What opportunities and policy challenges lie ahead

Marc Coleman, economist and founder of Octavian Consulting, discusses the opportunities and policy challenges that lie ahead. 

For businesses that haven’t yet entered the digital space, Covid-19 will turn an option into an imperative. But according to new and fascinating data released this week by the Department of Finance, Ireland remains an underperformer in terms of participation in the online economy: at 40 per cent  – and although up from 30 per cent since the crisis began – online purchases are significantly below countries like Italy, never mind traditional high tech leaders in northern Europe. That notwithstanding, the opportunities for both B2B B2C growth are phenomenal. Availing of the Local Enterprise Offices online voucher is a good way to start and the training provided with the voucher, for businesses not yet online, is extremely useful, if unnecessarily time consuming.

 …the opportunities for both B2B and B2C growth are phenomenal. 

 For most businesses, the challenge will be to “think online”. From just marketing your goods and services using logos, slogans and mission statements, a new world of virtual identity and virtual marketing using search logic, metadata and algorithms is now upon us. Mastering that new world is the key to entering the new matrix of the post Covid-19 economy.

The impact of the Covid-19 crisis will be far more painfully felt in rural and regional Ireland.

As well as marketing, daunting challenges face us in relation to broadband, banking, corporate governance and need to be addressed quickly. The impact of the Covid-19 crisis will be far more painfully felt in rural and regional Ireland. Likewise, the opportunities for business to relocate – in a less locationally defined economy – from high-rent urban centres to lower-cost regions means that investment in broadband capacity has the potential to release investment and relocation in parts of the country that now most urgently require it.

Banking

The fact that a Department briefing on the economy is using data from Revolut online bank – and that it notes the existence of 1 million users of that particular online facility – underlines the changes taking place in the banking sector. As noted by the Irish Banking and Culture Board, the relationship between the banking and SME sector was a crucial feature of the last economic crisis. Even during the recovery, interactions between business and banking were a source of concern. Progress in technology will need to be fully utilised to improve the user experience of SMEs using the banking system, the fairness and functionality of SME lending and the sophistication with which data analytics assesses the viability of distressed business. As reflected in the agenda of the SME Recovery initiative (www.SMERecovery.ie) funding is an urgent concern of the sector and one that will become severe later in the autumn.

Taxation

An increasingly digitalised economy will present policy makers with the challenge of redesigning taxation systems to source taxation at appropriate points of transaction. This must not be used by individual countries as an excuse to either increase the tax burden or gain competitive advantage. Rather – recognising the international nature of digital commerce – and in collaboration with the EU, OECD and other international fora it should be pursued on a multilateral basis with a view to ensuring that global digital taxation is consistent with principles of free trade and equity in a way that promotes global recovery by stimulating trade. For an island nation whose GDP is now dominated by flows in traded service this is critically important. A revision of 2017 OECD guidelines on digital taxation will need to be agreed and implemented in the same way as BEPS and in consultation with business representative bodies. Given the vital importance of small business to recovery, generous exemptions and thresholds will need to apply to future digital tax policy.

Governance

Last but not least, governance in a digital age looks set for some practical changes. Once geographically defined, board meetings are now increasingly virtual affairs. Once defined by the presence of people in one location, quoras for meetings are electronically registered. In relation to paper notifications – whether of a shareholder AGM, of board minutes or Company Registration Office documentation – an opportunity now exists to further progress digitalisation in ways that can enhance the speed and efficiency of business.

Conclusion

This is just an overview of a vast area of policy that will confront all governments in the coming decade. For now, the most vital critical challenge will be for the new government to ensure comprehensive delivery of broadband, to increase access to efficient digital channels of business funding and to ensure that digital taxation measures help and do not hinder small business recovery. A key long-term challenge will be to avoid a “Digital Divide” both between larger companies and SMEs in terms of online literacy but also between urban and rural broadband qualities. The real economic divisions that will open up in coming months will be challenging enough without adding virtual ones.

Marc Coleman is Founder of Octavian Public Affairs Economics and Advisory consultancy. His latest book, “An Economic Response to Covid-19” is available free of charge from www.octavian.ie  A former European Central Bank economist and Irish Times Economics Editor, Marc predicted the last recession in The Irish Times (6th July 2006) authored 4 books narrating the causes of the crisis and accurately predicting recovery, population growth and our current housing need. He more recently worked as Director of Financial Services Ireland with Ibec and holds a scholarship MBA from the Smurfit Business School.