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News : Irish Last Updated: Dec 19th, 2007 - 13:17:15


Foreign-owned sector accounted for 87.6% of Irish exports in 2004; 71.6% of total exports came from two sectors - Chemicals/Pharmaceuticals and ICT/Machinery
By Finfacts Team
Feb 20, 2006, 14:03

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Martin Cronin Chief Executive Officer of Forfás
Irish State agency Forfás launched its annual International Trade and Investment Report today.  The report, which analyses Ireland’s trade and investment performance in the context of international developments, highlights the emergence of new trends in the Irish economy which indicate that Ireland is moving into a new stage of economic development.

 

Welcoming the report Minister for Trade and Commerce, Mr Michael Ahern T.D. said, “This report emphasises the changing nature of production in Ireland, particularly how Irish companies are increasingly winning export business in services activities, which is timely in light of the European Parliament’s vote on the Services Directive last Thursday.  It is also interesting to note that for the first time Irish firms are now net outward foreign direct investors.  In the future, this will be an important way for Irish businesses to access new markets, and to specialise their domestic operations in high value added activities.”

 

Key Findings

  •  Services exports continued to expand rapidly, particularly in computer, finance and insurance services. The importance of internationally traded services exports to the economy, measured as a percentage of GDP, now surpasses that of many other developed economies by a significant margin.

  •  While still extremely large by international standards, the merchandise trade surplus has been declining since 2002, reflecting slow export growth and a surge in imports. The rise in imports was driven by buoyant consumer demand and the reliance of Ireland on increasingly expensive imported fuels.

  •  The continuing evolution of the Irish economy is reflected in foreign direct investment (FDI) flows. For the first time Ireland became a net investor overseas, as outward FDI rose to its highest ever level in 2004.

  •  Ireland is following the path of other high income developed economies by increasing its direct investments abroad, suggesting that Ireland is set to remain a net investor overseas in the coming years.

  •  Ireland still attracts a large share of global FDI inflows for its size. While our share fell significantly in 2004, this largely reflected changes in the financial operations of multinationals based here, rather than a reduction in new production facilities.  In fact, the number of new IDA-supported jobs has been increasing steadily since 2003.

Executive Summary

  • World merchandise trade grew by over 10 per cent in euro terms in 2004. Driven by global economic growth of four per cent, the increase in world trade was more than double that of 2003, and the best since 2000. Asia, and in particular China, recorded above average trade growth. The USA experienced below average trade growth in 2004, but since imports grew over twice as fast as exports the trade deficit continued to grow, reaching seven per cent of world trade. Europe in general also experienced below average trade growth.
  • Irish exports returned to growth in 2004, rising in value terms by 2.6 per cent to 84.3 billion, but still below the peak achieved in 2001. In the rankings of the world’s largest exporters, Ireland has fallen from 19th in 2002 to 23rd in 2004. The USA was the destination for 20 per cent of Ireland’s exports, making Ireland the US’s 12th largest import source in 2004, with a market share of 1.9 per cent of total US imports. Exports to the UK and the rest of the world were steady in 2003 while exports to the EU rose by 5.6 per cent.
  • In 2004, 71.6 per cent of total exports came from two sectors, pharmachem (chemicals and pharmaceuticals) and ICT/machinery. Pharmachem exports expanded 4.8 per cent in 2004, and have witnessed dramatic growth since 1999, expanding in aggregate by 77.6 per cent. Machinery, which includes ICT products, continued its decline in 2004 with exports falling by 2.8 per cent. This is in line with the trend in recent years, with the value of exports falling by 12.7 per cent between 1999 and 2004.
  • The foreign-owned sector accounted for 87.6 per cent of Irish exports in 2004 with the indigenously owned sector accounting for the remainder. The indigenously owned sector is much less export orientated, exporting less than 40 per cent of its output. Much of the increased output from the indigenous sector over the last decade has been destined for the growing domestic market rather than export markets. However, in terms of their direct expenditure in the Irish economy, the contribution of indigenous exporters is similar to that of foreign-owned exporters. Foreign firms spent €17.8 billion on payroll and Irish goods and services in 2004, while Enterprise Ireland supported indigenous firms spent 16.2 billion.1
  • Imports to Ireland rose by 6.6 per cent in value terms in 2004, to reach 51billion. The rise in volume terms was nine per cent, and import prices fell by two per cent. While imports have risen by 15.1 per cent since 1999, they remain considerably below the high posted in 2000, with the result that Ireland fell from 28th in 2003 to 30th place in 2004 amongst the world’s leading importers.
  • ‘ICT/Machinery’ remains by far the largest import category, at  29.9 billion, accounting for 43 per cent of imports in 2004. It rose by six per cent on 2003, after two consecutive years of decline. The category containing petroleum, although comprising only 5.5 per cent of imports, contributed 27 per cent of the rise in the import bill in 2004.
  • The UK remains Ireland’s largest import source, accounting for 31 per cent of Ireland’s imports. UK-sourced imports grew nine per cent from 2003 to reach  16 billion. China has seen a cumulative increase of 323 per cent since 1999 and now provides 5.4 per cent of total imports, comprising mainly ‘office and data processing machines’.
  • Ireland’s merchandise trade surplus fell for the second consecutive year, declining by 2.8 per cent to 32.2 billion in 2004. Ireland still has the highest per capita merchandise trade surplus in the OECD. Prior to 2003 Ireland experienced 12 years of expanding merchandise trade surpluses.

Services Trade

  • According to the WTO, world trade in commercial services rose to  1,540 billion in 2004, an increase of seven per cent on the previous year. The enlarged EU (EU-25) accounts for almost half of global exports. The USA is both the world’s largest importer and exporter of services. However its services trade surplus has declined consistently every year since 1999, and now stands at only 60 per cent of what it was in 1999. Asia is a net importer of services, with most of this deficit due to imports of transportation services.
  • 2004 was another impressive year for Irish services exports. In 2004, CSO figures recorded a 13.7 per cent increase in Irish exports to  42.2 billion. According to the WTO, Ireland had a 2.2 per cent market share of world services exports in 2004.
  • Computer services continue to dominate services exports, accounting in 2004 for 35.5 per cent of total service exports. They increased by 19 per cent from 2003 to 2004, making up almost half of the total rise in services exports in 2004, and have jumped by 183 per cent since 1999. Business services exports grew by 17 per cent in 2004 to 8.1 billion and by 283 per cent between 1999 and  8.1 billion and by 283 per cent between 1999 and 2004. 2 Tourism and travel’s contribution to total service exports continues to decline in importance, down from 15 per cent in 1999 to eight per cent in 2004.
  • Between 1999 and 2004, the breakdown of Irish services exports by destination has remained relatively constant. The RoW (Rest of the World) purchases 37.4 per cent of our services exports, the eurozone 33.5 per cent, the UK 27.9 per cent and the EU 10 accession countries 1.2 per cent.
  • According to WTO data, Ireland was the ninth largest importer of services globally in 2004, consuming 2.8 per cent of global imports. CSO figures show an increase of 7.7 per cent in services imports from  48.2 billion in 2003 to €51.9 billion in 2004. Between 1999 and 2004 services imports doubled from 26 billion.
  • The bulk of the total services import bill is accounted for by business services, at 21.3 billion (41 per cent of the total) in 2004. Its value rose by nine per cent from 2003 and has doubled since 1999. The second largest contributor to services imports is royalties and licenses, amounting to 14.8 billion in 2004. The growth rate in royalty imports, which are primarily derived from industrial production, has decelerated in line with the slowdown in industrial output growth.
  • The share of services imports sourced from the eurozone has increased from 24.5 per cent in 1999 to 33 per cent in 2004. The share originating from non-eurozone EU countries (i.e. the UK, Sweden and Denmark) has fallen to 18.3 per cent from 21 per cent in the same period. In 2004 the EU 10 accession countries accounted for less than one per cent of services imports and the RoW accounted for the largest part of services imports, at 48 per cent.
  • The continued success of the IFSC (Irish Financial Services Centre) and its importance to the economy is emphasised by the net trade surplus of 4.9 billion in IFSC activities in 2004. The growth in IFSC exports, comprising mainly insurance, financial services and business services exports, has been 234 per cent since 1999.
  • The services trade deficit fell for the second consecutive year in 2004, by 1.4 billion to 9.7 billion, the lowest services deficit since 1998. The overall trade surplus (merchandise and services) now stands at over 22 billion.

Foreign Direct Investment (FDI) 

  • The relevance and international comparability of FDI flows as they are currently measured is debatable and must be treated with caution. FDI flows are volatile and changes in each category result as much from the internal financial transactions that take place within firms as from actual physical investments in production facilities (see Chapter 4 for a more detailed discussion of this). These flows often have little relationship to the concept of FDI as a direct "one-to-one" greenfield investment. After three consecutive years of decline, outflows of foreign direct investment from OECD countries rose by 3.7 per cent in 2004 to 538 billion. Despite this return to growth, the figure still represents only 40 per cent of the all time peak in FDI of 1,340 billion, recorded at the height of the global investment boom in 2000. This modest rebound in FDI flows was supported by a stronger global economic growth rate of four per cent in 2004.
  • The USA is both the largest foreign investing country (203 billion) and the largest recipient (86 billion) of FDI in the world. Inward FDI into China keeps hitting new records, reaching over billion in 2004, up from 42 billion in 2003. From 1994 to 2003 the cumulative stock of FDI in the CEECs (Central and Eastern European Countries) rose almost tenfold to almost 175 billion, with inflows reaching 20 billion in 2004. FDI inflows into Russia have continued to recover strongly, reaching 9 billion in 2004, with the energy sector being the main attraction for investment.
  • Ireland remains an attractive location for FDI. Ireland attracted 2.1 per cent of total OECD outflows in 2004. However, 2004 represents a decline from 2002 and 2003, when Ireland was the destination for almost five per cent and 4.5 per cent of OECD FDI outflows respectively. The cumulative stock of FDI in invested in Ireland stands at 125 per cent of GDP, which is still the highest ratio of any of the OECD countries, bar Luxembourg.
  • In absolute terms, FDI inflows of €9.1 billion in 2004 were the lowest since 1999, less than half the inflow for 2003 and less than one third of the record inflow achieved in 2002. In 2004 the majority of direct investment into Ireland went into IFSC related companies while non-IFSC FDI, at €1.5 billion, was at its lowest level since 1998.
  • Consistent with the trend of recent years, US owned holding companies based in the eurozone are the immediate source of most of inward Irish FDI, with inflows reaching nearly 6 billion in 2004. Counterparty data from the USA indicates that investment flows from that country were up from 7 billion in 2003 to over 8 billion in 2004.4 The cumulative stock of US FDI invested in Ireland measured on a historical cost basis, stood at around 59 billion in 2004, equivalent to 7.6 per cent of all US investment in the EU and 3.5 per cent worldwide. Analysed at a sectoral level, Ireland is the biggest location worldwide for US FDI in the information sector and 4th worldwide in chemicals.
  • According to national data, FDI outflows were 12.7 billion in 2004. This is the largest total ever recorded and would suggest that for the first time Ireland is a net exporter of FDI as outflows exceeded inflows by 3.6 billion. This excludes investments by Irish investors in commercial and residential property abroad which are classified as portfolio investments. Many Irish companies were active in the area of mergers & acquisitions (M&A) in 2004, with overall activity increasing significantly on 2003.
  • The RoW was the recipient of the largest share of Irish outward FDI in 2004. However, US counterparty data indicates that there was disinvestment from the USA by Irish investors in 2004, suggesting that significant direct investment by Irish companies in the RoW was destined for countries outside the USA. Outflows to the Eurozone more than doubled from 2003. Outflows to the UK in 2004 were at the highest level they have been since 1999, in part driven by strong M&A activity. According to the OECD, 1.7 per cent of total global FDI in 2004 originated from Ireland. The cumulative stock of FDI invested by Irish residents abroad was around 60 billion, equal to 41 per cent of Irish GDP in 2004, which is a similar ratio to that of the EU as a whole.

Conclusion

  • Merchandise exports returned to growth in 2004 after two consecutive years of decline, albeit with a slower rate of growth than in services exports. Pharmachem and ICT/machinery account for 71.6 of merchandise exports. Pharmachem exports grew strongly in 2004 while ICT/machinery exports continued their decline of recent years. 
  • Strong growth in merchandise imports in 2004 was mainly driven by demand for consumer goods and the higher cost of fuel imports. 
  • Internationally traded services have become the main source of Irish export growth. Rapidly rising IFSC exports and computer services exports have been the drivers behind Ireland gaining a 2.2 per cent share of global services exports in 2004. 
  • Ireland remains the ninth largest importer of services in the world, due in part to the presence of the large foreign-owned sector of the Irish economy. 
  • The merchandise trade surplus declined for the second year running, while the services trade deficit also declined for the second year running. Ireland’s overall trade surplus stood at 22.1 billion in 2004, a three per cent rise from 2003.
  • FDI inflows into Ireland were half the level of 2003, while outflows were the highest ever recorded. As a result, Ireland was a net exporter of FDI for the first time in 2004. Given the volatility of FDI flows, it is too early to tell if this trend will continue, but it indicates that Ireland may be adopting the profile of a more typical developed economy, in that is becoming more important as a source rather than as a destination of FDI.

Download report.

1. Source: Annual Business Survey of Economic Impact, Forfás.

2.  Business services include trade-related services, leasing, professional fees such as legal and accounting charges and also inter-affiliate management fees. For more detail please see Chapter 3.

3. Services imports are significantly affected by payments from Irish subsidiaries of multinationals to their parent operations.

4. Due to the nature of FDI flows and data collection methods FDI statistics from different countries are not always comparable. Inflows that Ireland records receiving may not always match outflows recorded by senders of these outflows to Ireland.


© Copyright 2007 by Finfacts.com

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