External Trade Statistics

The (merchandise) trade statistics released by the CSO today showed that exports fell in December (here).  “From a November high of €8,252m, seasonally adjusted exports decreased by 9% to €7,503m in December… A substantial part of the decline in the value of exports was due to a high value product in the Chemicals and related products sector coming off patent in December”. 

This is the beginning of the “bad news (for Ireland) from big pharma” that I posted on back in December.   

38 thoughts on “External Trade Statistics”

  1. Much of those exports are non taxable and only effect activity in certain areas such as Corks lower harbour.
    Whats more important in my opinion is the continual increase of energy imports while our BTU use (activity / work) is possibly still declining.
    The energy imports exceeded food imports in I think 2005 and oil imports exceeded food imports in 2008 before reversing during 2009 / 10 but now it appears the 2008 phenomena is back again for 2011.

    http://www.youtube.com/watch?v=h5Mc55P1i9g

    This created a discretionary demand shock which affected employment and tax take in the energy intensive housing “industry” and indeed in pubs and clubs and pretty much everything that involved wasting a surplus otherwise known as capitalism.
    The energy balance figures are quite interesting and are showing up quite new post Basel phenomena :
    Y1990 : 926KTOE
    Y1991 : 981KTOE
    Y1992 : 1012KTOE
    Y1993 : 1054KTOE
    Y1994 : 1114KTOE
    Y1995 : 1176KTOE
    Y1996 : 1259KTOE
    Y1997 : 1348KTOE
    Y1998 : 1421KTOE
    Y1999 : 1504KTOE
    Y2000 : 1562KTOE
    Y2001 : 1642KTOE
    Y2002 : 1697KTOE
    Y2003 : 1746KTOE
    Y2004 : 1817KTOE
    Y2005 : 1891KTOE
    Y2006 : 1977KTOE
    Y2007 : 2070KTOE (PEAK OIL / CREDIT)
    Y2008 : 2062KTOE
    Y2009 : 1974KTOE
    Y2010 : 1899KTOE

    The road freight statistics are much more dramatic and reflect a massive drop of activity…….yet we continue to pay more for less……….
    Y1990 : 334KTOE
    Y2007 : 1255KOE (peak)
    Y2010 : 733KTOE.

    Now perhaps there was more energy activity in 2011 but I have my doubts.

  2. I am assuming the drug was Lipitor, although I thought that went in September. However, offsetting this is the unexpected patent extension in Enbrel to 2025 (I think). This is manufactured in Grangecastle. It is a $3.7bn drug. So it is not all one way.

  3. On a more positive side we could also view this as a reminder that Irish manufacturing has to concentrate on research and development and high end production which means we have to expect that when patents expire, or products become easier/cheaper to produce, manufacturing will move elsewhere.

    We can never compete against low wage economies and our low corporation tax (other countries have low Corporation tax but have other disadvantages which we do not have) can only provide one advantage 🙂

  4. It was not of great consequence when pharma exports exploded and there is not necessarily anything to worry about in a fall either. Unless this feeds through to a fall in employment it is utterly inconsequential for Ireland. Well, almost. Our occupying power is likely to take the meaningless fall in GDP as a signal to seek bigger cuts in government spending.

  5. @ BeeCeTee

    Take a look at page 196 of the Atlas of Economic Complexity. A highly pertinent and useflu tome IMHO.

    http://atlas.media.mit.edu/

    Big multinational boxes and little Irish boxes. The advanced nature of the Irish economy is transitory, tax dependent, and largely illusory.

    Our GDP is sustained by FDI exports, of which chemicals/pharma is a big part. Any significant downturn in this sector will, at a minimum, scupper Ireland’s trumpeted adjustment,’ and risk exposing the rotten timbers in the domestic economy.

  6. @Paul
    Guess you followed my link the other day.

    Two points:
    The link between the value of pharma output and employment has been weak on the way up. It Is far from clear that it will be any stronger if the value of output drops.

    Pharma’s footprint in Ireland is best measured by payroll and local purchases. By this standard it is a sector of middling importance. If we lose some payroll and local purchases it’s a pity but not that enormous a deal. If all that happens is that exports go down it matters not a jot.

  7. @ BeeCeeTee

    Yes I did follow your very interesting link and apologies for not acknowledging same. That atlas is very telling in Ireland’s case, because it attributes to us a level of economic development which simply so no possess as soveriegn state or nation. The critical linkages are almost all under the control of external private corporarions.

    FDI in Ireland is mostly not about employment, but about financial flows. It follows that the contagion channel from a decllne in pharma will be mainly financial and soveriegn reputational. This effect will be much more serioius than the employment effect which you mention, and will more resemble the kind of damage done by the banking debacle.

  8. Re “This is the beginning of the “bad news (for Ireland) from big pharma” that I posted on back in December.”

    I looked back at the Trade thread link, but not sure I could see the December post mentioned there, anybody got a ref to that earlier post.

  9. @Paul,
    Whether one thinks employment or financial flows is more important is a matter of perspective.

    Employment and spending on local supplies and services by multintionals is what brings money into the economy that employs hundreds of thousands of other people in Ireland at a decent standard of living.

    The financial flows don’t have much impact local to the Irish economy. Maybe there’s a possibility of reputational damage from something or other to do with multinational financial flows having a significant impact on the economy, but I don’t see it.

  10. Perhaps the FDA process or similar regulation could benefit from regulating the industry itself, rather than merely the drugs/medical devices themselves. Regulations requiring minimum investment in R&D, research process, laboratory standards, staff numbers, quality of staff, etc. Is there a case for more public funding to support better and more productive research ?

  11. @ Colm

    “Regulations requiring minimum investment in R&D, research process, laboratory standards, staff numbers, quality of staff, etc.”

    Can you identify a problem with the current setup? This would seem, on the face of it, to be regulation for the sake of it.

  12. @Colm,
    The FDA and other drug regulatory authorities already regulate the industry to the extent that is necessary to assure drug effectiveness and quality, covering some of the points you have mentioned. The regulation is tough and intrusive. If you want to read up on it, I suggest starting by reading something basic on Good Manufacturing Practice which is one of the areas where regulation has very direct impact on day-to-day pharma operations.

  13. Pharmaceuticals and medical devices account for over 60% of Irish merchandise exports and 33% of total exports including services. Exports have increased by about 40% since 2004 but the employment level has remained in the low 40,000s.

    Bloomberg News said last November that five of the world’s top-selling dozen medicines are produced in Ireland, and their sales will fall by 52% to $13bn by 2013 from $27bn in 2010 as their patents expire, according to data compiled by Bloomberg based on analysts’ estimates. They start with Pfizer’s cholesterol treatment Lipitor.

    “From the moment they come off patent, it will be immediately reflected in export figures,” said Dr. Chris Van Egeraat, a lecturer in economic geography at the National University of Ireland Maynooth, who has studied the issue.

    Bloomberg says Van Egeraat estimates about €19bn worth of Irish exports may be at risk as a range of drugs fall off patent. That may hinder Ireland’s prospects of exporting its way out of crisis, a year after the nation followed Greece in seeking an international bailout.

    Chris Van Egeraat told Finfacts that Datamonitor, a research firm, estimates that sales will fall by about 38% by 2014. “If we assume that Ireland’s exports will be affected proportionately (although I believe Ireland will be more strongly affected) we will loose €18.6bn in exports by 2014.”

    He says this will not be directly reflected in job-losses. But it will have a great affect on tax revenues, balance of payments and our ability to reduce our debt burden.

    Bloomberg said Lipitor, which had $10.7bn of sales in 2010 and $13bn at its peak, is produced in Little Ireland in Cork. It came off patent last November, as does Eli Lilly’s schizophrenia drug Zyprexa, followed by Merck’s Singulair asthma treatment in 2012.

    Dr. Chris Van Egeraat has made a comment on the December 2011 export figures:

    http://www.finfacts.ie/irishfinancenews/article_1023946.shtml

    So there has been a big jump in exports without any additional jobs. The sector is capital intensive. The tax benefit also means that some exports are in fact sales booked in respect of other countries – – see post below.

  14. There has been a constant level of new drugs approved annually by the US Food and Drug Administration (FDA) since 1950 despite a huge rise in R&D and the average cost of launching a successful drug is at a staggering average of $5.8bn – – for 12 big pharma companies in the period 1997-2011.

    The news on the impact of patent expirations isn’t of course a surprise but at the official level, there appears to be a fear to look into the future as it may have some bitter truths.

    Ireland’s main FDI sectors are Big Pharma, high tech and financial services.

    Since the late 1990s, there has been a massive amount of profitshifting to low tax locations by high profile American companies that is increasingly being seen as grand larceny.

    Microsoft set up Ireland’s biggest company by revenue in 2001. It is based in the office of a Dublin law firm and the software firm pays corporate tax on profits from sales in countries such as France and Germany, to the Irish Revenue.

    One of the Google co-founders was on a government scholarship at Stanford and a project he was working on that provided the basis for the search engine was funded by the National Science Foundation.

    Facebook is the latest to book most of its global advertising revenues in Ireland, just covering the cost of its operations in the UK and eventually after paying taxes in Ireland, profits are transferred to the Cayman Islands.

    President Obama will detail in coming weeks his plan for revenue neutral corporate tax reform with a lower headline rate that will provide for a minimum tax on profits generated in overseas jurisdictions. This would make countries like Ireland and Singapore less attractive locations.

    It will not be approved this year but do not bet that the current level of tax evasion by high profile companies will continue without a response.

    It’s companies with a high level of exports that benefit from the current dysfunctional system.

    So does Ireland have to turn a blind eye to tax haven activities when the corporate tax is one of the world’s lowest?

    We have been doing some research on tax havens. There is access to a reasonable amount of information in the intros:

    Tax Havens: Ireland is Europe’s top corporate tax haven – – Part 3

    http://www.finfacts-premium.com/2012/1467/tax_havens_Ireland_Switzerland_corporate_companies_US

    Check out ‘corporate tax’ tag for related articles.

  15. @ Bond

    “Can you identify a problem with the current setup? This would seem, on the face of it, to be regulation for the sake of it.”

    Sure, I was referring there to Finfacts who appears to have studied this area in some detail:

    Here’s the link again:

    Found it Dec archive:

    http://www.irisheconomy.ie/index.php/2011/12/19/bad-news-from-big-pharma/#comments

    “More than half of academic medical research findings cannot be reproduced in industry settings. In effect, much of the published research cannot be relied on – – results are in effect subject to fraud in some cases, variouses biases in other cases including the desire to improve funding chances.

    Bayer, the German chemical giant, last year halted nearly two-thirds of its target-validation projects because in-house experimental findings failed to match up with published literature claims.

    Drugs companies are facing the same challenges as computer firms did a few decades ago.

    Acquiring young companies is one route but it’s argued that the coming decade is one where the leading companies not only don’t know what’s going to happen, but they can’t know what’s going to happen, because so many of the conditions under which they operate are in such an unusual state of flux. ”

    So, it would appear the state of flux contributed to by factors outlined before would indeed benefit from some positive regulation; if only to bring down costs and raise standards.

  16. @Joseph Ryan,

    The fourth generation stuff is stretching it a tad. It started off in its modern form in a place near Ballydehob. I might be long gone from it, but West cork is still my patch. The Enterprise Ireland chaps and chapesses tell some of the story and showcase their efforts here:
    http://www.enterprise-ireland.com/ebusiness/Case_studies/odonnell/odonnell.pdf

    In addition to the vagaries of the market in which it operates, this is precisely the kind of business that’s being screwed by the inefficiencies, rent seeking and excessive costs that characterise the sheltered sectors.

    There is an interesting take in the EI report on the, technically (and possibly) anti-competitive ‘collaboration’ in which they indulge to secure orders that maximise economies of scale and scope. Somuch for ‘more competition and better regulation’. The riony is that the newly empowered Competition and Consumer Authority will probably be trying to root out this sort of rational commercial behaviour, but the inefficiencies, rent-seeking and excessive costs – that force these businesses to employ these practices – will be ignored.

    C’est la vie.

  17. Some numbers for a dose of perspective.

    Irish economy expenditures (payroll, Irish-sourced materials, Irish-sourced services) of all IDA’s foreign-owned companies €19bn in 2009.

    Irish economy expenditures of IDA’s chemical (mainly pharma) companies €3bn in 2009.

  18. Regarding those pills going off-patent, much ado about nothing in my opinion.

    Probably that almost all the profit that the Irish subsidiaries of foreign pharmaceuticals groups are making on these products are flowing back as dividends to the headquarters.

    Thus if pharma exports fall because some products are going off-patent, then the profits of the Irish subsidiaries will fall, and the dividends paid to headquarters as well. Impact on the current account balance: close to zero.

    More relevant is the fact that that the state might lose income from corporate taxes. Another issue is whether some of the plants manufacturing the products going off-patent might have to shut down, with a potential loss of jobs.

  19. @ Colm

    you suggested increased regulation of the pharma industry. Your complaints would seem to require increased regulation of the academic/Third Level research sector, no?

  20. @Eoin,
    I started to write exactly that point yesterday, and gave up after a couple of minutes because the actors in medical research are so much more complex than that.

    Internationally, major hospitals are also big players, as are some research institutions independent of higher education. Vast numbers of individual doctors are too, many of them not that well embedded in the research systems of institutions to which they are attached, because they need to publish research for professional reasons.

    The whole thing is complicated by drug companies getting involved in funding research by others, often not with the most transparent of motives.

    The first question to ask when faced with Michael’s statistics about false results is which of the above are publishing them?

    Another question is about the extent to which false results reflect hidden problems with the research versus the extent to which they are a consequence of factors fully visible up front to pharma companies including sampling error caused by low sample sizes, and poor experimental design caused by large numbers of doctors inadequately trained in research being forced to dabble in it to progress their careers.

    Even with all that complexity, Colm’s point that more regulation of pharma would improve things makes no sense, except perhaps in the area of greater transparency in pharma company funding for external researchers. When he suggests more government funding, he is probably unaware of the vast public funds that go into medical research internationally, with a lot of the funding being lightly disguised by having a biotech label stuck on it.

  21. @Michael H

    Great work. Speaking truth to power, and the deaf. Tax haven indeed, and shamelessly so. taxable profits increasingly sounds like an oxymoron.

    I posted this before but it is worth repeating. The accountancy firm we deal with in Italy – small industrial town on the edge of a bigger industrial city – lost 60% of its clients to IFSC setups post ireland joining the euro. The principal partner in the firm did a PhD in some aspect of financial accounting (don’t ask me) in the UK and is far from ignorant of various whizzes but he was quite tee’d off by the Irish system.

  22. @ BeeCeeTee

    Thanks for the stats

    ‘The whole thing is complicated by drug companies getting involved in funding research by others, often not with the most transparent of motives’

    You can say that again. What we have is big medicine in bed with big pharma. Conflicts of interest everywhere.

    http://bostonreview.net/BR35.3/angell.php

  23. For information purposes we consumed 200,900 b/d of oil in 2007 – the peak. In 2011 we will average about 140,000 b/d – a 30% reduction from the peak in just 4 years. The fact there are circa 350k less at work and the fact that a major component of this is from the construction sector which is a massive oil user in moving both men and material is the major factor.

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