Year: 2012

Turnover and Exports in Irish Pharma – guest post from Chris Van Egeraat

Last week The Irish Times published their annual TOP 1000 Companies list. The list includes figures on, amongst others, turnover. A quick inspection of the list and CSO export data would suggest that exports of Irish pharmaceutical companies account for 248% of turnover!

The turnover figure I took from the TOP 100 list. I added Pfizer, which was missing from the hard copy but included in the on-line version. I excluded companies in Northern Ireland. I also excluded pharmacy groups and national distribution/sales companies on the basis that most of these will export little. I also excluded a small number of companies that were erroneously listed as pharmaceuticals. The turnover of the resulting list of firms adds up to €20.9bn.

CSO export figures suggest that in 2011, Ireland’s pharmaceutical exports stood at €51.8bn [pharmaceutical sector is here defined as to include organic chemicals (= mainly active ingredients), pharmaceutical preparations and essential oils].

I can’t figure out the problem. The issue cannot be explained by adding the turnover of the sub-1000 companies. The smallest Top 1000 company has a turnover of €6m. You would need a lot of small pharmaceutical companies to cover the difference.

I thought the difference could be explained by the fact that some pharmaceutical companies (e.g. Pfizer) operate separate export companies. But, the (separate) table with top financial enterprises includes no pharmaceutical companies. Still, could it be that exports of these export units are included in the Irish pharmaceutical export figures but not in the turnover of the Irish operations?

I appreciate that the Irish Times TOP 1000 list may not be perfect (Dell Ireland is reported to employ 796 Irish employees while the Dublin unit alone employs 1000 plus!) Still, the difference between the two figures seems too big to be explained away by recording errors. Any suggestions welcome

Below I include a selection of the methodological notes included on page 27:
• Where companies filed consolidated accounts, the group turnover was taken.
• The Irish subsidiaries of multinational or overseas companies are included if they are significant employers. If no financial information is available for the Irish operations, then turnover is estimated by The Irish Times on the basis of revenue per employee as per publicly available figures
• If a multinational has several subsidiaries in Ireland we have where possible treated them as one entity grouped under the main Irish company. In some circumstances this was not possible and they appear separately

Is the housing crash over?

Journalists are going to have a field day with the latest residential property data from the CSO. Prices in Dublin seem to have risen slightly. Overall, house prices in Dublin are 55% lower than at their peak in early 2007. See the graph below.

CSO.ie

From the report:

In the year to May, residential property prices at a national level, fell by 15.3%. This compares with an annual rate of decline of 16.4% in April and a decline of 12.2% recorded in the twelve months to May 2011.

Residential property prices grew by 0.2% in the month of May. This compares with a decline of 1.1% recorded in April and a decline of 1.2% recorded in May of last year.

It’s important to have more data before before every auctioneer/journalist/commentator in the country starts calling the bottom of the housing market. We’re only talking about a few months of semi-positive growth. I don’t want to take away from the data, but interpreting these data points as proof the worst is over is premature, given the scale of the year on year change (about a 15% drop).

Depfa Bank collapse and the Irish taxpayer

There seems to be almost unanimous agreement within the Irish media that had the IFSC-based Depfa Bank not been bought by another German bank just before its collapse at the beginning of the financial crisis, the bill would have landed on the Irish taxpayer. Dan O’Brien repeats this view in an article in the Irish Times on Saturday.

I am not sure that the issue is as clearcut as is supposed. Willem Buiter (pages 9-11) suggests that we are in uncharted territory in these matters.

IMF Eurozone Concluding Mission Statement

You can find it here. They usefully distinguish between short run and long run responses to the crisis, and correctly stress the need to maintain aggregate demand in the short run.

As for the long run reforms: if the euro survives, there will have to be “a broad-based dialogue about what a fuller fiscal union would imply for the sovereignty of member states and the accountability of the center,” and we may as well start thinking about these issues in Ireland now.

On the efficacy of internal devaluations: questions I would ask Zsolt Darvas in a seminar

I notice that Philip’s last post has attracted very few comments, which is a shame, since the paper he linked to is a very important contribution to the debate, both here and in Europe, and deserves to be read widely. It is especially useful for people overseas seeking to draw lessons from the Irish experience, since it highlights the extent to which the Irish “good news story” is in fact a story about pharmaceuticals. Hence I hope Philip will forgive me if I make these comments “on the front page”, as it were.

Among the key findings are:

1. Wages declined only very slightly after the onset of the crisis here, and have since recovered. More generally, the European evidence is that wages are sticky downward.

2. The decline in unit labour costs in Ireland has been very modest once you take compositional effects into account (Figure 3, middle panel): they have been rising since 2010 and are now less than five percent lower than at the start of 2008. Indeed, for the economy as a whole they are back where they started (the previous statement was based on excluding agriculture, construction, real estate and the public service).

3. Despite 2, there has been a 14 percent depreciation of the Irish real exchange rate even taking compositional effects into account (once again, the index excludes agriculture, construction, real estate and the public service; including these the real depreciation is about half as big — Figure 3, right hand panel).

4. The Irish real exchange rate has been appreciating since 2010.

5. Peripheral adjustment has involved massive employment losses.

Here are some questions I have:

1. What happens when you calculate a composition-adjusted real exchange rate index for Ireland vis à vis other eurozone members only?

2. What happens if you include agriculture in the index? This is an important traded sector in the Irish context.

3. What happens if you do both 1 and 2?

4. One of the most striking graphs in the paper is Figure 2 on p. 6, which shows that while while manufacturing value added has risen by 30 percent since the start of 2008 (thanks to what happened in the pharmaceutical sector), gross production has only risen by 5 percent. Can we make further progress in understanding this discrepancy (there are some helpful suggestions in the paper), and what might this tell us about the movement in Irish unit labour costs and real exchange rates since the crisis began?

Update: Zsolt has kindly responded to my questions here.