Ireland has two economies: the foreign-owned exporting sector that has driven economic transformation and its underperforming indigenous counterpart which is vulnerable to Brexit. Ryanair — Europe’s biggest individual airline brand in 2018 carried 139m passengers — for example, has been a rare significant international success in recent decades. Ireland’s annual indigenous exports to the other 18 countries of the eurozone are less than €5bn or 20% despite currency stability, while 40% of food exports go to the UK.
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Over 4,000 exporting firms with 10 or more employees in Irish and foreign-owned firms are supported by Irish State enterprise agencies: Enterprise Ireland, IDA Ireland and Údarás na Gaeltachta — IDA Ireland, the inward investment agency, has about 1,400 client companies with over 760 American firms which in 2017 accounted for 72% of the 210,400 jobs in the foreign-owned exporting sector. The Enterprise Ireland agency support was for mainly indigenous firms who had 209,000 direct employees at the end of 2017.
In 2016 Irish-owned companies spent almost €23bn in the Irish economy in terms of payroll and purchases of Irish materials and services. Foreign-owned firms spent €20.0bn. While top global Irish brands, Guinness and Jameson, are owned by overseas firms, the food and drinks industries are important not only for linkages but also for the wide geographical impact. In 2017 there were 49,000 full-time staff in production including 6,000 in foreign-owned firms. Together with primary producers in agriculture and fisheries about 7% of the Irish workforce was directly engaged in the sector in 2017.
The chart above shows that the Dutch are the European agri-food stars. With about 5,300 companies and one out of every six employees working directly in the food industry, the Dutch are the world’s second-biggest agri-food exporters after the US.
The net benefit of agri-food exports for the Dutch economy in 2018 was €45bn based on taking the export value of the goods and subtracting the import value of goods and services required to produce and export them. According to the Wageningen University & Research Centre (WUR), which focuses on food, “the vast majority of this (€41.5bn) related to products of Dutch origin, with a fraction (€3.5bn) encompassing goods initially imported and subsequently being exported after limited processing in the Netherlands. The Netherlands earns most from horticulture (€6.0bn), dairy and eggs (€4.7bn), meat (€4.1bn) and vegetables (€3.8bn). Similarly, preparations containing cereals, flour and milk, drinks, fruit, live animals and fish and seafood yielded billions of euros for the economy.” Besides direct agri-food exports, last year the Netherlands exported €9.2bn of goods related to agriculture, such as agricultural machinery, machinery for the food industry, greenhouse materials, fertiliser and plant protection products.
WUR says that while the R&D expenditure of all Dutch companies with in excess of 10 employees increased by nearly 11% in 2016, that of companies in the agricultural sector grew by around 19% (from €728m to €864m). R&D spending for all Irish-owned enterprises was €859m in 2017 and foreign firms accounted for 69% of the total.
Norway is the world’s No. 2 fisheries product exporter after China and other European world champions are Sweden, the Netherlands and Denmark. While Ireland’s fish exports have increased in recent times, in 2016 Norway’s were 18 times our value.
Even though the Dutch have the equivalent of 37.5% of Ireland's utilised agricultural area (UAA) and are a leading exporter of potatoes, it is unrealistic to expect Ireland to achieve a similar agri-food output as can be argued in respect to Norway with fish, nevertheless, Ireland is vastly underperforming.
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Ireland vs Denmark
A small number of big firms typically account for a large percentage of exports. However, the European Commission has reported that in Ireland in 2017 the share of SME (small and medium size firms) value added accounted for by micro SMEs in the non-financial business sector was 61%, the highest share among all EU-28 Member States, whereas it was only 28% in Germany and 35% in Denmark.
Companies are categorised as SME: Micro (0-9 employees); small (10-49 employees); medium (5-249 employees) and large (250+ employees).
Ireland had about 250,000 enterprises in 2016 and 5% were exporters but 67% of the exporters had 9 or less employees.
Denmark had 225,000 enterprises and 26,000 or 12% were exporters while crucially local firms account for about two-thirds of goods and services exports.
Ireland had 301 large firms dominated by foreign firms in 2017. Denmark had 469 large firms.
Research shows that in 2013 independent micro firms exported 5% of Danish value added directly while exporting 24% indirectly (Statistics Denmark, 2017).
There is no evidence of these linkages in Ireland.
While some startups are “born global” the bigger SME firms have the greater potential to invest in exporting.
European Commission data show that in 2017 Ireland’s intra-EU exports (percentage of SMEs in industry) were at 13.33% compared with an EU average of 16.57%.
The ratio of SMEs in extra-EU goods exports was 6.84% vs EU average 9.69%.
Denmark’s performance was 25.1% vs EU average 16.57% and for exports outside the EU the rate was 22.43% vs the EU 9.69% average.
While goods firms may also export services, only 1.5% of Irish services firm export and they may also be goods exporters.
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Ireland not among the richest
When Ireland, the UK and Denmark joined the European Economic Community in 1973, Britain accounted for 55% of Irish exports, down from 75% in 1960.
In 2005 at the height of the property bubble, Thomas Friedman, a columnist at The New York Times, wrote in a piece from Dublin titled ‘The end of the rainbow,’ “Here's something you probably didn't know: Ireland today is the richest country in the European Union after Luxembourg.” In the real world neither were.
Some 40% of the workforce in Luxembourg are cross-border commuters. Ireland was the poorest country in Western Europe in 1973 and 15 years later after a public spending splurge and recession, the Economist in a grim survey titled ‘Poorest of the rich’ began, “Take a tiny ex-peasant economy. Place it next to a much larger one…Infuse it with the passionate desire to enjoy the same lifestyle as its former masters but without the same industrial heritage of natural resources. Inevitable result: extravagance, frustration, debt…”
Nevertheless, the World Bank in 2012 estimated that of 101 middle-income economies in 1960, only 13 became high income by 2008. Ireland was one of them. In 2017 Ireland’s median income adjusted for price differences, had a ranking of 13th in Europe, just ahead of the UK. Another measure in 2017 that is a proxy for material standard of living, Actual Individual Consumption (AIC) per capita of both public and private goods and services adjusted for price differences, has Ireland below the European average and behind Italy.
Leprechaun economics and tax avoidance
A decade after Thomas Friedman alluded to leprechauns, they appeared to have delivered a huge cache of gold when Ireland reported that gross domestic product had rocketed by 26% in 2015.
The statistics on economic output in July 2016 came amidst gloom in Dublin following the shock British Brexit vote to leave the European Union. The huge jump in GDP was dubbed “leprechaun economics” by Paul Krugman, the American economist, but there was a silver lining.
Irish corporation tax receipts in 2015 had jumped 49% and in the four years to 2018 would rise by 126% — at a time of international concern about tax avoidance Ireland was benefitting from big US companies such as Apple, allocating IP (intellectual property) to Irish tax resident subsidiaries via accounting entries.
International taxation reform in coming years may well put the kibosh on the Irish tax windfalls.
A new indicator called GNI* (gross national income modified) removes some of the multinational firm distortions from the national accounts and it was valued at €181bn in 2017 compared with gross domestic product of €294bn.
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Need for some new ideas on economic policy
In 2015 Catherine Mann, then chief economist of the Organisation for Economic Cooperation and Development (OECD), a think-tank for 36 mainly rich countries, said in Dublin that Ireland had one of the lowest EU spends on R&D (research and development), despite housing some of the most innovative firms in the world.
“The patents are here, but they’re not being linked into the domestic economy, not being levered up by domestic firms or married to domestic workers,” Mann said.
OECD data also show Ireland’s business dynamism is low with the employer firm birth rate as low as 4% (2015) compared with the UK at 16% (2016). The net percentages after accounting for death rates were 1 and 5% respectively.
Many of the jobs in foreign-owned services firms are in administration while bankers from London will not have a big impact.
Ireland is the only EU27 member country with whom the UK has had a significant annual trade surplus for many years. The historical trade pattern shows that a 1% weakness in sterling results in a 0.7% fall in the value of Irish exports.
The food industry, in particular, is important to local communities and indigenous exporters employ almost as many direct employees as the foreign sector. With low productivity common, smaller firms are facing a difficult time.
Almost half the 7,000 Irish exporters to the UK do not export to any other market.
Ireland needs a plan for the next 20 years as developing new export markets is typically a hard slog. The record of Irish exporters in the eurozone over the past 20 years has been very poor. There is no magic solution and according to an agency of the French Treasury, a third of new exporters in their first year do not get repeat business.
