2009 Trade Statistics

The Irish Exporters’ Association has just published its end year review for 2009. It has some useful tables showing the sectoral and destination breakdown of both merchandise and services exports – the latter are now 44% of the total. The overall picture is well known, but some of the details are revealing. While overall exports (merchandise + services) fell by just 1%, the declines were 9% for the indigenous sector, 14% for food and 21% for drink. The IEA itself concludes that when the Life Sciences sector is excluded, exports fell by €6.1 billion making it one of the worst years on record for traditional Irish manufacturers selling on export markets. It foresees 2% growth in exports next year, with most of this coming from the services sector.

63 thoughts on “2009 Trade Statistics”

  1. I think the fact that we avoided the calamitious fall experienced in other markets (e.g. Finland) might tend to mask the reality of a very difficult year for exporters, not just on the indigenous side. The recent IDA end of year statement showed that net employment within IDA supported companies falling by 13,400 or c.10% from last year, mostly from downsizing rather than exit.

    It is hard to know the exact job impact on indigenous exporters, as Enterprise Ireland firms typically will have a lot of their sales domestically, while IDA client firms export virtually all of their produce. As such, a fall of xk jobs in EI firms is likely a combination of falling domestic and intl demand.

  2. 9% for the indigenous sector is a pretty bad fall and does put JtO’s optimistic statements about Irish exports under greater scrutiny.

    Indigenous export is 13b out of a total of 154b. Does that mean that 141b or over 90% of Irish exports are by foreign companies? And any estimate as to how much of this is transfer pricing?

  3. @Garo

    Indigenous sector probably only accounts for between one-fifth of total employment (ex-tourism) so the idea that the ‘real’ Irish export performance is indigenous and the MNC stuff is a smokescreen has no validity. The ‘real’ performance of the Irish export sector is overwhelmingly what is happening in the MNC space, regardless of the extent of exaggeration of prices.

  4. @Garo,

    No, though applying the proportion of exports to turnover in a prodimantly indigenous sector (food and bev), and adjusting the figure for the fact that exporting firms are likely to have higher productivity, gives you this figure. This is just a guestimate, though I would be pretty confident that the true level is somewhere between 20%-25%, giving MNCs a share of 80%-75%. Of course this does not include tourism.

  5. @Garo

    On ‘transfer pricing’ a rough estimate is all one can hope for – and it will be pretty rough. MNCs, by definition, are global and there is little chance of anyone on the outside figuring out the value chains etc ……… that said it is probable that Irish Revenue appropriates some value that has been created elsewhere ……… and remainder of profit declared here is repatriated. Big positive that most MNCs are staying the course [downsizing is preferable to operations transfer to lower cost locations] ……… but DELL indicates the final demise of relatively low-skilled manufacturing – on the other hand, DELL has maintained the higher-end services etc …………
    Any labour market economists have any idea of future activity for low-skilled Irish labour other than ‘de lay-bor’ as they say in Dublin …………….. this is another ‘systemic crisis’ emerging due to the idiocy of investing in ‘bricks rather than brains’ ………

  6. @ Ronnie

    Ok, taking tourism from the equation leaves indigenous exporters total share of turnover at about 6% in 2009. Incredibly low.

    Not disputing your overall point but EI in their 2008 AR state that firms they support directly employ c145K. Does that 20-25% share of employment figure that you’ve guestimated not sound a tad low? It presupposes that MNC’s directly employ c500K (?)

    Cillian

  7. @Cillian,

    I don’t think the figure is unreasonable.

    The difference comes from the fact that MNCs export virtually everything they produce. As such, we can take it that the 150k foreign-owned jobs are virtually all export facing.

    On the other hand most EI clients will be predominatly domestically focussed. So while EI firms employ c145k as you say, most of these are effectively producing for the domestic market.

    For example, according to EI’s own annual statement for 2008, of the 8,000 net jobs lost in that year, two-thirds were construction related. While I am sure a handful opf these were in construction related exports, I think its reasonable to asume that contracting dometic contruction demand was the key issue.

  8. @ Ronnie

    You mention 150K foreign-owned jobs. Based on your 20-25% guestimate, this suggests that only 30-35K of the 145K EI supported jobs mentioned were “export-orientated” – in other words, it suggests that only 20-25% of EI supported jobs are directly “export-orientated”. Wow.

    Cillian

  9. @Cillian,

    Just to explain my calcs: If ~45k EI workers are export facing, then the total export facing IDA+EI = 200k, which gives EI workers a share of 20%-25%. This would translate into around 30% of EI workers being export facing. This is largely guesswork, and I am sure EI themselves will have a much better sense of what the true figure is.

  10. @Garo

    “9% for the indigenous sector is a pretty bad fall and does put JtO’s optimistic statements about Irish exports under greater scrutiny. ”

    I have compiled the 2009 exports figures for all EU27 countries from the Eurostat database (except for Bulgaria and Sweden, which aren’t given in the database). The figures are for the changes in the value of exports in 2009 over 2008 (first 3 quarters only, as Q4 not published yet). The figures in brackets are the actual exports values in 2008 and 2009 in millions of euros.

    Ireland -1.2% (2008: 113,633.7 , 2009: 112,282.8)
    Romania -11.0% (2008: 31,853.9 , 2009: 28,356.9)
    Cyprus -13.1% (2008: 5,827.9 , 2009: 5,067.0)
    Malta -14.2% (2008: 3,580.2 , 2009: 3,070.2)
    Luxembourg -14.8% (2008: 52,285.1 , 2009: 44,555.7)
    France -16.3% (2008: 393,373.0 , 2009: 329,274.0)
    Netherlands -16.4% (2008: 349,337.6 , 2009: 291,882.1)
    Spain -16.5% (2008: 220,249.0 , 2009: 183,970.0)
    Austria -16.7% (2008: 126,609.6 , 2009: 105,427.5)
    Belgium -17.7% (2008: 226,848.0 , 2009: 186,752.0)
    Denmark -19.0% (2008: 97,828.5 , 2009: 79,211.8)
    Czech Rep -19.5% (2008: 87,975,5 , 2009: 70,777.8)
    Portugal -19.6% (2008: 42,323.0 , 2009: 34,045.0)
    Germany -19.7% (2008: 901,750.0 , 2009: 724,060.0)
    U. Kingdom -20.0% (2008: 405,198.2 , 2009: 324,385.2)
    Hungary -20.3% (2008: 67,014.7 , 2009: 53,439.8)
    Greece -20.6% (2008: 42,303.7 , 2009: 33,584.4)
    Italy -21.0% (2008: 347,046.1 , 2009: 274,234.4)
    Slovenia -21.4% (2008: 19,344.0 , 2009: 15,213.8)
    Latvia -21.4% (2008: 7,372.7 , 2009: 5,798.1)
    Poland -21.4% (2008: 111,944.1 , 2009: 87,972.5)
    Slovakia -21.7% (2008: 41,185.6 , 2009: 32,242.9)
    Estonia -21.9% (2008: 9,244.6 , 2009: 7,218.1)
    Lithuania -30.1% (2008: 14,915.3 , 2009: 10,420.5)
    Finland -32.3% (2008: 66,964.0 , 2009: 45,334.0)

    Clearly, no matter what way we manipulate the figures, Ireland’s export performance in 2009 is very good. A fall of just over 1%, compared to around 20% for most countries. Not one other EU country had a fall that was less than 10%. Even if we restrict the analysis to indigenous exports, the fall of 9% in Ireland in 2009 would still be better than the fall in total exports of any other EU country. In any event, the distinction between indigenous exports and MNC exports is a red herring. In most developed countries, the majority of exports are from MNCs. Does anyone think that car exports from Belgium, Spain, Austria etc are from companies indigenous to those countries?

  11. The MNC sector isn’t of course a smokescreen but for American companies, Ireland is one of the world’s most profitable countries.

    US data shows that the combined net profit of US corporations in Ireland doubled between 1999 and 2002 from $13.4 billion to $26.8 billion and was $48 billion in Ireland in 2005, compared with $37.01 billion in the UK and $74.06 billion in the Netherlands. US companies in Germany made net profits of $11.22 billion in 2005; French affiliates reported income of $9.52 billion and Italian operations made $8.58 billion.

    Value added of foreign affiliates represents these firms’ contribution to a host country’s GDP. In 2005, the value added of affiliates accounted for 7.0 percent or more of the GDP of three of the main host countries: Ireland  (18.5 percent), Singapore (15.0 percent), and Canada  (9.5 percent).

    Canada, France, Germany, Italy, and the United Kingdom saw the profits of US companies operating in their borders fall 25%-from $72 billion in 1999 to $54 billion in 2002 (a drop from one-third overseas profits in 1999 to a little more than one-fifth in 2002). While these five countries accounted for 44% of foreign sales, 44% of foreign plant and equipment, and 56% of foreign employee compensation in 2002, they accounted for only 21% of foreign profits.

    The official Irish line generally is to spin overall export figures and downplay the distinction between MNC dominance and the small indigenous.

    Press releases from the Dept of Enterprise and Employment on trade figures generally show a lamentable ignorance and for example it appears that ministers, officials or both do not know why Belgium is one of our principal export destinations.

    Many armchair “experts” tend to also conflate the export performance, which doesn’t help in addressing deficiencies.

    We should ask serious questions on the very poor exporting record and wonder why a comparable country such as New Zealand, can control more than one third of global trade in dairy products or why Germany becomes a net exporter of food and drink for the first time in 2008 while we are tied to the UK market and the IFA is seeking import bans.

    http://www.finfacts.ie/irishfinancenews/article_1018704.shtml

  12. Michael

    The point you make about how profitable Ireland is for US MNCs is interesting, considering how much IBEC and the National Competitiveness Council go on about the country’s loss of competitiveness. To be fair to the latter, in their most recent report on competitiveness, they did include (perhaps for the first time) data on rates of return on investment for US FDI in Ireland, and the rates remain quite healthy – much higher than in Eastern Europe.

    The other point is the significance of services, which are made up of three major components, more or less of equal importance: financial services (IFSC), software and business services.

    Some of the comments focus on ‘exports’ from Ireland. I think that a very important area that has emerged here is the servicing by subsidiaries in Ireland of international markets (value chains) for US multinationals. The reporting back to Ireland of a significant volume of international business allows for transfer pricing and increasingly tax efficient supply chains.

  13. @ Michael Hennigan – Finfacts: ‘Ireland is one of the world’s most profitable countries’ – to whom does the surplus flow?

    I would be most fearful that many of the pharma and health-care companies will re-locate within the next five years. Intel??

    ‘We should ask serious questions on the very poor exporting record and wonder why a comparable country such as New Zealand, can control more than one third of global trade in dairy products or why Germany becomes a net exporter of food and drink for the first time in 2008 while we are tied to the UK market and the IFA is seeking import bans.’

    Yep! You can indeed ask, but will you get truthful answers? Transport costs are the principle variable cost. They’re lowish now, but will increase significantly in a few years time. The IFA is a VERY special interest group that has completely captured our legislators.

    B Peter

  14. @ RO’T: Just a bad feeling. I have no trust in multis – they’re predators now. They need to increase their cash-flows, reduce variable costs and seek the most benign tax haven – one that is politically secure and where the legislators will give them an appropriate ‘taxpayer’ donation. If the economic situation deteriorates any more in the US, they may be ‘charmed’ home! Best I can do.

    B Peter.

  15. @BP Woods

    Please ground any comments you have in a factual base. No matter how prescient your superstitions turn out to be, they are of little practical help to the rest of us in understanding the economy.

  16. @Michael Hennigan

    What were you hoping to prove by your references to New Zealand?

    Are you of the belief that their export performance is superior to Ireland’s?

    If so, like Claude Rains in ‘Casablanca’, you have been misinformed.

    Let’s look first at total exports (goods + services):

    in 2008, the value of Ireland’s exports was 151.9 billion euros

    source: CSO

    in 2008, the value of New Zealand’s exports was 56.9 billion NZ dollars

    which at exchange of 1 euro – 2.0770 NZ dollars (from Eurostat) gives:

    in 2008, the value of New Zealand’s exports was 27.4 billion euros

    source: Statistics New Zealand (their equivalent of the CSO)

    So, bearing in mind that the populations of Ireland and New Zealand are almost identical in number (about 4.4 million), the value of exports from Ireland was 5.5 times that of exports from New Zealand in 2008.

    That was 2008. Final figures for 2009 are not out yet. But, as reported today by the IEA, the value of exports from Ireland in 2009 is down just 1%. So, far in 2009, the value of New Zealand’s exports is down 15%. So, it looks like in 2009 the value of exports from Ireland will be about 6.4 times that of exports from New Zealand.

    Let’s look next at dairy exports – you say:

    “We should ask serious questions on the very poor exporting record and wonder why a comparable country such as New Zealand, can control more than one third of global trade in dairy products…”

    Figures on world dairy trade are given in the following link:

    http://www.worldmapper.org/posters/worldmapper_map45_ver5.pdf

    If anyone accesses this link, they will see that indeed New Zealand is the world’s leading exporter of dairy products. They export 641 US $ worth of dairy exports per capita. However, in second place was Ireland, which exports 320 US $ worth of dairy exports per capita (higher than Denmark which was third with 282 US $ worth of dairy exports per capita, and just under twice that of the Netherlands which was fourth with 170 US $ worth).

    OK, so presumably you’ll now say that it was a very bad performance by Ireland to only come second in the world in relation to exporting dairy products and to export only half the value of dairy exports per capita that New Zealand does. But, there is a very good reason why New Zealand should export more dairy products than Ireland. Quite simply, it has the same population as Ireland but is 4 times as big, so they have 4 times as much agricultural land per capita than Ireland. The actual figures (from Wikipedia) are:

    Ireland (i.e. Republic of Ireland): 27,133 square miles

    New Zealand: 103,483 square miles

    So, any normal person would expect New Zealand to produce more agricultural products per capita than Ireland. It is about as surprising as the fact that Cork produces more agricultural products per capita than Dublin. As I said above, despite having a lot less land per capita than New Zealand, when it comes to total exports, rather than just dairy exports, Ireland exports 5.5 to 6.4 times as much as New Zealnd does.

    Try occasionally to give the full picture when it comes to these matters.

    You appear to have some sort of psychological problem, perhaps inherited from colonial times, that compels you, both here and on Finfacts, to constantly rubbish Ireland’s economic performance and to continually portray Ireland as inferior in every respect to every other country in the world.

  17. Thanks Michael Hennigan for some hard facts.

    JtO – You have posted that table before and if we look at the 9% drop in indigenous, the figures are definitely still better than the rest of Europe (which is a good thing!) but not hugely better any more.

    @All: MNCs are almost by definition less sticky than indigenous companies. As a result the tax revenue and jobs are also less sticky. While I do not have any intuitions about the future, it strikes me as good policy to encourage more indigenous industry.

  18. @All
    Nick Leeson, the Watford trader who lost £862 million (€975 million) trying to cover a relatively minor loss in a desperate gamble that resulted in the demise of Barings Bank, has slated Irish banks.

    “The thing that is really, really strange here – and I think this is why it is so bad here – is that the senior management of the banks are caught up in it. In England, if you look for a loan from five grand to 50 million, the process is exactly the same. That doesn’t seem to have been true in Ireland. For me, for instance, what has happened in Anglo Irish Bank is a version of insider trading – bankers using their own influence to bring certain people together.”

    http://www.irishtimes.com/newspaper/weekend/2009/0307/1224242421721.html

  19. @ RO’T. Thanks, point taken, but hunches are what drive curiosity! And occasionally the ‘facts’ are not exactly fair and true. Consumer beware I suppose. Thanks again.

    B Peter

  20. @All
    “… in Ireland, the way that the top tier managements in banks have been able to get involved is just incredible. I mean, I hear tell of numerous episodes of bank managers buying into land deals for 50 million. A f***ing bank branch manager! How does that happen? Another guy made so much commission in one month that he didn’t really have to work for a year. And all he was selling was debt.”
    http://www.irisheconomy.ie/index.php/2010/01/08/2009-trade-statistics/#comment-31322

    Leeson is from Galway and what he says is supported by this:

    “Two bankers at the centre of an inquiry into their private activities have extensive property investments

    AN EXAMINATION of land registry files has shown that the two senior AIB bankers who are currently the focus of an internal bank inquiry over their private commercial activities have substantial property investments around the State.”
    http://www.irishtimes.com/newspaper/finance/2009/1214/1224260652793.html

    BANKERS = DEVELOPERS

  21. @ALL
    “John Hughes, AIB’s head of business banking in Galway, and Tommy Hopkins, a senior executive with AIB Commercial Services in Bankcentre, Ballsbridge, Dublin, have been involved in substantial property deals.

    Mr Hughes has said there is no conflict of interest created by his involvement in property while also working with the bank.

    “If I’m doing anything inappropriate, there would be a conflict, but I’m not.” He said he was aware of the terms of the bank’s code of ethics and was compliant with them.

    A charge against their holding in the name of Anglo Irish Bank was registered in November 2000.”

    Senior bank staff were all borrowing from Anglo, and each other. The Anglo bankers were all borrowing from Anglo and each other. This was the culture of Irish bankers.

    IRISH BANKERS = IRISH DEVELOPERS
    That’s why NICK LEESON, slated Irish banks.

    NAMA will only be working with the bigger developers. The bankers will be managing each others loans – with the taxpayers interests uppermost? Yeah, right. AIB will be managing loans to the Anglo guys. Anglo will be managing loans to the BOI guys. BOI will be managing loans to the AIB guys.

    NOTHING WILL CHANGE.

  22. @Ronnie O’Toole

    Do you happen to know if the IEA produce their own exports figures, or do they use CSO figures? Just wondering how they have such precise figures for the full year, when the CSO have only to date published figures up to October for goods exports, and up to September for services exports. Are the IEA just guesstimating the figures for October and December? Or do they have access to reliable figures before the rest of us?

  23. @ALL
    Don’t allow the establishment to conduct any banking inquiry in secret. After all they have done, don’t let them secretly warehouse accountability for months, even years. We need the truth now and they need to accept the truth. They have done far too much damage to be let weasel away from facing the consequences. Then again, NICK LEESON has already told it to us. We need ACCOUNTABILITY NOW. If the government refuse demand that they allow one of the gazillion Dail committees to call witnesses. If the government still refuse, suspend all pairing arrangements for the life of the Dail and put down a motion of no confidence every week. And set up a non-Dail committee of civic society on which respected FF supporters will be invited to partcipate. If they won’t, go ahead any. FF are almost shameless. You’re really going to have to put the screws on.

  24. @NAMA: €65 Bn losses for no lending Says:

    Might I suggest that you post on one of the NAMA threads.

    This thread is about Ireland’s trade statistics in 2009. It says so clearly at the top. I assume you can read. If you have anything to say relevant to the title of the thread, let’s hear it. If not, go to another thread.

  25. @ALL
    The witnesses will appear voluntarily. They will tell the truth and FF TDs (or if they won’t agree, supporters) will be free to challenge them. Eventually, FF themselves will accept the truth. Then Cowen will have to appear. That’s the genius – he can’t veto it and he can’t stonewall by saying there will need to be a referendum.
    Demand it starts when the Dail returns.
    The first witnesses should be the authors of the books on the banking crisis.
    Second the academic economists.
    The Central Bank Governor.
    And so on.
    STOP PLAYING BY THEIR RULES.
    HIT THEM CONTINUOUSLY AND WHERE THEY LEAST EXPECT IT.
    We need total determination and a smart approach by the opposition.
    MAKE THEM FACE THE TRUTH.

  26. I come on here looking for a lively discussion on trade stats, and i find myself have to hit ‘page down’ repeatedly to get past lots of sh1te about NAMA. For the love of God, can this please stop? Talking about Man Utd (which i know JtO would at least appreciate) would be just as relevant. Super data as always btw John.

  27. @John

    They have a survey, though they still seem to rely heavily on the CSO for past numbers and then update as you suggest. In the past their record on ‘forecasting’ the true CSO numbers has been poor, particularly in services. This was most spectacularly so earlier this year in their Q1 report when they predicted a collapse in services, including a halving in financial services.

    They have a decent number of the major manufacturers as members, though are never as vocal on services issues. This might suggest that they have had less success in harvesting this sector for new members, which would also explain why their survey has fallen down in this area.

  28. Snce indigenous exports comprise less than 10% of total, and MNC exports have been little affected by the Great Recession, it is difficult to see how ‘export-led growth’ will greatly ameliorate the condition of the more than 20% of the labour force that’s on the dole.

  29. @Calan,

    I think thats broadly fair. Whatever exports will do for you, they won’t create lots of jobs in a short space of time. If you take it that 200k are directly ‘export faced’, this is only 10% of the entire workforce. Tourism is a more likely source of new employment, as it is price sensitive (so should benefit from fall in HICP). The solution to the employment crisis will depend on a significant fall in the domestic savings rate.

  30. @E65
    Seriously you are going to have to stop spamming every single thread with stuff about NAMA. It is becoming more than a little annoying!

    And while I somewhat agree with you on the problems with NAMA I just skip straight over your posts now.

    NAMA is very important to our future but sometimes people just want to discuss other topics!

  31. Given the obvious strength of the Irish exporting sector it clearly shows how poorly the domestic economy is performing.

    While the strength of the exporting sector is clearly a positive, I cannot see how an international pickup is going to meaningfully lift the Irish economy given that the international downturn has had so little effect on the economy.

  32. @Dreaded_Estate
    Even if they weren’t Developers (ff) would you allow this government to leave the house on it’s own – look what happened to Noel Dempsey.
    Giving them €54 Billion to do ANYTHING, let alone bail out themselves and developers/developers (as bankers/developers should more correctly be known) is a recipe for disaster.

    God keeps trying to tell us this. They were the Evil Triangle of FF/Developers/Bankers. But FF as Prime Time showed are all developers.
    The bankers are all developers. Now we have to face the fact that they are the Evil Developer Blob – with a very small interest in running the bank system and no interest at all in running the country properly, just in parasiting on it.

    Don’t let FF destroy the country for the next decade.
    NO TO NAMA.
    BANK INQUIRY NOW.

  33. @ JohnTheOptimist

    The concluding comment is an echo of the ignorant cheerleaders of the bubble.

    There is a difference between googling for data and understanding it.

    Countries that have a high dependence on MNCs, tend to have a high trade or export ratio to GDP or GNP.

    Singapore had an export ratio of 186% in 2008; Ireland’s ratio was about 90%.

    So having higher exports than some other country, in itself, is no big gaisce.

    A capital intensive sector such as batch chemical production can result in some impressive figures but very little change in employment as a result. The import content can also be high.

    IDA supported jobs in 2009, were below the 2000 level and new big job creating projects are hard to come by.

    We can of course shut our eyes to the potential of the food sector and ignore why we cannot sell in Europe while Asia is foolishly regarded as an easy target.

    Prof. Seamus Grimes would no doubt tell you that trying to break into the Chinese high tech market for example, is some challenge.

    What the Irish dairy export data do not tell you is that it is mainly low margin commodity based (butter, powder, casein and bulk cheese).

    Reports over the past decade have highlighted the reliance on EU intervention; economic added value to raw milk is lower than the industries in countries such as Denmark and the Netherlands and Irish companies have developed very few internationally branded consumer products.

    Eurostat, provides comparative country data on for example cheese production  —  which gives the potential for significant value added  — and shows that Ireland’s output in 2004 was as low as Sweden’s. There is no Irish data for the years after 2004 – – other country data is up to 2008.

    Despite being the 24th biggest milk producer in the world, Ireland’s cheese output was lower than in Spain and Greece while production in the Netherlands was almost six times the Irish level.

    New Zealand’s Fonterra is its equivalent of Nokia and has 10,000 directly employed in the home country.

    Business consultant Mazars,  highlighted in 2008 how New Zealand was taking advantage of markets in Europe.

    It said: “The food industry in New Zealand developed specific measures and worked with external partners to develop new technologies and new products. They created specific products for specific markets and created best practice dairy markets in Asia. And despite being 12,000 miles away from European markets, New Zealand has become increasingly competitive for its chilled lamb and their lamb exports to the EU have increased 40 per cent in the last two years”.

  34. @Dreaded_Estate

    “Given the obvious strength of the Irish exporting sector it clearly shows how poorly the domestic economy is performing.”

    Your analysis is 100 per cent correct. Absolutely spot-on. I recommend you for a senior position in government immediately, as at least you have identified the problem correctly, which is more than can be said for a lot of politicians and economists in Ireland.

    Given how Dreaded_Estate has now corretly identified it for them, would it be too much to ask all the political parties and all our leading economists to address the real problem, namely the sharp fall in consumer spending in Ireland in the past 2 years, and not the mythical problem of a collapse in exports, which simply has not happened. It looks as though Ireland’s share of EU exports in 2009 was at all-time high, surpassing by a long way the previous peak in 2002. But, as Dreaded_Estate implies, consumer spending has been falling for about 2 years. Yet, I’d say 99% of economic commentary, both from politicians and economists, has revolved around a mythical collapse in competitiveness and a mythical fall in exports. The best analogy I can think of so early on a Saturday morning is that of a football team that loses a series of matches 8-7, yet the manager and the pundits focus all their attention on the supposed deficiences of their attack rather their defence.

    I’m not suggesting for a moment that competitiveness should be neglected or that Ireland should not do everyting possible to increase exports. To suggest that would be silly. But, as it happens, virtually everyone agrees that competitiveness is now improving rapidly, and has been for about a year and a half, and that this improvement will accelerate through 2010. This rapidly improving competitiveness is coming through from lower inflation than in other EU countries and through wages falling while rising by 3% to 4% in other EU countries. Even the IEA said that in their report yesterday. But, the bad news is that, as Ronnie O’Toole points out, improving competitiveness and increasing exports is never going to create a lot of jobs directly. The jobs are created when those employed in the exporting sector get real income increases, in line with real productivity increases, and then start spending that increased income in the domestic economy, whether it be on houses, cars, eating-out, mobile phones, ice-cream, day trips, furniture, carpets, or whatever. So, the first priority of the government should now be to get consumer confidence up and get people spending again. In a paper that John Fitzgerald of ESRI posted here a few months ago, he suggested that a tough budget, that was well-received by the markets, might do the trick in that respect. There are a few straws in the wind that that might be happening (for example, media reports of increased Christmas/New Year sales, claims by some car dealers that their sales are up on last year, and so on), but it is too early to be certain if these amount to anything.

  35. @JohntheO
    Do you see then a two-tier economy developing? Work for an MNC and have an international level of income, work in the domestic economy and, eh, be a domestic for the international workers?

    Without the wonderbra of credit, the number of employees in the MNC sector is going to be able to support only a flaccid domestic economy, no?

    And I believe you need to expand more on how an international pickup is going to lead to higher exports for an economy where exports have not really contracted. A return to normality would leave us in the same position we are currently in, as we haven’t moved from normality?

    So what is the difference? Credit, perhaps?

  36. @Yoganmahew

    Good questions. I can only reply very briefly, as I’m off in a few minutes to my cousin’s holiday home near Malin Head for the weekend. BTW, according to the Met Eireann website, the temperature there at 10am this morning was a balmy plus 4 degrees centigrade, compared with about minus 6 degrees centigrade everywhere else in these shivering islands.

    So, just briefly:

    (a) If exports remained flat during the global recession, I don’t see why they shouldn’t grow rapidly after the global recession. They grew in volume by over 8 per cent y-o-y in 2007, the last pre-global recession year. For the reasons I gave in my earlier post, Ireland is considerably more competitive in 2010 than in 2007.

    (b) How increased exports, and increased incomes among those doing the exporting, gets converted into increased domestic spending depends on a number of factors, not just credit and lending. I myself never use credit, and neither do most people. The fact that I spend more domestically now than I did in, say, 1986 is because my real income is higher now than then, as indeed is nearly everyone’s in Ireland.

    (c) Being a ‘domestic for the international workers’, as you put it, makes it sound as though all these ‘domestics’ earn a lot less than ‘international workers’. The ‘international workers’, such as myself, are not exactly jet-setters. Its not as glamorous as you might think. I work in a humble office, just like most people. It just so happens I’m employed by an MNC, and most of our customers are abroad. Some of the ‘domestics’ I spend my income on may earn less than me, but some of them earn more. I’m sure my doctor and and my lawyer earn a lot more than me, yet they are what you would call ‘domestics’. So, I don’t think its a two-tier economy permanently in that sense.

  37. @JohntheOptimist
    I think it is going to be very difficult to lift domestic spending in the short term or even in the medium term in order to revive the domestic economy.

    For the last few years the domestic economy hasn’t been much more than a a property bubble and a credit/bling bubble driven forward by the property bubble.
    This is gone and will not return IMO.

    Consumers have taken on so much credit that spending will be muted for a chunk of the next decade as we struggle to repay the accumulated debt.

    And with so much of the domestic economy employment coming from construction and its related bling industries(retail) I cannot see the domestic side economy generating much jobs for quite some time.

  38. @JohntheO
    Thanks for the time.
    “(c) Being a ‘domestic for the international workers’, as you put it, makes it sound as though all these ‘domestics’ earn a lot less than ‘international workers’. The ‘international workers’, such as myself, are not exactly jet-setters. Its not as glamorous as you might think. I work in a humble office, just like most people. It just so happens I’m employed by an MNC, and most of our customers are abroad. Some of the ‘domestics’ I spend my income on may earn less than me, but some of them earn more. I’m sure my doctor and and my lawyer earn a lot more than me, yet they are what you would call ‘domestics’. So, I don’t think its a two-tier economy permanently in that sense.”
    I too am an international worker and I agree with your description. What I don’t understand is how ‘we’ can support ‘domestics’ earning more than we bring in in income (in aggregate). I too never use credit, but that makes us extremely unusal amongst our fellows. When ‘domestics’ leverage up, ‘internationals’ are supporting an increasingly large and unstable debt pyramid on a supposition of expansion of our future earning and, more particularly, spending.

    In terms of spending, for you, it is a simpler proposition (as I believe you are in de Nort). You can buy in an economy that is not charging you a 40% premium on big ticket items (after consumption taxes have been considered). Me? I have to decide whether to shop local and pay through the nose (when shop local involves going to the same private equity owned chain as you do) or buy over the internet, pay the Irish VAT price, shipping etc. and still save 35+%

  39. JtO,
    Once the Great Recession ends Irish-based MNC’s will lead a massive export expansion and substantially reduce unemployment? Doubtful, given that MNCs account for 90% of exports and only 10% of employment.

    Ronnie O’Toole,
    An increase in consumption to solve the unemployment crisis is also doubtful, given the indebtedness of the private sector, falling wages and employment, and the knock on effect on consumption of austerity budgets.

  40. @JTO
    You make a good point regarding comsumer confidence.
    Consumer confidence is affected by several factors I am sure. The ones I would draw attention to is expectations of future taxes, wages and social assistance. Over the last year the government has engaged in an orgy of threats against lower earners, the public sector, the unemployed and the disabled. They have taxed all earners and cut the public sector and those on social assistance. They are threatening to cut the public sector and those on social assistance further. They are also determined to tax lower earners. They tried to cut the pensioners, are going to reduce reliefs for pension contributions (which I support) and are intending to lower public sector pensions by indirect means.

  41. @JTO
    Meanwhile, they have plenty of cash and liquid assets through the NTMA and National Pension Reserve Fund, but they continue to talk as if the country could run out of money in the morning. In that case we will all starve and the IMF will come in and kill everyone.

    Then, without any self-awareness they accuse NAMA critics of scaremongering and wonder why people aren’t shopping (while they also refuse to reform leases so retail rents can fall).

    Did I mention we would probably die on the way to the shops anyway?
    That many live in houses that were flooded with sewage 2 months ago (I don’t thank God)? That university fees are coming back, no they aren’t, maybe…? That interest rates may rise? That the international recovery is uncertain? That the bankers who are worse than Cromwell are all still in place?

    And the biggest threat of all: NAMA will lose €65BN.

  42. @ NAMA: €65 Bn losses for no lending

    Can you please stop spamming this thread. You have added 8 off-topic posts so far.

    This is abuse of the blog and moderators should delete them.

    @ All

    On depending on domestic consumption, in the construction sector so far, employment has fallen 130,000 from the 2006 peak and average pay excluding ‘lodge’ add-ons etc, was more than 20% higher than the average industrial wage.

    Adding in the impact of fiscal measures in coming years and the permanent increase in unemployment, there will be an impact on consumption for many years.

    The debate so far on exports, highlights a reality that it is uncommon for people to accept facts that jar with existing perceptions.

    Last week, US journalist Robert Samuelson, in his critique of modern journalism in Newsweek, wrote: ‘”Never underestimate the difficulty of changing false beliefs by facts,” the economist Henry Rosovsky once said. People do change their minds, but experience has more influence than argument.’

    http://www.newsweek.com/id/228550

    It is an issue of relevance for policymakers and their advisers.

    Of course there is also a relevant question as to what is a fact?

    The statement that a 10% devaluation of the punt in 1993 was followed by an export boom, is factually correct and has been used as an argument for exiting the euro.

    However, it is ludicrous to claim that the export boom was triggered by the devaluation.

    So JohntheOptimist, given your trenchant response to my earlier post, I await your response to my analysis of the Irish dairy sector output.

  43. I’d just like to point out to all and sundry (especially the sundry) that i forecast that NAMA was slowly eating away at E65bn’s higher cognitive functions a few months ago, and everyone scoffed at me. I now know how the economists who predicted the fall in the property market, but who no one listened to, feel.

    @ Michael H

    taking the Kiwi’s as a comparable example (lets assume they are great at indigenously generated dairy production), what would be required for something similar to be created here? Is it more innovation focused than investment? Is this something the IDA should be tasked with? Kerry Group are surely an example of how we are at least in some part getting this ‘right’.

  44. @ Bond. Eoin Bond…

    Last Sept at the Farmleigh diaspora forum (another gabfest that has produced nothing?), Brian Cowen asked for help to establish a “European Silicon Valley.”

    However, the high hopes in the 1990s of the indigenous tech sector have not been realised and the jobs impact in the coming decade will be negligible.

    There should be a stronger orientation of public R&D towards the food and drinks sector.

    Baileys Irish Cream is an example of a once inconceivable use of milk.

    Swiss group Nestlé, the world’s biggest food group, has 5,000 working in R&D.

    It would be a big help for an amalgamation of the main Irish food companies that would result in a significant world class company.

    There should be a goal to develop markets in Europe, in particular.

    There will always be markets for food and last September, the United Nation’s Food and Agriculture Organisation (FAO) said global food production will have to increase 70 per cent for an additional 2.3 billion people by 2050.

    Glanbia was the 20th biggest milk processor in 2007 with NZ’s Fonterra at No. 1.

    The Green Party goal to declare Ireland a GM-free zone is both anti-science, stupid and not in the national interest.

    Consultants Prospectus recently updated a 2003 report on the dairy industry, which says it still compromises a multiplicity of processors, many of whom lack the efficiency to compete.

    http://www.ifa.ie/LinkClick.aspx?fileticket=NJCDGlrKPX8%3d&tabid=606

  45. @Calan, DE,

    There is money there. Given a CA in balance in 2010, and a Govt deficit of 10%+, means that the private sector is net saving to the tune of 10%+. This will stay somewhat elevated in the medium term, though not at this level.

  46. Ronnie O’Toole,
    The point is that the private sector, in current economic circumstances, is more likely to increase saving rather than consumption.

    M.Hennigan,
    ‘Facts’ are filtered through a certain ideological prism.

    As Stiglitz writes in his latest book:

    “As we peel back the layers of ‘what went wrong’, we cannot escape looking at the economics profession…economics had moved-more than economists would like to think-from being a scientific discipline into free market capitalism’s biggest cheerleader. If the United States is going to succeed in reforming its economy, it may have to begin by reforming economics.”
    Joseph E. Stiglitz, Freefall, W.W. Norton, 2010, p.339

  47. @Dreaded Estate,

    Firstly we have to know what level savings are at in Ireland at the moment, which is quite a difficult figure to pin down.

  48. I work for one of the big pharma companies.

    In 2009 our plant manufactured more bulk pharmaceuticals in dollar terms than any other year since the company moved to Ireland. In 2010 we’re due to be even busier.

    Two miles from here (I’m on night shift right now) another big pharma company is running at about 25% capacity, is engaged in a stand-off with the unions over over-time and shift-rates and is rumoured to be considering a three month shutdown.

    The reason for the difference between the two is pipeline. We’re ok for another couple of years; they have had two expected blockbusters, that would have filled their plant for years, fail at Phase III in the the last two years.

    If a pharma factory closes in Ireland it will not be ‘Ireland’s’ fault, it will be the fault of failures at R&D and sales (neither of which we in Ireland have any control over) Simply put there will be no new drugs to make.

    The American pharmaceutical companies have been closing their American facilities because we in Ireland can do the cheaper, a lot cheaper. But we were already-established, FDA approved plants. We have won the game of musical chairs for the time being.

    Assuming the big pharma companies have product to make and are selling it, it would take at least ten years for them to relocate to brand new facilities in ‘lower cost locations’ now and receive FDA approval. Puerto Rico has 0% tax (I think) but the American companies still won’t move production to the existing facilities there. Maybe we’re better than we give ourselves credit for.

    Similarly with job growth in the sector and knock-on job growth in the associated service companies. It all depends on pipelines.

    The value of pharmaceuticals manufactured in this country per employee is in the millions of dollars. The so called competitiveness drop since 2000 that I saw Morgan Kelly write about is simply a red herring in our industry (within reason, obviously.

    When Pfizer closed its legacy Pharmacia plant in Little Island the journos and politicos went through the usual charade about how it was the government’s fault, loss of competitiveness etc. Utter rubbish. Pfizer bought Pharmacia for its oncology candidates, which all failed. Pfizer sells one solitary legacy Pharmacia compound now. They literally destroyed the value of that company.

  49. @Canan, DE,
    The (implied) private sector balance within the Govts Budget projections are:

    2009 2010 2011 2012 2013 2014
    9.7 12.2 11.2 8.8 6.5 4.2

    So, they foresee contined falling investment driving aggregate private sector balance further into the black this year (so agreeing wth you Calan), falling thereafter. However there will be a significant reduciton, though people of course can argue as to whether it will take to 2014 to get to 4%. However, the mnoey is there, and it will happen.

    @dealga,
    Understanding the dynamics of specific industries is very important in small countries, so informed comments like yours are very welcome.

  50. @ dealga

    I endorse Ronnie O’Toole’s point.

    It’s great to get such a contribution from an industry insider.

    Employment in the pharma/medical devices sector has hovered around the 40,000 level for the past five years, despite the big jump in output.

  51. Maybe I can add a bit of personal experience as well 🙂

    When I came to Dublin in Jan 2000, my first job paid 12,500 Irish punts. The same/similar job is now advertised at 22,000 EUR. It was export of services. The job had high turnover so in this case, similar jobs haven’t become more expensive to have in Ireland. However, until the property crisis that kind of salary made it difficult to afford to live in Dublin.

    Even with the low increase in salaries, I see that at least some of the growth of jobs for these kind of services has taken place in the new EU countries. The jobs that are here will probably stay but don’t count on people on these salaries to give much of a boost to domestic demand 😉

  52. The pharma companies have stopped hiring permanent staff directly because they have made the mistake previously of hiring for expansions based on prospective blockbusters that have failed. The question would be what change in employment levels among the contract companies that supply the industry has taken place.

    My company, as I said has increased output, but had very little CapEx spend in 2009 as there are no new drugs coming any time soon. This resulted in a cull of contract staff (dozens). Where those people go and how those numbers are handled statistically I have no idea

  53. I might add that I do believe the company I worked for owned or at the very least had a long term low cost lease (thanks IDA). As a result they have low property related costs as well. And as I believe the value of the contracts of the job has increased quite a lot more than the costs, I expect the business to be a nice money maker now.

    Domestic demand might be needed. However, I believe that people in industries with wages that are competitive across Europe simply do not have the wage to increase their spending. Competitive salaries are in this context low salaries 😉

    Low salaries and limited access to credit rarely leads to high spending….

    As a side note, I can also mention that had I stayed in Ireland then I’d probably be spending the same amount of my salary. The main difference would be that I’d be getting a lot more value for money, especially when it comes to housing costs.

  54. @dealga – “This resulted in a cull of contract staff (dozens). Where those people go and how those numbers are handled statistically I have no idea”

    Many industries use ‘contract’ staff (freelance, one man limited companies – for employer tax reasons/contract staff agencies won’t touch you unless you are a limited company – usually) these days. In particular the IT area but also areas you wouldn’t immediately think of such as the media (e.g. almost all journalists these days are freelance).

    It’s the same in both the UK and Ireland and is a very convenient way for a company to shed staff at no cost as there is usually no notice period build into any contract (the best I have ever seen is a week) and of course, they don’t have to be given the same benefits and rights as permanent employees. I can’t speak for the rest of the world but I’ve no reason to believe HR practices aren’t fairly universal these days.

    I know from my own research that the IT side has been chronic since early-mid 2008 with large numbers (hundreds) removed at a time from many large companies, particularly financial services. The situation for contract staff is grim today as there are no permanent roles to find a ‘safe harbour’ in and there are literally several hundred people applying for each contract vacancy that comes up.

    I have had people in recruitment companies tell me that the minimum number of applicants they get for any vacancy on a platform such as jobserve.co.uk is 400 within the first couple of hours of it going on and all they do is look down the list until they get 3-4 suitable looking CV’s to send on to the employer then don’t bother with the rest. These days they try to be very specific about experience, qualifications etc (and over specifiy) because if they just put in something generic like ‘project manager’ the replies would number well over a thousand. I have also had several tell me that they post phoney roles on these job sites but that’s another story.

    The situation gets even worse in downturns like this because as permanent staff are also made redundant (and suddenly realise there are no other permanent jobs for them to go looking for) they also decide to apply for the few contract roles that are advertised and you end up with even more people chasing fewer openings. A bit of a shark pool really.

    As you pointed out, contract staff get culled regularly when the going gets tough but as the individuals are usually classed as ‘company directors’ they don’t qualify for benefits and don’t appear in any unemployment stats. They just sit at home all day wringing their hands, living on their savings and hoping that something comes up (lots of mental health problems, etc. in that occupational sector I am told and not surprising I guess).

    I’m not sure anyone has an exact figure for the number of people in Ireland and the UK that are in this position but they are a large number (well into six figures across both countries by my reckoning and possibly even into seven figures). As downsizing has grown (what an oxymoron!) but the amount of work still to be done hasn’t shrunk (anything but), the pool of these one man limited company contractors has simply grown and grown over the years. They’re a kind of ghost dole queue, along with the many thousands who have gone back to full time education or who have simply given up looking/taken early retirement/taken something part time and are now no longer on the official unemployment figures.

  55. @Michael Hennigan

    That’s interesting. And a big % too.

    So I’m at least right about one thing then…… “I’ve no reason to believe HR practices aren’t fairly universal these days”

    Temporary contracts were/are one of those great wheezes brought to us by the HR ‘profession’ – along with things like the kind of performance related bonus schemes where 90% of the employees in a company think they are in the top 10% of the performers (only to be in for a shock at the end of a hard working year)!

  56. @Brian J Goggin

    What I think the Brits introduced was called IR35 which I don’t think is quite the same thing as making contractors just PAYE (and I believe employers/agencies found ways around involving themselves in paying any kind of employer taxes with very precise wording on contracts).

    However, it is true that you can mitigate/avoid (rather than evade) tax as a contractor in Ireland by ’employing’ your spouse, paying dividends rather than salary, etc. All the things TD’s and other well off people do all the time anyway!!

    It’s a bit of a moot point/useless piece of legislation though if said contractors aren’t actually earning any money……

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