Limerick is used to bad press. Gang warfare, the unfortunate title ‘Stab City’ and its gloomy depiction in the memoir Angela’s Ashes have seen to that. So it takes a big shock to shake the city, a hardy concoction of rough housing estates and 13th century battlements on the west coast of Ireland. Yesterday, it got one.
Dell, the giant US computer maker, announced it was closing its Limerick manufacturing plant, opened in 1990, and shifting operations to Lodz in Poland. 1900 jobs will go, a disaster for a city where the company, Ireland’s largest exporter last year, indirectly creates an additional 10,000 ancillary jobs.
Dell’s announcement comes just a few days after Waterford Wedgwood was placed into administration, putting 800 jobs at risk. Unemployment in Ireland, which was 6.3% at the end of September 2008, could now rise to over 10% say economists. According to Davy Stockbrokers, the economy is likely to contract by over 4% this year. That would make the current Irish recession the second worst in the OECD in the past four decades.
But then, that is hardly a surprise. A booming housing market set the scene for the economic disaster that was to come. “In some parts of the country, at the peak we were building four times the rate of housing of the EU”, says Dermot O’Leary, an economist at Goodbody Stockbrokers in Dublin. “That was because there were tax incentives in place when interest rates were so low that there was no need for incentives.” People left school to go into the roaring building trade, which built a record 93,419 housing units in 2006. Investors and the government alike became overly dependent on the property market, with property-related taxes tripling to 15% of all tax revenues by 2006. Meanwhile, house prices doubled over the ten years to 2006, and household debt as a percentage of GDP rose from 60% to 160%. A bubble was in the making.
But as house prices rose – and salaries with them – something else was happening to the Irish economy: it was losing competitiveness. According to the National Competitiveness Council (NCC), Ireland experienced a 32% loss in international price competitiveness between January 2000 and September 2008. The factors that brought companies such as Dell to Ireland in 1990 were no longer there by the end of 2008. In Poland, workers earn €3 an hour; in Limerick, they are on up to €14. At a time when finances are being squeezed, it makes sense for Dell to move elsewhere.
So when the property bubble popped, and Ireland became just too expensive a place to work, Ireland was set for a double whammy of problems. Construction dropped from 13% of GNP in 2006 to 3.5% of GNP today, says Goodbody Stockbrokers. Meanwhile, recruitment agents in Poland are “inundated with calls” from Poles wanting to go home to a country now suffering a skills shortage, says Agnieska Walter of Warsaw’s CPL Recruitment.
And herein lies the opportunity, say some experts. Sure, jobs at companies such as Dell and Waterford Wedgwood may go, “But the companies don’t have to”, says O’Leary. “Ireland might keep the companies. Just in a different capacity.”
There is a precedent for this. In the 1980s, Apple computers moved to Cork on the south coast. At its peak, it employed 3,000 people in manufacturing. Today, it employs just 1,000 people, but in more ‘added value’ jobs, such as research & development and supply management.
“This is a massive opportunity to turn our middle managers into entrepreneurs”, says Stephen Kinsella, a lecturer in economics at the University of Limerick. “Next week, there are going to be huge queues outside the dole office on Dominic Street in Limerick.”
It is these people, semi-skilled workers, that we should be encouraging to become the next generation of entrepreneurs, he says, through government grants and mentoring schemes. “Ireland will never be a low-cost economy again. But we can become a more value-added one. In the next three years, the government should aim to set up 200 companies” around Limerick, he says, creating “a mini Silicon Valley”. Sure, many will probably fail, “but one of them could well be the next Google. We’ve got to start targeting policies now.”