Brexit: Ireland's missing exporters and new business startups: Part 1
Brexit: Ireland has one of the lowest ratios of exporters in the European Union to both total enterprises and population, while the rate of new business startups is also low.
In response to the departure of the UK from the EU in 2019, the Government through Enterprise Ireland last month announced a target of doubling indigenous exports to the 18 other member countries of the Eurozone, to €6bn by 2020. About 600 client companies are being targeted with half of them recent entrants to single currency import markets.
However while policy makers typically tend to believe that developing new export markets is easier than the challenging reality, there are also structural factors that have been masked for far too long by misleading headline Irish data reflecting the dominance of the foreign-owned sector.
Based on data from Irish research, Eurostat — the EU statistics office, and the OECD (Organisation for Economic Cooperation and Development) — a think-tank for mainly rich country governments, the ratio of Irish exporters (goods + services) to total enterprises of 2.4% compares with 11.9% in Denmark; 9.7% in Austria, 6.4% in the Slovak Republic and 5.4% in Sweden. Among big economies Germany has a rate of 11% based on recent data; France 3.5%; UK 6.2%; Italy 5.7% and Spain 5.2%.
Ireland's state exporting enterprise agencies — IDA Ireland, Enterprise Ireland and Údarás na Gaeltachta — have about 4,500 active client companies. We have used a total of 5,740 based on recent Economic and Social Research Institute (ESRI) research — see here and here. When the ESRI excludes retail type operations e.g. Tesco exporting goods to Northern Ireland comprising UK imports or sourcing in the Republic, the total falls to 4,478.
The 5,740 as a ratio of 238,000 enterprises as per 2014 business demography data gives us the ratio of 2.4%.
Ireland has a population of 4.7m compared with Denmark's 5.7m and according to Denmark's Trade Council in 2014 it had 30,000 exporters.
European Commission data show that in 2013 the ratio of Danish SMEs with intra-EU exports of goods (percentage of SMEs in industry); was 24.65% compared with an EU average: 17.3%. SMEs with extra-EU exports of goods (percentage of SMEs in industry); was at 22.24%; EU average: 9.95%. There is no comparable Irish data but a 2015 Eurobarometer survey on the 'Internationalisation of SMEs' found :
Within the EU, companies in Latvia (70%), Austria (66%) and Lithuania (64%) are the most likely to have had experience with exporting, and they are amongst nine Member States where at least half of all companies have had experience. At the other end of the scale only 11% of companies in Bulgaria, 16% in Italy and 17% in Ireland and France have had some experience with exporting...Within the EU, SMEs in France (73%), Ireland (68%), and the UK (60%) are the most likely to say a lack of language skills to deal with foreign countries would be a problem. In contrast, just 5% of SMEs in Denmark, 9% in Malta and 12% in Croatia say this would be a problem if they were to export.
Companies in Croatia (42%), Denmark (39%), Austria (37%), Sweden and Lithuania (both 35%) are the most likely to have exported to a country outside the EU, particularly compared to those in Bulgaria (4%), Ireland and Italy (both 8%).
Official agencies in recent years have put the goods exports total at 69,000 exporters in the Netherlands and the UK has reported that it had 143,000 exporters in 2015.
France had 124,100 goods exporters in 2016 and about 28,300 were new to exporting — the latter is an interesting statistic as the French Treasury reported in 2009: "When they export, they export to just one or two countries, generally to neighbouring countries, and 30% fail to hold onto their market for more than a year. German SMEs (small and medium size firms with up to 249 employees), which are larger and more innovative, are also bigger exporters, with exports accounting for a larger share of their total revenue, and they also export more regularly."
Destatis has reported that in 2013 340,000 businesses exported goods from Germany and Bundesbank research shows about 12,000 services exporters.
Typically, the lion's share of a country's exports are accounted for by big firms and economists concluded in 2015 "if the industrial structure (in terms of firm size and sectors) of countries such as Italy and Spain were to converge to the structure of Germany, the value of Italian and Spanish total exports would rise considerably — by 37% and 24% respectively."
However, in Denmark — the exports superstar of small countries — SMEs account for almost half the value of goods exports and in services the country is a world leader in shipping.
The high wage economy has a low reliance on foreign firms and Novo Nordisk, the Danish drugs firm, employs 15,000 of its 20,000 payroll in Denmark.
Indigenous drugs firms in Ireland employ about 3,000 people — Élan, founded in Ireland in 1969 was by mid-2001 the 20th most valuable drugs firm in the world. It no longer exists.
Successful exporting firms are important for an economy and also workers, as pay and conditions are typically better than in non-exporting firms.
In Part 2 we look at the challenges facing Ireland post-Brexit.
Irish business startups
On Irish business startups, Ireland in March 2017 had 91,500 employer businesses with employees, where the owner was working (categorised as self-employed) — down from 120,100 in 2008 (-24%) and 8% below the level in 2000 — before the property bubble.
In the 52 months from end of 2012, employment grew by almost 200,000 or 11% while the number of employer businesses expanded by 5.5% or an average net of 1.3% annually.
In the recovery period, new enterprise births (employer, own-account — 1 person businesses — and joint stock companies) expanded by 5.6% in 2013 and 6.7% in 2014 (latest data).
During the recession deaths exceeded births to 2013 (latest data).
In Denmark the birth rates were 10.5% in 2013 and 11.7% in 2014 while the death rates were at 10.3% and 10.5%, suggesting stronger dynamism in the Danish economy.
Finfacts Nov 2016: Ireland's business startup rate among lowest in European Union