Irish Economy
Irish Medium-Term Economic Strategy 2014-2020: Exports to plunge by €50bn - Part 1
By Michael Hennigan, Finfacts founder and editor
Nov 26, 2013 - 5:32 AM

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IDA Ireland's iconic advertisement of the 1980s promoting Ireland as a location of skilled and educated workers

Irish Medium-Term Economic Strategy 2014-2020: The Irish Government plans to issue a growth strategy document next month to coincide with the exit from the international bailout and past experience coupled with signals so far, suggest that it will be a promotional brochure for an international audience with some questionable claims and omissions. The expected plunge in services exports by as much as €50bn during the time horizon is not likely to be acknowledged.

There is an urgent need for a credible growth strategy that has an unvarnished assessment of the challenges with an honest analysis of strengths, weaknesses, opportunities and threats, using data that is free of the outsize impact of the foreign-owned exporting sector.

For example citing exports to China without recognising that 95% of the value is from foreign-owned firms such as Intel, is no guide to how difficult the market would be for indigenous firms. While the Department of Finance's claim here [pdf; page 11] that a "continued competitiveness boost through reduction in unit labour costs with a 21% relative improvement forecast against the Eurozone average," is an economy with the truth - - the average whole economy hourly labour cost rose 1% from Jan. 2008 to end-June 2013 and the apparent productivity miracle resulted from headline jumps in output and exports of services at foreign firms that were not real.

In a system addicted to spin where every trade mission has pre-arranged successes and Richard Bruton, enterprise minister, just back from India with whom Irish trade is at a decimal point, was at Microsoft Ireland's headquarters on Monday, lauding the deepening of the "innovation footprint in Ireland with creation of 30 new development roles," it can be a challenge to separate the fantasy from the reality.

The Department of Finance issued an invitation to tender to external consultants last August:

For assistance and analysis in the preparation of a  Medium-Term Economic Strategy (the “Strategy”) to achieve sustainable economic and employment growth over the period 2014-2020, including an analysis of recent medium-term economic strategies in countries/regions comparable to Ireland, and to provide related advice on the effective development and implementation of the Strategy."

Last weekend in an interview with the The Sunday Business Post, Eamon Gilmore, tánaiste/ deputy prime minister, outlined five priorities for the medium-term strategy: (1) A fiscal strategy to cut the budget deficit to 3% of GDP by 2015; (2) measures to boost activity in labour-intensive areas such as the construction sector; (3) a medium-term focus to improve educational standards and boost research and development; (4) improving labour market activation to reduce structural unemployment, and; (5) a review of Ireland’s export strategy with a renewed focus on emerging markets.

Apart from the first point on the need to keep international investors onside, the rest is aspirational.

While the Organisation  for Economic Cooperation and Development's (OECD) latest Economic Survey of Ireland published last September, highlighted the very poor record with activation programmes - - research published by the Economic and Social Research Institute (ESRI) last December showed that in 2010, 22% of households in Ireland were jobless compared with an average of 11% for the EU15 and in Spain and Greece, where the rates of unemployment are the highest in the developed world, the percentage of households without a working adult stood at 10% and 7.5% respectively. The Irish rate in the boom year of 2007 was 15%.

The OECD recommended empirically-proven policies and sunset clauses in enterprise and innovation supports but there is no experience of this in the Irish system. It said the number of programmes and agencies multiplied during the period of booming growth. "There are now over 170 separate budget lines, sometimes for very small amounts of money, and 11 major funding agencies involved in disbursing the Science Budget, although it is small by international standards."

This is boring to ministers but nobody else is in charge and for example enterprise agency heads say nothing of substance in public and possibly also in private.

Focus limited fiscal resources on policies empirically-proven to improve employability; this will require systematic evaluation of labour-market programmes through consistent tracking and randomised trials, followed by decisions to close down ineffective schemes while strengthening successful ones.

Reflecting significant uncertainties about the effectiveness of various innovation policy tools, independently and regularly evaluate all actions in this area, strengthen programmes with proven higher returns, and wind down the others. To promote effective evaluation, ensure all innovation and enterprise supports have sunset clauses."

Who is driving the strategy?

There is no serious public debate on the growth challenges; ministers and senior public officials have had nothing to say, and it cannot be surprising that a promotional brochure is in prospect.

It appears that the external consultants are being used to give ballast to the impending report with lots of charts and comparisons from other countries but for example a lot of people know already about the success of the Finnish educational system and the literacy of the adult population. There is however no prospect of significant educational reform in Ireland nor public service reform.

Irish aspirations in respect of the potential of emerging markets so far reflect ignorance of the realities in the key countries and as regards innovation, in 2006, there was a national goal that Ireland should be recognised as a "world-class knowledge economy" by 2013. The failure to achieve the goal was ignored by the policy makers, the vested interests and the mainstream media.

So typically giving precedence to spin and faith over failures since 2006, Science Foundation Ireland (SFI) set an audacious or delusional new target: "in which Ireland in 2020 is the best country in the world for scientific research excellence and impact."

However, unless failures are acknowledged, there is no prospect of durable success.

In an official report published last April on adding 43,000 jobs in the manufacturing sector by 2020, the term 'strengths' appears 49 times; weakness or weaknesses get no mention.

The issue of exports is tied to international corporate tax avoidance and the large scale diversion from other markets to Ireland of services revenues by companies such as Apple, Google, Microsoft and Facebook. It results in fake output and exports that  is currently valued at over €40bn and within the coming  three years when new international tax rules will be agreed, the level of diversion will likely to have grown to at least €50bn - - about half the value of services exports - - this value could be wiped from exports through simple accounting transactions.

Last February, Michael Noonan, finance minister, at a Bloomberg event in London, attributed the jump in services exports to “the significant price and cost adjustments that have taken place in recent years.”

This was another economy with the truth and international investors maybe surprised when the day of reckoning arrives. More here on fake services exports and taxes.

Finfacts: Irish Medium-Term Economic Strategy 2014-2020: FDI, SMEs, New Normal - Part 2

Irish Medium-Term Economic Strategy 2014-2020: Innovation and entrepreneurs? - - Part 3

Irish Medium-Term Economic Strategy 2014-2020: Exports to Japan and emerging markets -- Part 4

Irish Medium-Term Economic Strategy 2014-2020: Change comes ever so slowly in Ireland -- Part 5

Irish Medium-Term Economic Strategy 2014-2020: Government says expect aspirations not strategy - - Part 6

Irish Medium-Term Economic Strategy 2014-2020: Government publishes brochure not strategy - Part 7

Irish Medium-Term Economic Strategy 2014-2020: Where will 300,000 net new jobs come from? - - Part 8

Some key points:

  • Ruairí Quinn, minister of education, said in Sept 2013 that the belief that the Irish education system was among the best in the world was: "an assertion based on no evidence whatsoever other than something of a feelgood factor that was communicated to us at home by the greater Irish Diaspora who felt, for whatever reason, that it was better than what their children were experiencing in other parts of the world";

  • The Irish Venture Capital Association also said in Sept, that: "The shortage of entrepreneurs has reached crisis levels as evidenced by the findings from The Global Entrepreneurship Monitor."

  • Irish full-time employment in the internationally tradeable goods and services sectors (foreign and indigenous) at the end of 2012 was at about 295,000 compared with 320,000 in 2000. The drop of 25,000 in the 13-year period coincided with a 20% growth of the workforce (including the unemployed);

  • While job numbers fell, headline exports grew at current prices by 71% in the period 2000-2012 and at constant prices by 59%;

  • Forfás, the policy advisory agency, said this year: "Overall, in 2011, foreign-owned firms accounted for 89% of exports in the Manufacturing Category, 95% of exports in the Internationally-Traded Services";

  • Despite Irish SMEs (small &medium size firms) having very low corporate and employer social security taxes, they have a poor exporting record;

  • Two-thirds of private sector workers are in indigenous non-exporting firms while 56% work for indigenous non-exporting SMEs;

  • Irish and SME firms pay low wages and export small volumes;

  • Huge amount of work force work in Hotels and Restaurants, Wholesale and Retail, Business and Professional Services;

  • Less than one third of IDA Ireland supported foreign firms do any meaningful R&D;

  • The US Chamber of Commerce claim: "In the past half decade, US firms have invested more capital in Ireland than in the previous half century," is a fantasy where 'trapped' overseas cash is counted as an inflow;

  • Filings at the Irish Patents Office in 2012 were at a 30-year low; international filings were also weak;

  • The broad rate of unemployment is above 20% and about 80,000 unemployed are not counted as jobless as they participate in various public funded back-to-work schemes  ;

  • About 30 foreign-owned firms are responsible for 60% of total annual headline exports value. They directly employ 55,000 in a workforce of 2.14m;

  • The Central Statistics Office (CSO) estimates that net emigration by Irish nationals in the period May 2009-April 2013 was 95,000.

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