Speech by Tánaiste and Minister for Enterprise, Trade and Employment, on the Occasion of the Annual Conference of the Construction Industry Federation

18th November 2008

As Minister for Enterprise, Trade and Employment, I am delighted to have the opportunity to address you as you spend the day learning about new construction opportunities at home and abroad in the year ahead. It is testament to the professionalism of your industry that in the midst of economic uncertainty, you are looking to the future and to new emerging opportunities for your companies.

There can be no doubt that we are seeing momentous developments in the financial sector. What began with market turmoil surrounding U.S. sub-prime mortgages has now evolved to become a serious global financial crisis, significantly eroding investor confidence.

As if the implications of the credit crunch were not significant enough in their own right, we also have the added challenges of the global economic slowdown. The implications for us here in Ireland are already evident - rising unemployment, a steep decline in the public finances, threats to our international economic competitiveness and the first annual reduction in economic growth for some considerable period of time.

When required to do so, we in Government acted decisively early last month to sustain the capacity of the banking system to continue playing its vital role in the functioning of our economy. Let us hope that the coordinated response now emerging will prove to be a successful antidote to the wider global financial turmoil and create a return to stability and economic growth, both domestically and in the international arena.

You in the construction industry have been at the forefront of Ireland’s enormous economic growth over the last fifteen years. In that time, building sites have become familiar parts of our landscape as our infrastructural deficits have been repaired, our housing shortage remedied and our offices, shops, schools and hospitals built. But, as that growth has slowed, many of you are finding that your clients have less work on offer and the volume of building projects has dropped.

The construction industry has managed to do all of the workload placed on it because it responded to the demands of its clients. I am pleased to say that the industry’s ability to adopt new practices and invest in new products has paid dividends to the extent that we now have one of the world’s most productive and effective construction sectors. Indeed, many of our most successful construction companies are now exporting that productive capacity and efficiency to clients in the UK and around the world.

Recently, the Department of the Environment, Heritage and Local Government published the Annual Construction Industry Review and Outlook. It sets out, in fairly clear terms, the challenges facing the construction industry as it strives to deal with the process of great change currently being experienced, particularly in the residential sector. The report shows clearly how the industry is changing in terms of overall levels of activity, employment levels and tender prices. For example:

• The industry was valued at €38.5 billion in 2007.
• Housing output was 78,000 units in 2007 but is expected to reduce to 43,000 units in 2008 and 25,000 units in 2009;
• Construction employment is expected to fall back from 280,000 employed in the last year to 230,000 by end 2008 and 200,000 by end 2009.
• Private non-residential construction investment is expected to decline by 11.4% in 2008 following a 25.2% increase in 2007.

However, I also note that tender prices for general contracting are falling by up to 8%.

As many of you here will know first hand, the slowdown in the housing market has been dramatic, as the global credit crunch, a tightening of domestic lending criteria and practice and the wider economic slowdown have all hit the Irish housing market when it was already trying to adjust from unsustainable levels of activity. The changed market situation has, of course, improved affordability and a further half per cent cut in the ECB’s base interest rate recently will improve matters further. Nevertheless, the Government is conscious that the return of significant activity to the market will be crucially dependent on the availability of credit.

It is important that there should be no artificial interference with the ongoing process of correction in the housing market. The Government’s approach is focused on the broader economic fundamentals and ensuring, ultimately, that the housing market is underpinned by a sound economy.

Any housing-specific interventions must be targeted in nature and designed to achieve specific outcomes. The introduction announced in the Budget for a limited period of a new mortgage product for certain first-time buyers is consistent with this policy, designed as it is to help some first-time buyers already seeking to purchase, to secure mortgage finance.

Having had a major role in building Ireland’s economic growth, Irish construction firms have developed experience which is marketable overseas. Developing countries need the talents and skills which have been built up here over the Celtic Tiger period – your experience of building motorways, houses, hospitals, office blocks, broadband internet connections and shops can, with a little ingenuity and guidance, be sold to new clients around the world.

Most commentaries on Ireland’s economic development over the last couple of decades focus on the role played by foreign investment in driving economic growth. While we see FDI as continuing to play a critical role, it has been acknowledged that the Irish economy will become increasingly dependent on indigenous enterprise for growth in the future. In a small open economy companies can only achieve the scale required for success by competing successfully in international markets through exports or otherwise. This requires Irish companies to be innovative, competitive and show the leadership capability to develop scale and sustain positions in international markets.

In recent years we have witnessed the emergence of a substantial cohort of Irish companies – for example, CRH, Quinn Insurance Group, Kerry Group, Ryanair, to mention just a few – which have built significant positions in global markets, in many cases forging ahead as market leaders and innovators in their sectors.

The success of Irish companies in internationalising their activities is also reflected in the rapid increase in Outward Direct Investment over the last 10 to 20 years. Again, perhaps because of the traditional focus on inward investment by commentators on the Irish economy, the significance of this development has not received the attention it deserves. Ireland now has one of the highest levels of outward investment, per head of population, in the EU and became a net international investor for the first time in 2004 when investment outflows exceeded inflows. ODI activity being undertaken by Irish companies is principally directed towards Western European countries, the UK in particular, but Eastern Europe and North America have also received substantial investment by Irish companies.

I am delighted that CIF is hosting this conference to give you the necessary guidance to compete successfully on the international stage and, to open our minds to the opportunities which exist for Irish construction companies around the world. The global construction industry is worth €3.4 trillion – Western Europe alone has a construction industry whose output last year was €1.12 trillion. As Minister for Enterprise, Trade and Employment, I have been very encouraged to see Irish companies beginning to tap into those resources, with an impressive success rate.

Equally encouraging, is that here in Ireland, the need for a strong, dynamic and diverse construction sector has not gone away, despite the sometimes-depressing newspaper headlines. I am confident that the sustainability agenda will give the industry new clients and new opportunities. Without doubt, this will test your ability to adopt new work practices, develop new tools and continue to seek new specialisations in areas which are only now opening up. However, your sector has never failed to rise to a challenge!

I know that this morning you received briefings on the outlook for all component parts of your industry in Ireland, and this afternoon you will hear how construction firms have done business in Eastern Europe, China, South Africa and Iran. I understand that one of your presenters will ask the question “Is there a role for the Irish construction industry in China?” Without wishing to pre-empt his briefing, the answer is yes. There is a role for the Irish construction industry in all countries, and from the Government’s point of view, we will do all we can to support your efforts to break into those countries and guide you through the practicalities of tapping into new markets.

You should be proud of your professionalism, flexibility and responsiveness which played a leading role in Ireland’s economic transformation. Just as we are all familiar with building sites in all towns in Ireland, I hope that this conference today will help the world become familiar with Irish construction firms, and make them household names globally, just as they have become known nationally.

In conclusion, I would like to thank you for inviting me to address you today and to congratulate you on your forward thinking. I wish you well for a very successful conference.