In 1973, the year Ireland joined the then European Economic Community, 55% of total Irish exports went to the UK.
In 2009, foreign-owned firms - - mainly American - - are responsible for 90% of Irish exports. Of the remaining 10% from Irish-owned firms, 53% go to the UK.
Unprepared in good times for adversity, when spin had primacy over substance in enterprise policy, the challenge for Ireland now, is to prepare for a changed global economy in the decade ahead by facing some home truths on Irish exports.
US economist and Nobel laureate Michael Spence, who was the chair of the Commission on Growth and Development, says the phenomenon of sustained export-led growth, was unheard of before the latter half of the 20th century. It is possible only because the world economy is now more open and integrated. Since 1950, 13 economies have grown at an average rate of 7 per cent a year or more for 25 years or longer. At that pace of expansion, an economy almost doubles in size every decade: Botswana; Brazil; China; Hong Kong; Indonesia; Japan; South Korea; Malaysia; Malta; Oman; Singapore; Taiwan, China; and Thailand. Two other countries, India and Vietnam, may be on their way to joining this group. Each and every one of these growth miracles had an export sector as a driver of growth and an increasing share of trade in GDP.There are no exceptions.
US multinationals were an overwhelmingly dominant factor in the export led take-off of the Irish economy from the early 1990's. However, after the end of the US high-tech boom, construction became Ireland's engine of growth. Irish full-time employment in manufacturing and internationally traded services fell 10,297 in the period 2000/2007 while the total workforce expanded by 605,000 in sectors such as construction, public services, distribution, retail and other services. During the period, annual venture capital investment in Irish business was less than €200 million while overseas Irish investment in commercial property exceeded €10 billion.
In developing country growth phases, foreign-owned companies typically lead the export surge. For example, in China, what are termed foreign-funded companies, are responsible for over 50 per cent of the overall value of exports and almost 90 per cent in the consumer electronics sector. What is striking about Ireland is that foreign-owned firms, mainly American, remain responsible for about 90 per cent of total exports. Of the residual 10 per cent, about 53 per cent goes to the traditional market - the UK, while up to 65 per cent of exports from indigenous firms come from the food and drink sectors according to State agency Forfás.
In 2005, Bank of Ireland research showed that only 3 per cent of Irish SME firms are medium size with more than 50 employees. Overseas expansion and exporting are dependant on businesses growing to a medium sized enterprise, yet the research indicated that only 7 per cent of firms intended to expand abroad in the following twelve months. This contrasted sharply with the UK where medium enterprises, which employ about 30 per cent of the workforce, are the powerhouse of the economy.
“We are watching the decline and fall of the United States as an economic power - not hypothetically, but as we speak,” said Craig R. Barrett, the chairman of Intel, Ireland's biggest multinational employer, last month.
Ireland remains overwhelmingly dependent on the US but it could be argued that in the modern world, company origin does not matter. For example, Ireland's biggest company CRH, which is the largest building materials supplier in the US, is over 80 per cent owned by foreign residents - overseas funds control 90 per cent of the institutional equity while global retail holdings were at 13 per cent in 2008. In recent years, overseas investors have held up to two-thirds of AIB's shares. However, CRH employs just over 2,000 of its almost 94,000 payroll, in Ireland, while AIB's workforce is mainly based in Ireland.
Finnish mobile giant Nokia, with 89 per cent of its shares held outside Finland, illustrates the importance for a small economy of building scalable world class companies.
At the end of 2008, Finland led Nokia's country jobs at 23,320 from a total of 125,829. The firm had almost doubled its total payroll since 2006 through expansion in China and India but the home country remains the key part of its operation. Some 300 Finnish companies are direct first-tier suppliers to Nokia and a big proportion of the Finnish employees, work in research and development.
Most Irish-based US companies do not design their products in Ireland, while marketing and sales functions are located elsewhere.
Developing new export markets is not easy but the Irish public could be forgiven for believing otherwise.
The day before the Taoiseach Brian Cowen had his St. Patrick's Day meeting with President Obama, Cowen announced: "This week, Enterprise Ireland client companies secured contracts worth more than €100 million."
The claim was economical with the truth or in simple terms, a lie.
State agency Enterprise Ireland has provided data, which shows that the orders comprising the €100m total, dated back as far as September 2008.
The misleading claim in Enterprise Ireland's press statement of March 16th, that "contracts worth €100 million were secured by Irish companies during Enterprise Ireland's trade mission of 92 Irish companies to New York and Washington," could be viewed as harmless blather but it's part of the spin, which claims that Ireland has one of the world's biggest software industries, while ignoring the reality that the Irish-owned high tech sector is on a respirator. Last year, Iona Technologies, the biggest home-grown software firm, was sold to an American firm of more recent vintage.
There were no spurious new export order claims made last week during a trade mission to Saudi Arabia and Qatar - - a likely result of Finfacts' highlight of spoof/lies. If there had been claims of contract signings etc., they would have been reported by most other media outlets as fact.
In June 2007, the then Minister for Enterprise, Trade and Employment Micheál Martin, told an international conference on China that Irish innovation in key sectors- information and telecommunications technologies, education and training, environmental and engineering, life sciences and medical devices, aviation, electronics, industrial machinery and food and drinks products- have resulted in steadily increasing sales to China.
"Ireland’s knowledge-based economy, built on innovation and technology, is substantially shaped by the emergence of strong technology-led and export-focused Irish companies. Companies, which have become world leaders in their respective industries," said Martin.
He was talking about American companies such as Intel and Microsoft.
Enterprise Ireland has confirmed that exports by Irish-owned firms to China in 2007, were 6.7 per cent of total exports from Ireland to China.
The global recovery from the current severe recession will be slow. Public debt has surged in most countries while American demand will be reduced as the savings rate rises from a close to zero level in 2007, in the absence of house price rises building equity in property.
It's time Irish policy makers ended the spin and addressed the serious challenges.
In recent years, the rise in services exports has been seen as a positive development. The contraction in the US financial sector will have an impact on Dublin's offshore financial centre and the decline in manufacturing may not be offset by equivalent value-added to the Irish economy, from services. Aviation leasing for example, can give rise to impressive figures but few jobs.
Two of Ireland's biggest companies by revenue are owned by Microsoft. They have no direct staff and are operate from the offices of a Dublin law firm.
Ten countries in Asia account for half the global population and with the exception of niche areas, there is little prospect of significant Irish business. In China, the inability to speak Mandarin or the Southern dialect Cantonese, is a drawback. The 1.3 billion consumers' cliché is often used but multinationals have had a long climb to get a payback from the market.
Australia and New Zealand are well placed to meet the food demands as diet changes with rising income. Ireland is generally unknown in the region and only the few big Irish food companies would be in a position to open processing operations in Asia, to take advantage of the opportunities.
While oil prices have fallen from July 2008's record high of USD$145.29, a report from Canadian brokerage, CIBC World Markets, in May of that year, showed that the cost of shipping a standard 40-foot container from East Asia to the North American east coast had tripled since 2000 and would double again if oil prices hit $200 per barrel.
In December 1998, the price of the US benchmark Nymex crude, fell to close to $10 a barrel. With the current price at about $50, at a time of the worst global recession since 1945, high oil prices will return when the recovery takes hold.
Shipping cost is on average the equivalent of a 9 percent tariff on trade. “The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today,” the report concluded, and as a result “has effectively offset all the trade liberalization efforts of the last three decades.”
Last March, Enterprise Ireland said the 16-country Eurozone offers the best potential for export growth by Irish-owned firms. The countries Germany, France, Benelux, Italy and Spain collectively represent a GDP 3.9 times the size of the UK, yet the non-food exports by clients companies of the agency for these countries, is 40 per cent of that of the UK.
Commentary on Irish exports generally does not make a distinction between exports by foreign-owned and indigenous firms. However, usually the result is to create confusion rather than lucidity.
For example, chemical exports from mainly American firms in Ireland, increased by 6 per cent in the first two months of 2009, while the value of all other exports actually fell by 14 per cent.
The increase in chemical exports may not have had any significant impact on the Irish economy compared with the decline in the rest of the export categories.
World Bank research in 2007 ranked Ireland, among the four most expensive economies in the world.
Unless the competitiveness issues are seriously tackled, the export potential will remain unrealised.
The country also needs risk-taking entrepreneurs but when Micheál Martin - - a man in charge of enterprise policy for almost 4 years, who is now the Minister for Foreign Affairs - - says he still needs to remain a teacher after 20 years on leave, as he has a young family and a TD's job is "precarious," one can only wonder at the gulf between the rulers and ruled at a time of great peril, when vision and change is required. Having earned one of Europe's highest ministerial salaries for almost 12 years already, when income tax was the lowest in the region, if Martin loses his ministerial job after the next general election, he will receive a severance payment of €70,000; at 55, he would get a full annual pension of over €120,000 and ten years later, his teacher's pension would kick-in. In contrast, the typical early stage entrepreneur with a young family, has to spend a lot of time on the road and may end up with nothing.
Some armchair "experts" have argued that as Ireland should concentrate on "knowledge" related goods and services, competitiveness is not a critical issue. Being a very expensive location, is not a useful accolade for a country that is so dependent on outsiders.
The oldest Irish services export is tourism and in terms of regional impact across the island, it retains its importance.
If the current recession will not wake up people to the challenges ahead for a country where exports account for about 80 per cent of GDP, what will?
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