap and overall skills level. The level of educational achievement is better in the South now. We are particularly envious of the South's current budget surplus in comparison with our budget crisis. I would be interested in discovering how sustainable Mr. McDonnell thinks that is.

On the issue of retained EU law, it looks like the Government in London has had a bit of a rethink and is not seeking to repeal as much as it was. It is not taking a broad-brush approach so much as a more selective one. This represents some positive progress although the Bill remains fundamentally flawed from top to bottom. The Windsor Framework will give us some degree of protection even if there is a different tack in London on deregulation, although there are some issues regarding Article 2 of the protocol on the non-diminution of the Good Friday Agreement rights.

Let me touch on a couple of other angles, the first being the border operating model that is about to come into effect for Great Britain and the extent to which it will become a barrier for exports. I know this broader question has been touched on already but does Mr. McDonnell envisage any risk potential regarding the diversion of trade flows through Northern Ireland into Great Britain? Is that something businesses are talking about?

On a different tack, namely, the development of the all-island economy, we have seen considerable progress on goods. The Windsor Framework gives protection in this regard but there is still significant room for further development. By contrast, in terms of the service economy, which is not covered by the Windsor Framework and protocol, is there an increase in problems related to how small businesses in the South interact with small businesses in Northern Ireland? I am referring to access to professional services, in particular. I am conscious that solicitors, accountants and others may well have been doing work for clients on both sides of the Border. Is the position in this regard being compromised to a certain extent by the limited basis of the EU–UK TCA? Are there particular pressures regarding the mutual recognition of qualifications, for example? Will this become a growing problem over the coming years unless we see some effort to address it?

Mr. Neil McDonnell

The budget surplus is causing us as much worry as anyone else. Mr. Farry will have seen the percentage of corporation tax coming from just three companies. We would say it is even worse than was reported by the Irish Fiscal Advisory Council. We understand that 3.75% of Ireland's gross Exchequer take comes from one company. That is really frightening.

On education, Ireland does well in PISA rankings and the like. We do very well on OECD scores. We have a persistent issue with lifelong learning, which we believe we are not good at. In fact, there is a considerable amount of overeducation. This is not opinion; it is based on an EU study. There is an EU definition of overeducation, which is one's qualification in one's job relative to that required. Not alone does this suggest a waste of public funding but also that people could be very dissatisfied or unhappy where they are working because they are overqualified.

With regard to the repeal of EU legislation, anything we hear about the foot coming off the gas under the current Prime Minister is good news. While it is very easy to be very tabloid in talking about a bonfire of red tape, it is extremely difficult to replace the likes of REACH, the working time directive and aircraft regulations. Therefore, it makes sense in our view not to do that.

Separately, in dealing with our Department of Enterprise, Trade and Employment, I mentioned earlier that it is in connection with the CSRD and the CRDDD that the UK is missed in Europe as a counterweight to the constant desire to over-regulate. The UK has had very good laws for years on human slavery, for example. One does not need directives that are 90 pages long to stop businesses dealing in human slavery. Directives coming from Brussels start with "Whereas", followed by 80 pages of text. Life is too short for me to read that stuff, so I try to avoid it.

A specific point was made on something that is worrying us about the border operating model. It is too early to say how it will work but it could be said that the Northern Ireland diversion could work in both ways. One of our customs officials emailed me earlier to say Northern Ireland traders are getting customs write-offs – €200,000 every three years from the British Government – and that the handling of VAT and customs in Northern Ireland could lead to perverse incentives to route Great Britain-bound traffic through Northern Ireland for Irish traders. We will have to understand how that will work in the long run. What we do not want to see is the gaming of the system in either direction. There is concern that the Windsor Framework will introduce incentives to start gaming the system in one direction or the other. We know there is always a temptation to do that.

On the service economy, I agree on Mr. Farry's point. We have see it borne out in the legal area. I am aware that the Law Society has spoken of attempts to brass-plate legal entities over here. The same applies to medical qualifications and to plumbing and electrical work – some of the really simple stuff. Products such as vehicles, or parts of the braking or exhaust mechanisms, must be constructed to an EU standard. There is a lot of cross-border movement of intermediate products. One of the largest forklift suppliers in the world is plonked right on the Border. If there is to be a lot of divergence by the UK, it will hurt the Republic as well.

An Cathaoirleach

Is Mr. Hazzard on the line?

Mr. Chris Hazzard

Today's meeting has been very interesting. I wish to put on record my thanks for the comments at the start on population and that there is a long way to go to even reach the population levels of before. That is a welcome message that people need to hear. It can never be said enough.

I wish to touch on a different yet connected issue around the big issue of constitutional change, which is the need to decarbonise our economies, North and South, and then the big change that happens when we continue to build the all-Ireland economy and head into that constitutional change. It is a simple matter of fact that climate change and the continued breakdown of the natural world do not recognise borders. There is much more we need to do right now. In the time ahead, it is something that will have to develop. A key point around this just transition and moving away from a carbon-dense economy is engaging with workers and having a dialogue with them at all times in order that they are very much part of it and have a stake in the transition in the economy. Will Mr. McDonnell give us a feel for what dialogue or engagement his organisation has with businesses and workers regarding the just transition and decarbonisation and where that is headed? Tied into that, as has been alluded to by a few people, is the point that we have a highly regionally unbalanced economy, both North and South. This presents great challenges when it comes to decarbonisation, as there are already communities that lack services and facilities and endure a prosperity disparity in large parts of our country. How do we ensure businesses in rural Ireland do not fall even further behind during this process? It is also part of the talk about Irish unity on the Belfast and Dublin economic corridor and so on. How do we ensure that rural Ireland in the west, south west, north west, the midlands etc. gets a fair deal out of this going forward?

Mr. Neil McDonnell

I will take those questions in two parts, starting with decarbonisation and then regional imbalances and falling behind. Decarbonisation is a significant issue for both businesses and consumers because there is no low-cost route to this; certainly no one has identified it yet. We do not expect governments - Irish or British - to hand out free money to do this but on the other hand, Ireland will find itself in trouble within the EU if it does not decarbonise more quickly. We summarise this as what we call the "capex problem", which is that it will cost a lot of money to reduce energy consumption by deep retrofitting insulation and to come up with alternative sources of power, whether that is putting photovoltaic panels on roofs or anything like that. I have had this discussion domestically with our two daughters. I told them I am not going to do a deep retrofit because they are the only ones who will benefit. It is north of €35,000 or €40,000 to do a standard semi-detached house in the Republic. With elevated prices, it still takes seven to ten years to get payback, at a time when increased energy prices reduce your net income. While we do not suggest it will be free money, the only way to do this will be long-dated and cheap money. We understand that, for example, the Italian Government is giving that sort of assistance to businesses. It is, effectively, state-provided debt at low coupon. I make that point in an increasing interest rate environment. Even as energy prices decline a bit at the moment, interest rates are going up, making the cost of finance is becoming more burdensome. In the long run, the State will have to take an equity pitch in this and assist homeowners in decarbonising and deep retrofitting. We do something similar in the Republic that has nothing to do with decarbonisation, which is called a fair deal scheme for nursing homes. The State looks after nursing care and there is a charge put on the domestic dwelling up to a maximum of 22% of the value of the dwelling. In other words, the State is on the hook for the money upfront but recovers the money later on down the road. Unless there are imaginative alternative solutions to what we call the "capex problem", an SME cannot do it because, as covered in company law, a business must generate a profit. If it becomes insolvent, it is meant to take one of several routes out of insolvency, including liquidation. That will be up to the legislators like the committee. I am not passing the buck back but I am passing the buck back.

The regional imbalance issue is a very significant one here, which we put in our pre-budget submission. I am glad to say that our Civil Service has in some remarks to us stated that it has recognised some of these signs of what they call in macroeconomic terms "Dutch disease", in other words, the social impacts of finding oil. Many people think that you find oil and everyone gets wealthier but that does not happen. Certain professional services like law and medicine make loads of money and people further down the service supply chain actually lose money. Their wages drop because they see an influx of other labour into the economy and the price of accommodation goes up and so on. We cited a much more recent paper in our pre-budget submission, which I encourage everyone on this committee to look at. It is an economic paper that came out of the United States called "Silicon Valley Syndrome". Members have probably seen it in the news from California - there are massive substance abuse problems, massive increases in the cost of housing and a huge affordability issue for ordinary workers. Although Ireland benefits from huge amounts of corporation tax at the moment, while we do not wish to be a downer on our economic policy, we are saying that there is a price to pay for having concentrations of really high-earning professionals in one place, all of whom work for a foreign company that could go in the morning. We have been saying for a long time that this is why we want a body in the Republic that just looks after small and medium enterprises. To be fair, the Minister for Enterprise, Trade and Employment, Deputy Coveney, conceded yesterday at the enterprise group that in the past few years, only single-digit figures of businesses have listed on the Irish Stock Exchange. In Norway, which has a population only half a million bigger than ours, in 2021, 68 businesses listed on its stock exchange. In the same year, two businesses listed down here. They are domestic businesses that are scaling. We do not see that in the Republic. A business gets to a certain size and it sells. When it sells, it does not sell to Irish buyers and the intellectual property in that business exits the State, even if the business remains here. We think that must change. This is not a criticism of non-Irish companies but Irish businesses are more likely to regionally base themselves than are foreign multinationals. Many Irish businesses will locate in rural or non-densely-populated areas and are a huge anchor for the local community. You tend not to see that in American pharmaceuticals or American IT.

I mean no criticism of those businesses in saying that. It is just a commercial reality and we would like to see it change.

Deputy Rose Conway-Walsh

Reference was made to IBEC's For Peace + Prosperity campaign. It is a really visual campaign. I take on board what Mr. McDonnell has said and I have gone through ISME's pre-budget submission. His point about the over-the-horizon risks is important but I would also point to the over-the-horizon opportunities. With every risk, there is an opportunity. There certainly is an opportunity to prepare, which feeds into what he said earlier.

In its campaign document, IBEC has identified as a priority "[t]aking an all-island approach to FDI by promoting the synergies to be achieved across all-island supply chains; access to talent; R&D capacity and other economies of scale benefits". That is really important. Could ISME apply the same priorities in respect of SMEs? Coming from the west, I have in mind in particular the opportunities presented by the Atlantic economic corridor, Atlantic Technological University, ATU, and the all-island rail review that is awaited. How important are all those factor to SMEs, how important is it to have joined-up thinking under those headings and what do we need to do to maximise those opportunities across the island?

Mr. Neil McDonnell

I understand IDA Ireland already has an element of that in its inward investment activities. We should not forget that a large multinational company will have treasury, legal and HR functions. It has the bandwidth to say there is an advantage to putting this bit of its operation in the Republic and that bit in the North. Doing so will cover the UK, the Republic of Ireland and the EU. However, 99.3% of businesses in this jurisdiction are small and medium enterprises, and the vast majority of them, at more than 70%, are micro-businesses with fewer than ten employees. The Deputy has raised a brilliant academic consideration but when it comes to a small food or clothing manufacturing business, this issue is not on its radar and is not going to be on its radar.

Deputy Rose Conway-Walsh

I am trying to break the issues down and put them in context. I am thinking of a small or medium business that cannot get the tradespeople and other people it needs to maximise its profitability. It would be helpful if it were able to fish from an all-island pool of apprentices and other workers. I am concerned about an imbalance in this regard. In the case of care homes, say, there is a requirement that staff are registered with CORU. Where people have trained in the North and obtained their academic qualifications there, that does not translate easily to the South, and vice versa. That is one factor. Another issue is access, such as in the case of a small business in Mayo or somewhere else in the west that is dependent on tourism for growth. There may not be bus and rail links up that side of the country. How important are such factors to small and medium enterprises and how important is it to have joined-up thinking in that regard?

Mr. Neil McDonnell

It is hugely important. I am inverting the problem in that I am saying it is not one for which we can find a solution. Our people are trying to solve it day and night informally. This is a problem for the committee members, as legislators, to fix. If we exclude sole traders, the large companies and the FDI sector, there are 135,000 businesses in the country that are not getting the same supports. IDA Ireland and Enterprise Ireland are problem solvers and the State is lavishing resources on them to solve problems for a particular demographic. It is a demographic that is only about 3,000 companies deep. We are asking what is being done for the other 135,000 companies. I am not trying to give the Deputy a hard time. I am saying, with respect, that our people are the bedrock of the economy. Like certain beers, they reach the parts of the country other businesses do not reach. They are everywhere. People down the country who are not working for the State as a teacher or public servant locally or are not working on a farm are either unemployed or working for an SME. It is that simple.

However, we do not see the value of the sector being recognised. We need a Whitaker report 2.0. I will not say FDI has taken us as far as it can go but we are saying we can now identify the limitations of that model. It started in 1958 as a move to reduce protectionist barriers and bring in FDI. We brought in a little pet monkey and now we have a gorilla in the cage that is, in effect, of equivalent size to the entire domestic Irish economy. Yet, the SMEs do not have anywhere to call home. I appreciate that under the White Paper on enterprise, the local enterprise offices, LEOs, will look after businesses with up to 50 staff, but there are specific issues to address. For example, the brilliant point has been made that the Germans have a much more explicit integration between their academic institutions and business. They have a much greater appreciation of vocational rather than academic education. That was part of the difficulty I referred to earlier, in discussion with Stephen Farry. We are great at churning people out of the universities with letters after their name but not so great at continuing adult education and vocational education. The Germans, Italians and Austrians leave us in the shade when it comes to vocational education.

We would like to see people coming out of the likes of ATU, for example, with vocational training. We have an absolutely massive marine industry in Killybegs, for instance, but we are not training people for it. We had the Irish Maritime and Energy Research Cluster, IMERC, in Cork but, for whatever mad reason, it was discontinued. That initiative involved a great marrying of technology between University College Cork, UCC, Cork Institute of Technology and the Naval Service. It is gone now. Yet, we are saying our future energy demands will be met by wind-based generation that will be floating offshore. That is the sort of marine-based technology that ATU should be engaging on with engineering firms, boat-building firms, welding people and sheet metal people. They are not necessarily sexy professions and they probably will not get a Minister down cutting a ribbon but they are absolutely essential to the direction in which the economy needs to go.

Deputy Rose Conway-Walsh

I completely agree with Mr. McDonnell on the direction we need to go. It is why I would like to see action on apprenticeships. I take the point from ISME's pre-budget submission on what needs to be done to incentivise employers and looking at how we can increase the numbers and target things properly. I am just arguing for an all-island approach in order to have a seamless system for apprentices. It would open up a lot of opportunities in the trades that are vital to our productivity, growth and competitiveness in the future.

I like Mr. McDonnell's suggestion of establishing a social progress indicator. It is vitally important on an all-island basis that we set out the values that will underpin the direction in which we are heading in creating a new Ireland.

Mr. Neil McDonnell

I thank the Deputy. That aspect is very important to us. The media narrative gets subsumed into a discussion about the difference between GDP and GNI and analysis of unemployment rates. There are much deeper issues we should be looking at, such as lifelong learning, increasing the number of women in science, technology, engineering and mathematics, STEM, the work of the Balance for Better Business review group in seeing how we can increase the proportion of women on boards, and increasing the level of employment of people with disabilities in the economy. We are not measuring those factors because nobody says they are important. There are lots of other indicators we consider. I am a member of the National Competitiveness and Productivity Council, which looks at a lot of more meaningful metrics. We are suggesting that a social progress indicator would be a meaningful metric to develop. We do not have one yet.

Deputy Rose Conway-Walsh

It certainly would.

I will finish on the EU competitiveness index, which has pointed out that the west and the north west are in the bottom 7% of all EU regions. That has to be faced up to. We really have to think differently and we have to think outside the box. We cannot continue doing the same thing we have been doing, looking at less than 7%, underneath Romania and some of the poorest states, while ours is one of the wealthiest states. I thank Mr. McDonnell for his information.

An Cathaoirleach

Does Senator Ó Donnghaile wish to come in on that?

Senator Niall Ó Donnghaile

Yes. My question is not totally dissimilar from Senator Conway-Walsh's in that I want to look to the recent peace and prosperity report from IBEC. It described Ireland as a natural economic zone. It said three developments helped the growth of the all-Ireland economy: the EU Single Market, the peace process, obviously, and the removal of Border checkpoints. It called for a more joined up North-South policy framework to support businesses to grow across the whole of Ireland. Obviously, that policy is supported by the all-Ireland bodies established under the Good Friday Agreement. Mr. McDonnell referred to the huge goodwill here towards deepening trade relationships with the North and stated that Ireland, North and South, has a bright future ahead. Could he expand on how ISME would see, organisationally speaking, the construction of that going forward, that is, how that organisational construct could be developed in the time ahead?

Mr. Neil McDonnell

Let us talk about the entities that are there at the minute. There is IDA Ireland, which has very much an activist mandate, Enterprise Ireland, which is effectively one of the largest venture capital equity partners in the world, and InterTradeIreland, which has a particular mandate that straddles the Border. What we have looked for is another agency. We have not been prescriptive about that because it gets emotional depending on what politician you are talking to and whether or not he or she is in government. We are not prescriptive as to how that would work. We are also not suggesting that that entity needs to look like Enterprise Ireland or saying, "Your business is a winner. We will take an equity position to that. Here is €50,000, and we want it to do X, Y and Z with that." It does not even have to go that far. If, however, you have something that looks like InterTradeIreland, that is an advisory and an educational body and gives access to funding. For example, one of the issues we see with the White Paper proposal on the LEOs is that there are big local authorities - for example, in Dublin and Cork - with lots of resources, and Dún Laoghaire-Rathdown, Fingal and South Dublin county councils have very active LEO networks, but then down the country there are LEOs run by one or two people and they do not have the bandwidth, the financial resources or the qualifications to look after this stuff. Let us say you take a cross-Border entity like Enterprise Ireland and, without necessarily taking the activist position Enterprise Ireland takes, you ask questions like "Do you want to export?" and "Do you want to expand?". A particular area Ireland is very bad in is intergenerational succession, that is, "Are you exiting your business?". We provide that sort of stuff on an ad hoc basis through mentoring, and we have an excellent mentor network, but that is not happening on a policy or State scale. "Do you want to exit your business?" "Do you want to acquire a business?" "Have you an interest in expanding by acquisition?" We have always acknowledged the shortcomings in our member base in manager qualification training and education. We see it coming out in, for example, appearances before the Workplace Relations Commission, prosecutions by the HSA, enforcement visits around visas and so on. We know there are people getting it wrong because they lack this basic business in education. We have suggested we should spend some of the massive €1 billion-plus surplus in the national training fund on doing what we call the blue cert. A wider education mandate could be taken in something like InterTradeIreland. For example, one of the particular problems in Northern Ireland is the extent to which the state and semi-state sector is disproportionately represented in the numbers. There are a large number of people who, in the event of UK withdrawal, would probably need to be retrained or repurposed for working somewhere in the commercial or the for-profit economy. That is the sort of thing that could be looked at.

Senator Niall Ó Donnghaile

I thank Mr. McDonnell. That was very useful.

An Cathaoirleach

I thank Mr. McDonnell for his contribution. I acknowledge the massive knowledge and insight he has into the issues that were raised here. I have certainly learned a lot from his contribution, as have our members. It is food for thought and gives us a different perspective on the problems we will face if and when we get our unity and on how we might increase co-operation, North and South, without the political dimension, which, as he says, not everybody may want.

I will leave it at that. I remind members that we have a debate in the Dáil on our report starting at 3.45 p.m. With that, we will adjourn sine die. Our next meeting will probably be on Thursday week.

The joint committee adjourned at 3.17 p.m. sine die.