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Irish Export Performance: Myths and reality - Ireland is a poor exporter
By Michael Hennigan, Finfacts founder and editor
May 22, 2015 - 8:47 AM
Irish Export Performance: Irish headline export data seldom fails to impress and in recent times data show that the recovery in the UK economy coupled with an improved exchange rate is benefiting Irish indigenous exports. However, we Irish have a tendency to organise a party based on short-term tidings and ignore the long-term. The bitter reality is that we are a poor exporter.
Direct jobs in IDA Ireland foreign-owned client firms at end of 2014 were below the level 14 years before, despite a 20% rise in the size of the workforce while jobs in indigenous exporting firms were up 9,000 in the same period (see chart above).
The value of exports grew by 88% in the period 2000-2013 and the European Commission's AMECO database showed in 2014 that the inflation-adjusted value of exports of goods and services in that period with 2005=100, rose 72%.
This was effectively a jobless exports surge.
Since the end of 2012, of the 101,000 seasonally-adjusted jobs added in the Irish economy, there have been none in the Information and communications (ICT) sector, which includes big employers such as Apple, Google, and Microsoft. while Industry has added 9,000 jobs, but is down 38,000 from early 2008.
In the 1911 UK Census, the percentage of the Irish workforce employed in the manufacturing sector was down to 20% from 33% in 1841 and 36% in the UK as a whole in that year.
In 1901 38% of the UK workforce were in manufacturing. The concentration of significant Irish manufacturing was in the north-east, now part of UK-ruled Northern Ireland.
Irish manufacturing, dominated by US foreign firms, now accounts for 11% of the workforce and an equivalent 21% in Germany while according to the European Commission only 3% of Irish small firms are in manufacturing compared with 10% across the EU — the significance of the manufacturing sector in an economy is usually reflected in its business research and development (R&D) activity.
The Irish tradeable services export sector like manufacturing, is again dominated by US firms and in both sectors there is little high level R&D.
The foreign firms, mainly American, account for about 90% of tradeable exports while the Irish subsidiary typically has no overseas customer relationship outside its group.
After 60 years of low corporate taxes and State supports, the indigenous sector remains an underperformer at exporting while the Government of course welcomes the convenience of ready-made jobs provided by foreign firms.
However, Ireland will never be a wealthy country by having its typical farmer much more dependent on Common Agricultural Policy (CAP) payments compared with counterparts in Denmark and the Netherlands; a small indigenous international trading sector with over 50% of exports going to English-speaking countries and a foreign-owned sector where about 40 American firms account for two-thirds of total headline exports while many of the jobs in ICT services and financial services are in administration.
Almost three-quarters of Google Ireland staff is from overseas mainly doing administration work while Google UK has over 500 engineers.
It's good that Apple this year selected Ireland as a location for a data centre but it would be better if a young Irish company that wins international attention remains and scales-up not cash-out under pressure from venture capital investors.
Eoin Burke-Kennedy says in an Irish Times feature today: "What is most striking about our headline trade numbers is just how robust they have been in the face of unprecedented turmoil – in contrast to the carnage being played out on the ground. In 2007, when the iceberg warnings were sounding."
FDI (foreign direct investment) is important for Ireland but during the recession the rising headline export data were important for the international reputation rather than the real- world impact.
The jobs lost in the early period of the recession were recovered but as we highlighted above, the recovery in jobs were in non-tradeable export sectors including tourism.
Burke-Kennedy writes on the pharma industry: "Despite accounting for €50bn in exports, it only employs 10,000 people, relatively small when compared to the 200,000 employed in retail."
The number in the foreign-owned chemical sector was 23,000 in 2004 and 22,000 in 2013. In addition the number employed in medical device manufacturing was 20,000 in 2004 and 25,000 in 2013.
The UK remains a key trading partner for Ireland and vice-versa.
When we joined the European Economic Community in 1973, the UK accounted for 55% of total exports. In 2012 that ratio was 18% (services location data for 2013 not yet available).
The UK remains the largest market for indigenous industrial firms at about 36% of exports from teh sector.
The UK Trade & Investment agency said last year:
Ireland is the UK’s fifth largest export market and imports more from the UK than any other country. The UK accounts for 34% of imports into Ireland. In 2012, total trade in goods and services from the UK to Ireland was £27bn.
Ireland is the UK’s largest export market in food and drink, and second largest market in clothing, fashion and footwear. Trade in other sectors continues to grow. Two way trade stands at €1bn per week."
Ireland had a goods trade deficit of €2.3n in 2013: exports were valued at €16.3bn and imports amounted to €18.6bn. Ireland had a surplus on services exports but it was mainly due to Google's Double Irish tax avoidance.
The traditional Irish trade surplus with the UK on food evaporated in 2014.
The population ratio per exporting firm is 187 in Denmark; 236 in Germany; 550 in France and 1,150 in Ireland — see more on this and related issues via the links below. For example at least 40% of the value of Irish services exports is fake as it includes Double Irish phantom exports.
- Food is the largest export contributor (55% of total exports of €18.6bn in 2014), up 8% to €10,286bn;
- In 2014 the Financial Times ranked Irish agricultural land as the most expensive in the world — this is not welcome news for a food producer and we explain here how the European Union's Common Agricultural Policy reduced Irish land transactions to a very low level making land prices four times the level in France;
- Manufacturing companies (16% of total exports) are up 11% to €3bn;
- Construction and Consumer Retail companies (13% of total exports) are up 14% to €2.5bn
- Internationally Traded Software companies (7% of exports) are up 19% to €1.3bn;
- Internationally Traded Service companies (9% of exports) are up 7% to €1.7bn;
- UK is the main export market accounting for 36% of total exports, up by 9% to €6.8bn;
- USA/Canada accounts for 13% of total exports, up 16% to €2.3bn;
- The top 5 exporting countries are UK, US, France, Germany and Netherlands — Exports to these countries account for just over €11bn in export sales (61%);
- Exports now account for 51% of total sales by companies supported by Enterprise Ireland, compared with 42% in 2004 — this partly reflects the decline in the domestic market after the bubble bust.
- Ireland has 4,000 exporters and 3,000 are Enterprise Ireland clients. Denmark has 30,000;
- Central Bank research shows that despite Ireland’s reputation as one of the world’s most globalised economies, 64% of private sector workers are employed by indigenous non-exporting firms, with 56% working for indigenous, non-exporting SMEs.
- According to a public interdepartmental group exports from indigenous enterprises are largely from low R&D - intensive and non - R&D active sectors. The top three exporting sectors for indigenous firms — Food, Drink & Tobacco, Other Traditional Manufacturing, and Business Services — account for around two thirds of sales and exports of Irish - owned firms.
|Source: Enterprise Ireland|
Ryanair, one of the world's biggest low-fare airline, was founded in 1985 and with ICON, the global pharma services group founded in 1990, are the only Irish companies in the past 30 years that have scaled up from startups in Ireland to be international leaders today in their sectors.
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|Enda Kenny, taoiseach, in a speech in March 2015 said in respect of the 2014 trade performance that "export growth at 12.6% was the strongest since 2001" — this claim was false.
Merchandise exports were valued at €106.8bn in 2014 and services exports at €101.0bn giving a total of €207.8bn compared with €184.1bn in 2013 — a rise of 13.0%. This partly reflected tax avoidance related booking by mainly pharmaceutical firms of overseas production in Ireland giving an artificial boost to the data.
The trade statistics showed a value of €89.0bn for merchandise exports and the additional €11.8bn relates to overseas "contract manufacturing". The rise in the value of actual merchandise shipments in 2014 was 2.4% compared with a 14.1% jump in the data in the national accounts.
There was a 9.6% rise in services exports in 2014 and that was also partly fake due to tax avoidance.
Exports by Irish indigenous firms were valued at €18.6bn in 2014 as noted above, and coupled with €7bn covering inward tourism and transport, the indigenous ratio of total exports for the year was 12.4%.
Nevertheless, the chart above shows that Irish exporting firms employ more than foreign exporting firms.
Food and drinks exports were valued at €10.5bn in 2014 or 5.0% of total exports.
The value of inward tourism in 2014 was €3.7bn compared with a peak of €4.4bn in 2007. Outward tourism was valued at €4.7bn in 2014 and it peaked at €7.0bn in 2008.
Computer services exports were valued at €43bn in 2014 or 42.6% of total services exports up from €12.6bn in 2003. Most of the €43bn total is fake as it reflects diversions of revenues/ sales from other countries that do not originate in Ireland. Google books about 40% of its global revenues in Ireland; Microsoft books about 25% and Facebook books half its global revenues.
There are also Business services revenues that are boosted by tax avoidance.
There was a massive merchandise trade surplus of €46.0bn in 2014 reflecting profit shifting for tax purposes up from €27.3bn in 2000, €28.6bn in 2007 and €36.0bn in 2013.
There was a €6.2bn deficit in services as royalty payments rose from €35.8bn in 2013 to €46.5bn — Google for example receives charges from its Irish offshore shell company in Bermuda and it transfers profits that are treated as royalties which are booked in accounting transactions as if they move from Dublin via the Netherlands to Bermuda.
Total employment (foreign + indigenous) in Chemicals and related products was 27,000 in 2004 and 26,000 in 2013 while exports rose from €37.5bn to €51.2bn in 2014 — a rise of 36.5%.
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