| Strong IFSC will not be troubled by global financial concerns |
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| The IFSC has evolved to such a degree that it should not see the current developments in the market as a threat. Padraig Rushe points out that the centre was born during a period of major turbulence in financial markets, and is now well placed to prosper. |
Back in October 1987, a high-powered delegation from Ireland was in the middle of a tour of the Far East to promote what was then Ireland’s fledgling International Financial Services Centre (IFSC). The delegation had been well received in the various Asian countries they visited and the message of the IFSC had been communicated to many potential investors. But then came October 29th, 1987 - and a poorly-received set of US economic figures sent financial markets into free-fall. The Dow Jones index suffered its worst one-day loss since the ‘Wall Street Crash’ of 1929 - and over a quarter of the value of the New York market was wiped off in a matter of hours. | | Padraig Rushe |
That was also the day when that Irish delegation arrived in Tokyo selling the attractions of the IFSC to Japanese financial institutions. Not an auspicious time to try and sell the notion of a financial centre on the periphery of Europe! But despite that difficult start, the IFSC has become a phenomenal international success story as evident from some high level statistics such as:
• Over 22,000 people now working in International Financial Services with almost 5000 outside Dublin
• 400 companies situated here
• Banking Assets in excess of €1 trillion and a majority of the world’s top 50 banks having a presence
• Investment Fund Assets under Administration of €1.5 trillion
• Over 200 Captive Insurance Companies and a rapidly expanding life and non-life sector generating €50 billion in annual premium income
• Corporate Tax contribution of roughly €1 billion annually to the Irish Exchequer.
If the IFSC, born in the middle of one major catastrophic slump in financial markets, could develop into a world class financial centre from a base point of zero, then I believe that it will continue to prosper despite the stubbornly drawn out volatility being experienced across financial markets at the present time.
Weakness in financial markets undoubtedly casts a dampener over many areas of financial services. The IFSC as a global player - while not exactly cocooned from world events - can continue to prosper and is sufficiently diversified to withstand such shocks to the system. As is clear from the above statistics, the IFSC has become a world centre for investment fund administration and is now recognised as a global leader in the developing hedge fund or alternative sector. Almost all of the top global players in the industry have a presence here.
These operations don’t grab the headlines, but they have the great attraction of not being overly affected by market volatility. Fund administrators are just as concerned about cost competitiveness and the availability of skilled staff as they are about the current state of the markets, and there is no sign of any slowdown in this key sector (currently employing over 9,000 people) within the IFSC. Indeed if anything, fund administration is continuing to grow and has also become a major employer not just in Dublin but right across the country and we continue to attract new players into this sector.
But it isn’t just fund administration that has become a major employer countrywide and a glance at the map shows the geographic diversity of Ireland’s international financial services industry. Anybody who thought the IFSC is a Dublin-only phenomenon has been seriously misled - almost 5,000 people are now employed by IFSC outside Dublin, almost a quarter of the total employment in international financial services businesses.
There is also the added strength of the newer operations that have been attracted to the IFSC, which have helped the centre develop from being back office-focused to one which now has a healthy mix of front office and back office operations. Some of those front office operations such as aircraft and shipping finance probably weren’t on people’s radar screens back in 1987, but now Ireland is an acknowledged world centre for these high value, high skills services. These businesses are now poised to absorb any contraction that the current market volatility may cause across the banking and structured finance sectors.
Ireland undoubtedly would never have had an aircraft finance industry had it not been for the wisdom of the late and deeply lamented Tony Ryan and his brainchild GPA. GPA itself might have been a victim of volatility in financial markets, but from GPA an industry has emerged that now boasts 50 or more companies involved in aircraft finance and other forms of international asset financing. (We have recently established the International Asset Financing sub-group of the IFSC Banking & Treasury Group and very shortly we hope to have a complete picture of this sector.)
Shipping finance looks as if it may follow aircraft finance as a major presence within Ireland’s global financial services sector. Bank of Ireland can claim to be a major player in Ireland having provided some €1.5 billion in finance since our business was established in the IFSC in 2002. The scope for this market to develop is evidenced by forecasts from the Irish Maritime Development Office that Irish financing of shipping assets could reach €10 billion by 2010 and shipping finance could emulate the level of activity in the aviation sector in 10-15 year’s time. Add in plans by Turkish ship owner Yardimci to manage a fleet of chemical tankers from Ireland - and the opportunities are clear.
These types of asset finance operations, whether they involve aircraft, ships or other assets, are never going to be the major employment providers like fund administration. Nonetheless they are just as important given their very significant asset bases, the highly skilled and experienced workforces they do employ and the essential additional jobs created across the professional firms supporting this growing sector.
Insurance too has become another cornerstone of the IFSC encompassing life, non-life, captive insurance and reinsurance. The combined sector employs over 3,000 people and is poised to capture its share of increasing mobile investment from companies eager to establish a base within the Euro zone.
Twenty years ago, high-powered delegations from Ireland toured the world’s financial markets selling the IFSC as an international financial centre.
Now the reverse is the case and we are receiving delegations from Singapore and Iceland, among others, wanting to find out how Ireland made the IFSC concept work; how we developed from a centre founded essentially as a back office support operation to become a world leader in financial services as diverse as shipping and aircraft finance, cross-border pensions, insurance, fund administration, corporate treasury and the rest. Anecdotal evidence has it that the Singaporeans want to become an Asian centre of aircraft finance - so where else to learn how to do this but from the current world leader - Ireland.
The success of the IFSC is down to many factors. But one key factor has been the ability of the various stakeholders to reinvent the IFSC as the global financial services sector evolves and develops. Twenty years ago, few would have believed that Ireland could become a global centre for international financial services. Let us not forget that the critical factors underpinning Ireland’s attractiveness remain in place:
• We have an internationally recognised and highly reputable regulatory environment
• We have direct access to European markets and continue to implement the EU’s various financial services directives
• We have an excellent education system with an ever increasing focus on Financial Services and over 30 per cent of the workforce under 25
• Our 12.5 per cent Corporate Tax Rate is highly competitive and supported by a growing network of almost 50 tax treaties
• We are the only English speaking member of the Euro zone
• Our Government is pro-business and continues to support the development of financial services via IDA Ireland and industry committees.
The IFSC has now built up a critical mass and a spread of activities that has in the past and will in the future allow it ride out volatility in financial markets. That is why the current volatility is not a threat and may even provide opportunities to further develop an industry which employs over 20,000 people in Ireland. |
Padraig Rushe is a director at Bank of Ireland Corporate Banking.
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| Article appeared in the December 2007 issue.
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