Ireland is open for investment and the ISIF is open for business - SPEECH BY MINISTER FOR FINANCE, MR MICHAEL NOONAN TD IRELAND STRATEGIC INVESTMENT FUND

05.03.14

                                              

Ireland is open for investment and the ISIF is open for business

SPEECH BY MINISTER FOR FINANCE, MR MICHAEL NOONAN TD – IRELAND STRATEGIC INVESTMENT FUND

Market Engagement & Communication Event

The Printworks, Dublin Castle, Dublin 2

Wednesday 5th March

8:30am – 10:30am

  1. Opening Remarks

It is a pleasure to address you today on one of the key parts of the Programme for Government and of our Medium-Term Economic Strategy, which was published last December. The Ireland Strategic Investment Fund will have €6.8 billion in funding available for commercial and economic investment in the Irish economy. 

The legislation to underpin the fund will commence its route through the Oireachtas shortly and the investment strategy of the fund is at an advanced stage of development. However, the key message I would like people to take from today is that the ISIF is open for business,  funding is available for SME’s through a number of funds and the fund managers are here today to answer any queries you may have.

This is just the start of the ISIF. The fund will have a broad mandate to make commercial investments that support economic activity and employment in Ireland. The commercial mandate of the ISIF will ensure that the investment generates a return, attracts other investors and recycles funds for future generations.

Developing alternative sources of financing for infrastructure projects and business across all sectors of the economy – from Agriculture, to Construction, to technology – is essential and will complement existing funding source. I would encourage business and their representative bodies here today to examine alternative funding models in place in other jurisdictions and to come forward with plans for investment for the ISIF.   The NPRF have taken an open-minded and flexible approach in their investment to date and this will continue.

I will return in greater detail to the new fund in a few moments. I would firstly like to give you a quick snap shot of the economic situation in Ireland. While many things are moving in the right direction and many of the weaknesses in our systems and structures have been corrected, there are significant challenges ahead.

As you are already aware, Ireland exited the bailout cleanly and without a precautionary credit line. This was a major decision and with strong arguments being made on both sides. The 10-year bond syndicated bond sale by the NTMA in January was the real test and with €3.75 billion borrowed at just over 3.5%, any lingering doubts about the approach have been put to bed. The yield on the 10-year bond has fallen and it is currently trading at circa 3.07%. The NTMA has set out its strategy to borrow a further €4 billion this year and I am sure that the rates will continue to fall.

The public finances are under control with deficit under 5% and ahead of target in 2013. The target is 3% by 2015 and eliminate by 2018.  Gross debt levels, while very high at over 120% of GDP, will peak this year and the net debt position is just below 100%. When the equity stakes in the banks are taken into account, this figure is much closer to the EU average of 75% net debt to GDP.

With the Sovereign now rated at investment grade by the three main rating agencies and the NTMA planning to raise a further €4 billion over the course of 2014, Ireland is well funded and truly back to normal when it comes to market funding.

Most importantly, jobs are being created. Figures released by the CSO just last week showed 3.3% or 61,000 jobs growth in 2013.This is the highest level of jobs growth in Europe. However, unemployment still stands at an all too high level of 12.1% and the CSO figures shows that while over 1.9 million people are now working in Ireland, just over 250,000 people are unemployed

So that is a quick snap-shot of where we are now. The next question is where do we go from here.

The Medium-Term Economic Strategy, published in conjunction with our  exit from the EU-IMF Programme, is the Government’s new strategy. The stated objective of the plan is clear: return the economy to full employment by 2020.

It is the overall framework for social and economic policies that are being developed and implemented across the Irish Government. The Strategy is based on three interconnected pillars:

  1. Ensuring debt sustainability – reduce the deficit to below 3% by 2015, eliminate it by 2018
  1. Supporting Employment and Living Standards – full employment by 2020.

 

And the third pillar, and the one I would like to focus on today is Financing Growth

 

  1. Financing Growth is a Government Priority

The Strategy recognises that an essential ingredient of economic growth and jobs creation is the availability of financing and capital for existing companies to grow and new innovative companies to be formed. This will not be news to any of you here today.

As the economy grows and demand increases, it is essential that well-priced financing is available to support business to trade, to grow and create jobs.

In the Medium-Term Economic Strategy we set out our ambition of developing a more diversified, competitive and responsive financial infrastructure that can finance this growth across the economy. To achieve this we will:

  • Complete the necessary restructuring of the Irish banking sector in a manner that underpins a return to sustainable profitability and private ownership;
  • Increase non-bank funding through direct capital market financing and alternative sources of finance; and
  • Establish the Ireland Strategic Investment Fund

Work is well underway on all three fronts and the banking and financing landscape has changed dramatically in Ireland in recent years.

Firstly, Irish banks have been restructured and recapitalised with profitability on the horizon. Many of the terms associated with the banking crisis are gone – bank guarantee, Anglo Irish Bank, promissory notes. The State is starting to secure some return on the taxpayer’s investment in the banking system and we have used these proceeds to further reduce our debt levels.

The banks report that lending into the real economy is strengthening and they are prepared for an increased demand in lending to SMEs this year. I have also signalled in recent days that I would like to see more competition in the domestic banking system and there is definitely space for a third banking force in Ireland.

Secondly, on the non-bank credit side, we have the European Investment Bank increasing their activity in Ireland, providing us with loans totalling €1.2 billion last year. The Council of Europe Bank approved loans totalling €41 million in 2013. Work is at an advanced stage with KfW, the Germany State development bank, to open up a credit line into the Irish economy. I have previously announced that my Department are working with KfW and with the EIB to progress the development of a Strategic Investment Bank, effectively a national development bank for Ireland, fulfilling a Programme for Government commitment to ensure that the real economy in Ireland has access to the finance it needs at the right time and with the right conditions.

 

  1. NTMA Legislation to establish the ISIF – Q2 2014

Thirdly, the Ireland Strategic Investment Fund is a cornerstone of the MTES (and the reason that we are all gathered here this morning).

The funds in the National Pension Reserve Fund have played a very important role in the Irish story in recent years. €20.7 billion of NPRF money has been invested in the Irish banks in order to recapitalise them. Without this investment, Ireland’s debt levels would be much higher and the mountain that the Irish people have had to climb in recent years much steeper.  The fund was originally established to make investments globally with a view to prefunding social welfare and public service pensions. While the need to provide for social welfare and public service pensions obligations has not abated, fostering economic growth and employment is currently a greater priority. By creating jobs and growing the economy, the State will be in a better position to meet its pensions obligations in the longer term.

However, in order for Ireland to make the best use of its resources and establish the Ireland Strategic Investment Fund, legislative changes are required. This involves a shift in focus from the NPRFs current mandate to the ISIF’s mandate of making commercial investments that support economic growth and employment in Ireland.

The legislation to establish the Ireland Strategic Investment Fund which will absorb the resources of the National Pensions Reserve Fund should be published shortly and I hope to see it become law by the middle of the year. This will allow the full €6.8 billion of available resources in the NPRF to be used for commercial investment in Ireland to support economic growth and employment.

This means the ISIF will have a dual objective – both investment return and economic impact. I am conscious that there is little precedent for sovereign funds globally investing with such a mandate, although a number of such funds are beginning to emerge. I believe that we are setting up a model that will come to be widely copied.

While supporting economic growth and employment is clearly the end goal, the commercial nature of the ISIF is an important part of its mandate for two reasons. Firstly, it will magnify the impact of the resources of the ISIF by helping to attract third party co-investment. Secondly, it will allow the ISIF to recycle its investments over time so as to be able to invest in new strategic priorities for the State.

The ISIF will be a cornerstone investor, acting as a catalyst by attracting third-party investors. This will significantly increase the economic impact that can be achieved in Ireland.  The benefits of the ISIFs commercial mandate can already be seen by the fact that the current €1.1 billion committed by the NPRF to investment in Ireland has been matched by €1 billion of third-party commitments, resulting in a total commitment of almost €2.2 billion.  I sometimes get asked when the ISIF will be making investments to support the Irish economy. Well, the simple answer is that it has already started.

  1. Pipeline of Investments of NPRF

In anticipation of the establishment of the ISIF, the NPRF Commission has already made a number of investment commitments in Ireland in areas of strategic importance such as infrastructure, venture capital and long-term financing for SMEs.

The NPRF has provided a stand-by credit facility for the N11 and Schools Bundles three Public-Private Partnership projects. Under the Medium-Term Economic Strategy, the Government will continue to operate a multi-annual budgeting approach to infrastructure investment and publish 5-year Exchequer investment envelopes.  A new infrastructure investment framework will be published in 2015 following a review of Exchequer infrastructure requirements.  This will include consideration of the use of Public-Private Partnerships as a delivery mechanism where appropriate. It will be open to the ISIF to invest in PPPs where there is a commercial return.

Other commitments agreed by the NPRF include a collaborative relationship with Silicon Valley Bank involving the deployment of 100 million dollars in lending commitments in Ireland to Irish technology companies. The NPRF are a cornerstone investor alongside additional investment from third-party investors in a suite of three new long-term funds which will provide equity, credit and investment for restructuring and recovery for Irish small and medium-sized businesses and mid-sized corporates. The NPRF along with China Investment Corporation have established a fund which will make minority equity investments in fast-growing technology companies in Ireland that have a substantial presence or strategic interest in China.

In parallel to the legislation to establish the ISIF, the work to finalise the business plan for the ISIF is well advance and this will be ready around the same time as the legislation. However, it suffices to say that the ISIF will have the flexibility to make investments up and down the capital structure and across a range of investment types and sectors.

 

  1. Closing Remarks

In summary, the objective of the Medium-Term strategy is full employment by 2020. The Strategic Investment Fund will play a key role in supporting this objective. The funds are available. Commercial investments opportunities and ideas will come from businesses and investors such as the one you are here representing this morning. The message is clear Ireland is open for investment and the ISIF is open for business

Thank You.