Irish Economy: Given the official mantras on export growth in recent years from ministers, the Department of Finance, the Central Bank of Ireland and the semi-official Economic and Social Research Institute (ESRI), coupled with echoing in Troika reports, it may come as a surprise to some that the pharmaceuticals sector, which accounts for more than 50% of merchandise exports, is not critical for economic growth. Therefore the expiration of patents on blockbuster drugs -- known as the patent cliff, not to be confused with the fiscal cliff! - - should not be a serious concern in Ireland.
Coupled with the highlighting by Finfacts that possibly up to 50% of services exports relate to the global tax strategies of US tech firms - Apple, Google, Microsoft and Facebook - - where revenues are diverted to Ireland, not directly related to their activities in Ireland (44% of Google Inc.'s revenues in 2011 were booked in Ireland) and Dell remaining Ireland's biggest goods exporter (20% of 2011 global revenues were booked in Ireland) despite moving the principal EMEA (Europe, Middle East, Africa) manufacturing plant to Poland, a Reality Check is surely in order.
In seeking a roadmap to the future, think of the Kerryman's advice to the tourist seeking directions.
Should it be any surprise that jobs in the export sectors (both FDI and indigenous) are at a 12-year low?
On Wednesday, Davy Stockbrokers published a report on the Irish pharmaceutical sector and patent cliff. In 2011, exports of pharmaceuticals were €50bn, around 30% of nominal GDP (gross domestic product). In September, Irish industrial production fell by an enormous 12.7% on the month, driven by a 35% decline in output of basic pharmaceuticals, and in part most likely related to patent expirations on 'blockbuster' drugs. The falls in September have fed speculation that prospects for the key pharmaceutical sector, worth 30% of Irish GDP, may now be depressed by patent expirations, with potentially dire consequences for Irish export and GDP growth.
However, Davy said these fears are largely misplaced. Due to the high import content of pharmaceuticals, specifically royalties and licence counted as imports, the impact on Irish GDP and GNP (gross national product) will be limited. Only approximately one-third of pharmaceutical export revenues contribute to Irish GDP because of the corresponding costs relating to intellectual property.
In 2011, the share of pharmaceuticals in Irish GDP was just 11%, well below exports revenues worth 30% of GDP. The pharmaceutical sector accounts for 1.2% of total employment, and contributed corporation tax revenues worth 0.5% of GDP. So, even if profits in the sector halved, the impact on GDP and tax revenues would be limited, and manageable within the context of Ireland's EU/IMF adjustment program.
Conall Mac Coille, chief economist of Davy, summarised the main points of the report, 'Ireland and the Pharma Patent Cliff' [pdf]:
Pharmaceutical patent cliff evident in industrial production and exports
But importance of pharmaceutical sector wildly overstated
Pharmaceutical sector employment and tax contribution low
Also on Wednesday, the Central Bank presented the standard official line in its 'Macro Financial Review 2012: 11' report [pdf]
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