Ireland has taken a beating since the global financial crisis erupted, but despite the scary headlines on bank rescues and ratings downgradings, the country points the way for how Abu Dhabi can diversify its oil-dominant economy. Asa Fitch discusses how Abu Dhabi can learn lessons from Ireland. Agriculture is no longer the driving force in the small European island after the efforts by Dublin to attract a raft of foreign financial, technology and pharmaceutical companies. The essence of the country's development story and perhaps the secret to its success is that it has leveraged what resources it has to the maximum extent possible. Asa Fitch writes Ireland suffered a series of unprecedented setbacks during the financial crisis, forcing it to seek aid from the EU and IMF to contend with a crippling banking crisis and property market slump. This summer its credit ratings were downgraded to junk status by Moody's Investors Service. Beyond the scary headlines of ratings downgrades and bank rescues, however, lies a vibrant economy supported by a well-educated workforce and built upon foreign investment, innovation and small business growth. Despite Ireland's troubles, its development model, preened carefully over many decades with government support, is one Abu Dhabi and other places in the Gulf are examining closely as they try to diversify and grow their own economies. Indeed, in some sense, Ireland in the 1950s and 1960s faced challenges that parallel Abu Dhabi's today. Its economy was almost wholly agrarian, just as Abu Dhabi's is oil-dominated, and it was highly dependent on exports to the UK. While agriculture was a profitable business, the country's leaders knew a more diverse economy was needed. "They realised that [an agrarian economy] wasn't sustainable in the long term if you wanted to develop the economy and create sufficient employment opportunities for a greater proportion of the population and to increase incomes," says Kieran Donoghue, the head of financial services at Ireland's main foreign investment promotion body, the Industrial Development Agency (IDA). Ireland is small - it has a population of about 4.5 million and a workforce of about 2 million - and policymakers understood early on that the country would never be an economic titan to rival the UK, France or Germany. It would have to carve out a niche to thrive in while attracting foreign investment and growing non-agricultural exports. It would be a small country with a strong punch. What happened in the decades that followed was nothing short of a metamorphosis. Despite Ireland's size, it is home to European bases for a slew of technology and pharmaceutical companies from Intel and Google to Pfizer and Novartis. Foreign companies in Ireland currently export goods to the value of about €110 billion (Dh581.7bn) a year. They employ 240,000 people and account for 65 per cent of corporate taxation paid in Ireland. In addition to attracting foreign technology and drug companies, the country has brought in a raft of foreign financial firms following the founding of Dublin's International Financial Services Centre in 1987. In just a few years, its stock exchange has become a centre point for listings of hedge funds and asset-backed securities. "We started the investment fund business back in 1995, and it pretty much ran in parallel with the growth of financial services in Ireland," says Gerard Scully, the director of international primary markets at the Irish Stock Exchange. "We've gone from zero to being number one in the world for alternative investment funds." With help from government funding agencies, Ireland has also become a force in science research and innovation. Science Foundation Ireland, the main body behind the country's science funding agenda, has deployed about €1.4bn in its 10-year history, helping to start nine research centres that focus on everything from semiconductor chemistry to composite materials for aircraft. That investment has fed back into industry and small business, generating ideas for start-ups and new products for Ireland's biggest companies. "The model for Ireland was to fund smart people, help them do great things, link them with industry, help them grow the industrial base, use this talent as a magnet to attract additional industry and then spin out small companies," says John Boland, the director of Crann, a science research centre in Dublin that is partly funded by the government. "That is the model Ireland has bought into, and in fact that is the only model for Ireland." <strong>A textbook example of how to make a financial hub work</strong> Ireland has made major investments in financial services, and has attracted some of the biggest banks in the world. Its success stands as perhaps a textbook example of how to develop a financial hub. <a href="http://www.thenational.ae/thenationalconversation/industry-insights/finance/a-textbook-example-of-how-to-make-a-financial-hub-work">read article</a> <strong>How to impress a client - have the PM speak on your behalf</strong> Ireland has put huge amounts of money and effort behind growing its small businesses. The government-led push has helped make thousands of homegrown companies successful and given them a lasting foothold in the global economy. <a href="http://www.thenational.ae/thenationalconversation/industry-insights/economics/how-to-impress-a-client-have-the-pm-speak-on-your-behalf">Read article</a> <strong>Among Europe's elite for research</strong> Ireland has put considerable financial muscle behind raising its science and innovation profile in Europe, which has vaulted the small country into Europe's top leagues. <a href="http://www.thenational.ae/thenationalconversation/industry-insights/technology/among-europes-elite-for-research">read article</a> The essence of the Irish development story - and perhaps the secret to its success - has been leveraging what resources it has to the maximum extent possible. Ireland, for example, had a strong university system even before it started on the path of economic diversification. That factor, coupled with government support and some of the lowest corporate tax rates in Europe, has added enormously to the country's appeal for foreign businesses. Ireland has also proven to be a flexible partner for foreign companies, working with them to keep their presence in the country even as costs rose and the nature of the global economy changed. Many have pledged to stay even after the Celtic tiger boom years ended with the financial crisis. "We have changed the business radically a number of times," says Alice O'Dwyer, the vice president of human resources at Cook Medical, a US-based medical devices company that has a manufacturing facility and service centre in Limerick. "We started as a manufacturing plant, we took on distribution early on, and then we got into research and development." When Cook decided to centralise its European operations, it chose Ireland, she says. "They could have gone off and created a new location in Europe, but because of everything that had happened in Ireland and the success we'd had in finding people in getting the job done and the work ethic, they decided to bring the [operation] here under our umbrella," says Ms O'Dwyer. Ireland has even leveraged its smallness to its advantage. Given its size, businesses are more easily able to interact with top policymakers than they might be in the UK or France. The guiding philosophy of the government, in turn, has consistently been to help both domestic and foreign businesses as much as they can. "Ireland is so small that actually if you felt strongly enough about something, it wouldn't be that difficult to approach the prime minister," Mr Boland says. "What makes Ireland different from most other places is its accessibility and the sense that if you make the case strongly enough that you can actually effect change. You can get things done." That said, all of Ireland's advantages have to be balanced against its recent financial meltdown. The turmoil has not had a huge impact on its development strategy, although funding for government development agencies is unlikely to increase any time soon. Another worry is that Ireland's reputation as an open, stable place to do business could come under threat from all the recent news, scaring potential investors and academics away. "The difficult barrier for any country in this situation is reputation," says Dr Stephen Simpson, the director of life sciences at Science Foundation Ireland. "It's making sure the ripple effect of reputation out there doesn't kill us before the real problems do. We have a visitation from the IMF every few weeks. We're under scrutiny, and that affects us in all sorts of ways."
