Speech by Minister Paschal Donohoe, TD ISIF Market Engagement Event launching ISIF 2.0

Check against delivery

Good morning everyone. I’m delighted to be here with you all this morning and I’d like to specifically thank Conor O’Kelly for inviting me to address you.

I know that this is the 6th year in a row that ISIF has held an event of this type. I can see from the numbers in attendance that the annual market engagement event has established itself both as an opportunity for ISIF to reach out to the market and promote some of its successes; and for ISIF to support many of you in networking for future opportunities.

This year’s event is a landmark one in that it launches ISIF 2.0 – ISIF’s refocussed investment strategy covering the next 5 years.

ISIF 2.0 has been the subject of extensive engagement between my officials and Conor and Eugene’s teams in the NTMA as I sought to have ISIF refocussed to meet our changed economic circumstances and the challenges that have emerged since ISIF was first conceived of in 2011.

In bringing forward the proposals for the ISIF 2.0 Investment Strategy to Government, I was very much informed by the writings of Professor Mariana Mazzucato of University College London and I know that ISIF have also engaged with Professor Mazzucato. She points out that many private sector investment time horizons do not allow for the longer term and riskier investments required to address the really big national and global challenges that we face over the coming decades.

She sets out the position that these challenges require State investment given the levels of risk and the public good returns.

The ISIF is our State’s fund for making these longer term investments, which can drive long term growth, value creation and most importantly, innovation for the benefit of our State and its citizens.

In line with Professor Mazzucato’s writing, it is important to recognise that the ISIF approach is crowding into Ireland those private sector investors that are willing to take such risks and long term time horizons so that both they and the State benefit.

Through the pursuit of the correct policies by Government and the efforts of the Irish people, we have seen huge improvements in Ireland’s economic circumstances over the last number of years.

These improvements have allowed Government to refocus the ISIF from supporting economic recovery and growth to a longer term more innovative fund which is “thinking in decades”.

Despite these extremely positive developments, the Government is acutely aware of the need to be prudent.

As many of you will be aware we have used the proceeds of the AIB share sale towards reducing our debt. Our debt-to-income ratio, while still too high, is moving in the right direction.

In 2019, we will establish the Rainy Day Fund, with an initial contribution from ISIF, which is possible due to the higher private sector leveraging achieved by ISIF since its inception.

Over the next decade, we will invest €116 billion – more than a third of our GDP – in long-term critical infrastructure, while focusing on keeping current expenditure in line with economic growth.

Likewise we are investing in education to ensure our workforce has the skills to compete in a globalised economy. A whole of Government project to frame Ireland’s economic agenda over the coming years entitled “Future Jobs Ireland” will be launched this month.

Despite the positive outlook, we remain conscious of the risks our economy faces, with the most immediate risk being the potential fallout from a more adverse-than-expected outcome from Brexit. The threat from Brexit is a critical consideration for business and our economy as a whole.

Extensive planning has been underway across all Government Departments since before the Brexit Referendum. However, Government planning and preparation can only go so far. I would encourage all of you to continue working to make sure your businesses are Brexit ready. Given the uncertainty of events, the Government will continue to provide the most up to date information on Brexit in regular updates.

More positively, Brexit will also provide opportunities and the Government will work to help maximise those opportunities. Post Brexit we will be the only country in the EU that is an English speaking, common law jurisdiction.

The Government has been swift in taking action to seize on these opportunities, and mitigate the risks from Brexit.

We announced measures in Budgets 2018 and 2019 as well as the €300 million Brexit Loan Scheme and the Future Growth Loan Scheme to support businesses in preparing for and adapting to Brexit and investing strategically for a post-Brexit environment.

ISIF 2.0, which I will talk about in more detail later, is a key element of the State response to Brexit.

Its investment is focused on supporting businesses through the Brexit challenges that have been identified by my Department’s and other economic studies:

• The new investment strategy’s focus on regional development will support those regions more impacted by Brexit than Dublin, as the economic studies show that Dublin already has greater levels of trade with EU and global markets than the regions have.

• The strategy’s focus on indigenous industry will be vital as the economic studies show that Irish SMEs are more focused on the UK market than the Foreign Direct Investment sector. Therefore, ISIF will be seeking investment opportunities either directly or indirectly in Irish SMEs that are seeking to broaden their markets, or SMEs that are innovating to reduce their cost base or to move up the value chain so they can continue trading with the UK.

• The strategy also has a broad focus on the sectors most affected by Brexit. I do not want to prejudge ISIF’s independent commercial investment decisions, but based on the economic studies, I would expect these sectors to include the food and food processing sectors, among others.

I want to stress that ISIF’s investments will be additional to the enterprise agencies that work with a wide range of companies – making them more competitive, diversifying their market exposure, and up-skilling their teams.

Other challenges aside from the immediate challenge of Brexit are the openness of our economy for which any rise in protectionism leading to a disruption in world trade could significantly impact Irish growth prospects.

The normalisation of the European monetary policy may not be as smooth as projected and this also has the potential to impact our growth trajectory. As these factors are beyond our control, the best way we can mitigate against these risks is through prudent budgetary policy, careful management of the public finances and by focusing on competitiveness-oriented policies.

I previously mentioned the transfer of ISIF funds to the Rainy Day Fund, which will assist in building fiscal buffers.

We also have domestic challenges that come from a rapidly growing economy, such as shortages in housing and pressures on public services. The Government is implementing policies to address these challenges by looking forward and planning in a positive way.

Project Ireland 2040 is the Government’s overarching policy initiative to plan for the Ireland of the future.

Among the major innovations of Project Ireland 2040 is the introduction of four new funds focused on urban and rural investment, climate action and disruptive technology. Investment in the best projects will be prioritised with funds targeted at different sectors to ISIF so as to ensure no deadweight in the use of State funds.

In terms of the built environment, Project Ireland 2040 will be complemented by the National Planning Framework, the establishment of the Land Development Agency, Home Building Finance Ireland (HBFI)’s €750 million of funds for residential development and the increases in the public capital programme.

ISIF 2.0 is also contributing to our housing response through partnering with private sector investment to increase the supply of housing.

ISIF 2.0’s role is part of a range of measures to boost housing supply complementing Rebuilding Ireland. I am happy to relate that while still some way from achieving normality in the housing market, there are encouraging signs of steady improvement. The latest figures indicate almost 19,000 new homes delivered in 2018 – an increase of around 30%. This is a huge increase from the 5,518 homes delivered at the start Rebuilding Ireland in 2014.

We are also seeing a welcome moderation in residential prices, with house inflation cooling to its lowest levels in 2 and a half years.

In spite of the challenges we face, we must remember the positives in this new future facing us; we have a young, well-educated population and a Government committed to supporting the building of a more business friendly environment, for businesses large and small, foreign and domestic.

We will remain open to business and talent and do everything to attract more of both.

Interestingly, in my recent visits to the US and Europe, this openness to investment and also the political and economic stability we offer, have been consistently identified as key attractions to investors.

Political and economic stability is important in creating the environment for the participation of ISIF’s private investment partners across a range of funds and fields.

These partners have been effective in bringing their resources, knowledge and expertise for the benefit of projects and firms in the Irish economy.

As I said at the outset, today’s event launches ISIF’s new refocussed Investment Strategy for the next 5 years – ISIF 2.0.

ISIF’s statutory mandate has been and will remain to invest on a commercial basis in a manner designed to support economic activity and employment in the State.

Since it began, ISIF has committed €4.1 billion to investments and projects that support economic activity and employment in Ireland, supporting over 30,000 jobs.

ISIF’s €4.1 billion investment commitment has unlocked total commitments of nearly €11.6 billion and makes it a valuable State asset.

In announcing the outcome of the ISIF Review, which was published as part of Budget 2019, I set out my view that the State’s domestic economic activity and investment levels are sufficiently robust at this time to allow for a degree of scaling back on investment by ISIF.

In light of this conclusion, Government agreed to my request to transition ISIF

from a broad investment strategy to one with a focus on priorities that will support the Government’s Project Ireland 2040 and, as I mentioned earlier, address the challenges of Brexit.

In refocusing the ISIF, the Government took particularly account of:

• The economic and investment position of the Irish economy;

• The risks currently facing the State and the potential mitigation measures to these risks; and

• Wider Government policies such as our budgetary and fiscal stance, and Project Ireland 2040 and the associated National Planning Framework.

Thus, the overarching vision for this Investment Strategy is that ISIF should be ‘Thinking in decades and making a difference’. Under the new strategy, ISIF will now target the delivery of a €3 billion 5-year investment programme focused on:

• Regional development;

• Housing supply;

• Indigenous industry;

• Projects to address climate change; and

• Sectors adversely affected by Brexit;

ISIF’s very specific focus on climate change provides the capacity to make big investments in radical innovations.

ISIF wants to hear from people with the next big idea on how to make dramatic changes to our energy consumption and production. In addition, ISIF’s focus on supporting housing is fully aligned to the objective of a more sustainable housing stock that reduces energy use in terms of heat and light, and in terms of inefficient forms of commuting.

As Professor Mazzucato points out, State “mission-led investment” allows all of us to achieve longer-term benefits in terms of creating a more sustainable economy, both from an economic perspective in terms of developing and supporting indigenous firms to move up the value added chain; and from an environmental perspective in terms of mitigating climate change.

ISIF’s new strategy will focus on investments, which will help Irish people live and work in the right places and will increase resilience in businesses throughout the country.

Enjoy the rest of the event and thanks for your attention this morning.

ENDS