Strengthening Ireland’s industrial security
A key priority for the Department of Justice, Home Affairs and Migration is to strengthen national security. This objective was highlighted in the Programme for Government and includes a range of objectives the Government are committed to achieving, writes EY’s Gary Comiskey.
In addition, the National Risk Assessment, published in late 2024, identifies an “increase in global insecurity and division” as a key risk facing Ireland.
It is very clear that the risk to national security extends beyond traditional threats such as breaches of state borders or attacks on state assets. The National Risk Assessment notes that “an increasingly divided world can also be seen in the growth of trade tensions between the large international trading blocks, including in relation to technology and critical materials, developments which impact on our current economic model”.
Reconsidering industrial policy
In response to shifting global dynamics, Ireland is now reassessing long-held views on sovereign industrial policy. There is growing consensus that strategic intervention is vital for safeguarding industrial security, enhancing economic competitiveness, protecting national interests, and addressing challenges such as climate change and technological disruption.
A recent EY report explores how governments can revitalise sovereign industrial policy in light of these trends. The report highlights how China’s rapid emergence in the automotive sector has challenged Germany’s longstanding leadership, demonstrating the speed at which circumstances can change and the complexity of industrial policy decisions. It also reflects on vulnerabilities exposed in global supply chains during the Covid-19 pandemic and ongoing geopolitical tensions, particularly between the United States and China, which have underscored the risks of economic interdependence.
While some caution against potential government overreach and market distortion, others argue that well-structured industrial policies are necessary to address market failures and seize strategic opportunities. The challenge lies in striking a balance between increased state involvement and market-driven growth, while avoiding protectionist actions that could fragment the global economy.
Risks and opportunities for Ireland
As a small, open economy, Ireland faces the unique challenge of balancing economic security with its global trading position. Security policies should be guided by three main objectives: reducing dependence on geopolitical competitors, promoting competitiveness within domestic industries, and supporting social and political stability at home.
Ireland’s robust multinational manufacturing sector contributes approximately €50 billion to GDP annually, accounting for around 30 per cent of the national total. Given its significance, it is essential for Ireland to identify key products within strategic industries. Targeted government and industry investment can then be directed to ensure resilience of supply and competitiveness in these areas. Since it is not feasible to support every product, efforts must concentrate on those goods vital for maintaining national economic security and competitiveness.
“Establishing clear regulatory frameworks will attract sustained corporate investment, while ongoing incentives will encourage companies to invest in strategic sectors.”
In addition to strengthening domestic industrial security, Ireland must remain cognisant of its role in the global economy and the potential risks posed by other countries seeking to bolster their own industrial security. The EY Geostrategic Outlook report found that governments worldwide are increasingly implementing regulatory measures, such as foreign direct investment restrictions and subsidies in strategic sectors, to protect national interests and promote domestic manufacturing. Such actions could have significant implications for Ireland’s manufacturing base.
Government and industry partnership: A path forward
Addressing industrial risk effectively requires a strong partnership between government and industry. While it is neither possible nor desirable to apply sovereignty measures to all products and components, ensuring the security of industrial production is becoming a top priority for business leaders. Many are prepared to make significant compromises to reduce risks in their supply chains and production capabilities.
Clear objectives and effective prioritisation are essential, focusing efforts on supporting domestic manufacturing and safeguarding the supply of critical goods through collaboration between government and the private sector. According to the EY CEO Outlook Pulse survey (April 2024), 82 per cent of CEOs globally are willing to engage in initiatives to enhance national resilience and autonomy, with 56 per cent open to accepting reduced profit margins for domestically produced goods aimed at the local market.
Ireland can harness this corporate willingness by enacting targeted policy measures. Establishing clear regulatory frameworks will attract sustained corporate investment, while ongoing incentives will encourage companies to invest in strategic sectors. Increased government funding should also be allocated to support crucial research and development initiatives.
Continued focus on industrial policy and investment is necessary to foster innovation and strategic production. A robust regulatory, social, scientific, and financial ecosystem will drive both incremental and transformative innovation, thereby strengthening Ireland’s industrial sovereignty. Ongoing efforts by agencies such as IDA Ireland, Enterprise Ireland, and Research Ireland to invest in workforce development and research are fundamental to achieving these objectives.
Ireland should also maintain robust public-private dialogue to define a clear vision of national strategic concepts, goals and challenges. This collaboration will engage public decision-makers and CEOs in making long-term investments, ensuring alignment on priorities and fostering sustainable economic growth. This dialogue will inform key development such as the proposed pharmaceutical strategy for Ireland and other similar strategies.
Public investment may also be required to bridge the gap in production costs between the Ireland and elsewhere. Clearly any investment or subsidy will need to consider State Aid rules but can be used to foster the inception of new industries, and sharing risks associated with breakthrough innovations. Although CEOs have indicated they are willing to reduce their profit margin to manufacture products domestically, public investment is still likely to be required to attract new business and continued multinational investment.
E: gary.comiskey@ie.ey.com
W: www.ey.com
