Weak indigenous investment alarms NESC

A LOW level of investment by indigeonus manufacturing industry remains a significant problem, despite the strong overall economic growth of recent years, according to work undertaken by the National Economic and Social Council.

A confidential draft of a new report being considered by the council also says that private investors will have to be encouraged to invest in major infrastructure projects, to make up the shortfall left by the run down of EU funding.

The report Investment in Ireland - a late draft of which has been seen by The Irish Times - sets out to examine whether a low level of investment is hindering economic development. It found that the overall level of investment in the economy was lower than in the 1980s. Although this was largely due to unsustainable public spending in the earlier period.

However, despite this, the report concludes that investment here "is low when compared to other European countries." Ireland has won a large share of multinational investment it points out. And there is strong evidence of investment rising in the services sector, particularly in areas like tourism. So the main reason for the low overall level of investment lies in the performance of the indigenous sector.

Overall, investment is an important determinant of economic growth, although the relationship is not always clear cut, the report says. The authors of the study admit that lack of statistical information makes it difficult to get a timely picture of investment trends.

However, analysing information that is available, they conclude that investment in the sectors dominated by foreign multinationals is high, in contrast to areas of industry where Irish owned.

The figures also suggest that the services sector, where employment has been growing rapidly and which has accounted for about 75 per cent, has been investing quite a high proportion of net value added in this sector."

The NESC council, consisting of representatives of the social partners and Government nominees, is now to examine the report and finalise policy recommendations.

The report says that a stable overall economic environment remains vital and that a continued overall focus on competitiveness is vital to boost profitability and lower the risk of investment. Overall "risk" is seen as one of the major reasons holding back investment in Irish owned firms. The report also points to the large gap between the rate of interest charged to large firms and smaller firms by the banks.

Among the recommendations being considered by the council include measures to boost spending on intangible assets such as training and increased attention from policy makers to the services sector which would appear to respond very positively to initiatives.

Measures to improve the involvement of the private sector in projects currently funded by the EU are also recommended. With EU funding due to fall back after 1999, there may be "a temptation" for Government to cut back on public investment.

"Such a development would be no desirable," according to the report, and one way to deal with the problem would be to increase the involvement of the private sector in infrastructure developments.

The draft conclusions also call for active support for the new Developing Companies Market on the stock exchange and ongoing examination of aspects of the tax system which may encourage investment in areas like property rather than in industry. The authors also call for an increased move by state agencies towards taking share holdings rather than grant aid.