While there has been a well publicized emphasis on a smart economy in Ireland, exporting traditional goods are not to be overlooked. High enrolement levels at universities is not necessarily required for a country to be economically successful. Germany has far fewer graduates than France yet has a higher GDP per capita. Many countries leading the way out of current financial difficulties have been countries such as China and Germany who have a strong manufacturing base. Those in most trouble are countries such as the US, the UK and Ireland all of whom concentrated on building jobs in the services sector over the past decade and outsourced many low to high-end manufacturing jobs. In Ireland, with spiraling wage costs during the past decade, we became uncompetitive and lost large parts of our manufacturing capabilities, which we are now trying to recreate to drive an export led recovery.
In 2010 the value of Irish exports reached €162.7bn, the largest figure ever for Ireland. One of the largest sector increases was for medical and pharmaceutical supplies, which increased by €24.3bn, a 15 per cent rise on the year before. Overall, almost two-thirds of Irish exports went to the US.
While Ireland remains in deep economic turmoil, we are still exporting mainly to developed countries such as the US and the UK, rather than selling our goods and services to developing nations, where economies are growing rapidly. Irish exports to China still only account for 3% of total merchandise exports. However with continued growth in the Chinese economy there is potential to take this up to 7% of total exports by 2015.
Annual External Trade
|Rest of World
Source: CSO 2010
There are three major industrial sectors driving Irish exports – Chemical & Pharmaceutical, Information Communication Technology (ICT) and Agri-Food & Drink.
1. The Chemical and Pharmaceutical Sector: Exporters in this sector continue to be among the strongest performers in the Irish economy which together account for nearly two-thirds of all exports. In 2010 chemicals accounted for €22.8 billion or 25% of manufacturing output, pharmaceuticals €30.0 billion or 33%, and medical devices €4.3 billion or 4.8%. Growth in this sector has driven Ireland’s strong export performance during our current difficulties. Johnson & Johnson is Ireland’s top exporter, shipping €8.5 billion worth of goods last year.
2. The Information and Communication Technology (ICT) Sector: This sector covers both hardware and services companies. While contributing 8.5% of manufacturing exports, the ICT sector has reduced in importance over previous years, with exports falling by 36% to €7.6 billion in 2010. Like the Chemical and Pharmaceutical sector, the top exporting companies in this sector are non Irish companies and most are working in computer software and services rather than hardware manufacturing. Microsoft is the second largest exporter in Ireland with exports of €8 billion in 2010, with Google being the third largest.
3. The Food and Drink Sector: This sector has long been the traditional backbone of Irish exports. In contrast to the chemical, pharmaceutical and ICT sectors, Irish owned companies are more dominant than foreign multinationals, with companies such as Kerry Group and Glanbia being well known and established players. Food and drink makes up 14 per cent of all Irish exports. Because of the highly labour intensive nature of the sector it remains a vital part of the Irish economy, currently employing over 43,000 people. Importantly, employment in the sector has a wide regional spread, providing jobs not only in urban centres but also in rural areas.
The largest indigenous food and drink exporter is Kerry Group followed by the Swiss-based Aryzta, the Irish Dairy Board Co-op and Glanbia. Prospects for the sector remain positive, helped by strong global demand for exports expected to grow by 40% over the next decade. According to Bord Bia’s food industry survey (December 2010), Irish food and drink manufacturers were more optimistic and showed a more positive outlook for 2011, which is reflected in the increase in exports so far this year.
With the current economic problems facing Ireland we now realise the significance of having a well diversified economy. As Ireland competes in the global marketplace for a limited number of jobs, we had little control to hold onto our manufacturing base due to decisions by previous governments. However in an increasingly volatile world, where possible, government policy should be encouraging and supporting indigenous Irish firms. Globalization has provided companies with opportunities to outsource and lower their costs by relocating to low tax countries or countries where labour costs are lower.Ireland has traditionally been a large benefactor of this. With current economic difficulties in many countries, protectionism is increasingly talked about as a solution to problems and in some ways is pursued either directly or indirectly, particularly through currency depreciation. Recently, Intel co-founder Andy Grove, when talking about US outsourcing of manufacturing jobs asked “…what kind of a society are we going to have if it consists of highly paid people doing high-value-added work – – and masses of unemployed?”
by James McCarthy,
James is an Investment Analyst in Quintas Wealth Management
This article was included in our Autumn 2011 quarterly newsletter.
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