Tuesday, April 11, 2023

Success of Irish economy masks the extent of underlying weakness

The International Energy Agency was set up in the wake of the 1973-1974 oil crisis to help industrialised countries to respond to major oil shocks — this year the head has warned that the “energy battle” between Europe and Russia is not over, despite a sharp drop in wholesale gas prices that has eased concerns over high bills and blackouts. Fatih Birol said Europe’s efforts to replace Russian gas supplies this winter had been a “big success” but cautioned there were lingering fears over next winter. IEA

Indigenous Irish exports were 4.7% of total merchandise and services exports in 2021, dominated by FDI (Foreign Direct Investment) firms.

In 2021, the highest price level for consumer goods and services among the EU member states was observed in Ireland (44 % above the EU average) and the lowest in Romania (45 % below the average).

The USA was Ireland’s largest merchandise export market in 2021, with over €52bn in exports. This accounted for 32% of the total value of exports. Medical & Pharmaceutical Products and Organic Chemicals comprised €37bn, or 71% of the total exports to the USA in 2021, according to the CSO (Central Statistics Office). The second biggest export partner was the UK with over €18bn of exports, closely followed by Germany with over €17.7bn.

China and Belgium (for onward flights to other destinations) complete the list of the remaining top 5 export markets.

The UK was the biggest source of imports in 2021, with imports of €19.5bn.

Ireland remains an important UK trading partner

The UK’s trade surplus with Ireland was the UK’s second highest, after the surplus with the United States. Ireland was one of seven EU countries the UK had a trade surplus in 2021 — the remaining six were with Malta, Luxembourg, Cyprus, the Netherlands, Denmark and Estonia. Overall, Ireland was the UK's fourth-largest export market and tenth-largest source of imports.

A UK Department of Business & Trade factsheet issued on March 17, 2023, noted that total trade in goods and services (exports plus imports) between the UK and Ireland was £82.0bn in the four quarters to the end of Q3 2022, an increase of 25.2% or £16.5bn from the four quarters to the end of Q3 2021.

Ireland was the UK’s 6th largest trading partner in the four quarters to the end of Q3 2022 accounting for 5.0% of total UK trade.

In 2021, 40% of Northern Ireland's goods exports were to the Republic of Ireland (compared to 7% for the UK as a whole) while 36% of Northern Ireland's goods imports were from the Republic of Ireland (compared to 3% for the UK as a whole).

UK exports to Ireland were worth £41.6bn; imports from Ireland were £20.4bn, resulting in a trade surplus of £21.3bn. The UK had a surplus with Ireland in both goods and services.

Ireland was the UK’s 4th largest export market and the 10th largest source of imports.

Euro Area

The 20 member countries of the Euro Area have a population of 346mn in 2023 and a market of 341mn for Irish indigenous firms.

Enterprise Ireland, the public agency for the support of indigenous firms, reported in 2022 that exports were valued at 27.3bn in 2021. Exports to the UK were valued at €8.4bn or 31% of the total and the Euro Area was at €6.0bn or 22% of the total — €6.0bn is a paltry sum.

Food and Construction accounted for 58% of the total.

Single currency coins and banknotes were launched on January 2002 in 12 EU countries and they could trade in the bloc without the hassle of different currencies.

Economists in a paper published in February 2023, suggest that Ireland and Greece may not have got an optimum benefit because they were periphery countries.


Dublin City and County are the only regions where disposable income per person is significantly above the state average. It has the largest disposable income amounting to €27,686 per person according to the agency. Income has risen to 18% above average. Disposable income in Limerick is estimated at €26,248 per person, the next highest after Dublin.

The Midlands region is the poorest at 18.7% below the state average per person while the Border and West regions also have per capita income significantly below the national average.

The rankings below are from the Organisation for Economic Co-operation and Development (OECD) and Ireland has an 18th ranking among 38 Advanced and Emerging economies.

This indicator is in US dollars per capita at current prices and PPPs.

The OECD says "Purchasing Power Parities are the rates of currency conversion that equalize the purchasing power of different currencies by eliminating the differences in price levels between countries. In their simplest form, PPPs are simply price relatives that show the ratio of the prices in national currencies of the same good or service in different countries. PPPs are also calculated for product groups and for each of the various levels of aggregation up to and including GDP."


In 2021, the highest price level for consumer goods and services among the 27 EU member states was observed in Ireland (44 % above the EU average) and the lowest was in Romania (45 % below the average).

Ireland had overtaken Denmark. In 2021 Germany was at 8% above the EU average of 100, while the then 19-country Euro Area was at 6%.

Irish food + Non-alcoholic beverages were 19.5% above average; Germany was at 4.6%; IE Alcohol was 107.8% above while DE (Germany) was -3.6; Clothing and Footwear were similar.

IE Energy 13% above; DE 19%; IE Housing Appliances 15%; DE -1%; IE Consumer Electronics 9%; DE -7%; IE Personal Transport 13%; 1%; IE Transport Services 44%; DE 22.4%; IE Communication 50%%; DE 15.4%; IE Restaurants + Hotels 29%; DE 5%.

Last year Irish housing and energy costs were 84% higher than the EU average.

Why is Ireland so expensive?

Lack of competition, a periphery position, reliance on imports and high service costs, are factors.

The National Competitiveness Council (NCC) in'Ireland’s Competitiveness Challenge 2022' noted "Reducing costs to business on the longstanding issues of credit costs, insurance costs and legal costs is vital to boosting the competitive position of Irish firms. Greater competition is needed in the lending market to reduce interest rates and direct costs to business and businesses also need to be made aware of affordable financing options as the tapering of Government COVID-19 supports to businesses continues. Relatively high legal costs may be placing businesses at a competitive disadvantage compared to other jurisdictions and it is important to understand the drivers of such costs in order to best identify any appropriate policy actions that could address them. It is also important to protect competitiveness by tackling issues that have a strong indirect impact on business costs. High housing and childcare costs can have a knock-on effect on wage demands, and the potential creation of inflationary cycles. It remains vital, therefore, that we continue to act to address high costs in housing and childcare."

Daragh Cassidy of the price comparison website Bonkers.ie, told the Irish Times last year [that one of the factors driving Ireland’s relatively high cost of living is cultural, namely our awkwardness around complaining, demanding a better service or shopping around to seek out better value.

“Irish people have a morbid fear of being seen as tight-fisted,” he said. “If we were like the Germans, prices here would be lower...Would they be as low as Germany? No, because there are other reasons why prices are high but that cultural thing of not wanting to make a fuss when money is concerned, not wanting to complain when the service is bad, has an impact.”

Irish imports of fruits and vegetable amount to about €1bn and in 2020 the Environmental Protection Agency noted that domestic production amounted to 61,800 tonnes, a 73% reduction since 1961 and a 14% reduction since 2010.

Tesco, the British grocer, has 164 outlets in Ireland and a typical Irish farmer is more likely to rely on Tesco for vegetables than himself or another farmer.

Ireland produces about 360,000 tonnes of potatoes annually and it imports up to 100,000.

Ireland's production is similar to Norway and compares with 7mn in the Netherlands; 2.8mn in Denmark; 880,000 in Sweden and 620,000 in Finland.

Economist Rory O'Farrell has said, "The price of goods in Ireland is largely in line with other European countries, except for alcohol and tobacco. Since 2003, goods prices have improved significantly relative to our European neighbours due to the arrival of large European retailers, improved logistics linked with our better motorways, larger shop sizes, and greater competition from online retailers."

Dr O'Farrell said "The main category driving up the cost of services is housing, as renting is considered a service. It is well known that renting a home in the open market is extremely expensive. It can be argued that the weighting given to rent is too high. When compiling the statistics, buying a home is considered an investment rather than a consumer expense, so mortgage costs are not included. To make up for this, owner-occupiers are treated as renters. This can give an exaggerated figure for housing costs if renting is more expensive than owning a home."

He added "Ireland does not subsidise services as much as in other countries. This can clearly be seen with transport services costing 40% above the EU average. In Paris, public transport is heavily subsidised, and €75.20 will allow you to use all public transport in the city for a month. In contrast, a Dublin Rambler ticket is €132 and only covers the bus.

Other services like childcare tend to receive higher subsidies abroad, as does healthcare. There is no such thing as a free lunch, and the flip side of this is that Irish workers keep a greater share of what employers pay them as cash. Irish VAT is also a little bit higher than in most other countries, which pushes up our price level by a small amount."

The low number of exporters

In 2019, the CSO reported that there were 4,096 enterprises in 2017 which exported exclusively to the UK. A total of 8,685 included foreign-owned firms.

There were 39,550 persons engaged in enterprises exporting solely to the UK while 44.8% of their turnover was attributed to UK exports. There were 10,516 enterprises exporting goods and/or services to markets abroad.

The CSO reported to the OECD that the number in 2020 was 10,550.

Of 31 OECD member countries Ireland, Costa Rica, Iceland, and Luxembourg had the lowest number of exporters. Denmark was at 25,370; Finland 18,230; Austria 36,500; Switzerland 48,500.

The 3 Baltic republics exceeded Ireland (population 5.1mn): Lithuania 17,140 (population 2.8mn); Latvia 11,900 (pop 1.9mn) and Estonia 13,300 (pop 1.3mn).

There were just 298 large exporting enterprises (with over 250 employees) but they accounted for 69% (€96bn) of all goods exports in 2018. These large enterprises comprised only 3% of all enterprises.

Ireland had 278,860 enterprises in 2020 but 149,000 of them had no employees.

Since 2008 solo contractors and self-employed workers have risen by 62,600. In Denmark, there was no change from 2009-2020.

Poor entrepreneurship

The share of employer start-ups (0-2-year-old enterprises) among active employer enterprises in 2020 for Ireland was 11%; Denmark 25.5%; the Netherlands 24%; Sweden 30%; Finland 27%; Norway 19%.

Ireland was at 10% in 2014 and Denmark was at 23.4%; Finland at 24%; Sweden at 29% and the Netherlands was 23%.

The Irish data include foreign-owned firms.

In most OECD economies, for example, SMEs account for upwards of 95% of all firms, around two-thirds of total employment and over half of the business sector value-added, but their contribution to overall exports is significantly lower – between 20% to 40% for most OECD economies.

The OECD noted in 2019 that "Ireland’s direct SME export levels are very low by international standards, with only about 6% of Irish SMEs directly trading across borders. Furthermore, a high share of existing SME exporting trade only is with the neighbouring UK market. Although SMEs may also contribute to exports indirectly, for example by providing multinational firms with components and services, the share of SMEs in total domestic value added in exports is also relatively low."

In 2020 the exporting ratio for SMEs was 8% [Micro firms (1-9 employees); small firms 10-49 and medium firms 50 -249).

Ireland and Belgium have the worst data on employer enterprise births and while death rates are low, it suggests poor business dynamism.

In 2020 the Irish birth rate was 3.8% and the death rate was (1.3%). Ireland's birth rate was 3.9% in 2018 and the death rate was 2.8%. Data include foreign-owned firms. Belgium's rates in 2020 were 3.5% (3.2%).

In 2020 Denmark's rates were 15.5% (1.7%); Finland's 12% (10%); Germany's (was 7.6% (8.2%); the Netherlands at 8.2% (8.3%); Sweden was at 11.3% (10.20%).

In November 2015, Catherine Mann, then chief economist of the OECD, said in Dublin that Ireland would have to sell itself as more than just a low-tax destination in the new era of global tax transparency.

She also highlighted the poor links between the foreign-owned sector and the rest of the economy, with Ireland having one of the lowest EU spends on research and development (R&D), despite housing some of the most innovative firms in the world.

"Global capital has come into Ireland...but somehow it hasn't translated into Irish-owned firms," said Dr Mann. "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."


The Irish food company, Kerry Group, has the biggest research and development (R&D) facility in Ireland. The Global Technology and Innovation Centre in Naas, Co. Kildare, has a 28-acre campus serving the EMEA (Europe, the Middle East and Africa) region. It employs over 900 people (with almost 40 different nationalities represented).

Kerry's 2021 global expenditure was €310mn and it had a 567 rank among the top 2,500 business firm R&D spenders in the world.

The Patent Cooperation Treaty (PCT) administered by the World Intellectual Property Organization (WIPO) has 157 contracting countries. The WIPO says "The PCT makes it possible to seek patent protection for an invention simultaneously in a large number of countries by filing a single international patent application instead of filing several separate national or regional patent applications. The granting of patents remains under the control of the national or regional patent offices in what is called the "national phase." In Europe, it's the European Patent Office.”"

In 2021 Ireland had 840 applications (in reality at least a third were fake) compared with Denmark at 1,540; the Netherlands at 4,132; Sweden at 4,453, Switzerland at 5,386; Germany 17,322; China 69,540 and US 59,570.

The top 5 PCT applicants (2019-2021) were all foreign-owned: Eaton Intelligent Power Limited, which is a US firm that is Irish for tax purposes, had 470 applications; Janssen Sciences Ireland Unlimited Company 74; Depuy Ireland Unlimited Company 65; Connaught Electronics Limited, has been owned by Valeo of France since 2007, has 60 and Analog Devices International Unlimited Company 55.

Eaton was founded in 1911 in New Jersey. The power generation manufacturer has no production in Ireland, which means that 29% of the Irish PCT patents in 2019-2021 were fake Irish.

There are more of these redomiciled companies however, most of these firms, led by Medtronic Medical Devices of the US — are Irish for tax avoidance purposes but they are controlled outside Ireland. The CSO does not disclose the number but it said that employment in Ireland in 2018 was 11,000. For example, before Medtronic became "Irish," it already had an Irish medical devices plant in Galway, Ireland.

In 2021 the CSO reported that foreign-owned firms accounted for 70% of the expenditure €3.4bn of Business R&D (BERD) in 2019.

Small enterprises with less than 50 persons engaged spent, over €465.1mn on R&D in 2019 which accounted for over 14.3% of the overall spend. Medium-sized enterprises employing between 50 and 249 persons spent €637.8mn in the same period which represented 19.6% of total spending while large enterprises which employed 250 persons accounted for 66.1% of all expenditure.

The small enterprises accounted for 1242 firms or 69.1%; 371 medium firms or 20.6%, and large totalled 185 and 10.3%.

The CSO reported that 657 or 36.5% of R&D active firms had a spend of under €100,000 in 2019. This was closely followed by the spend category €100,000-€499,999, with 32.8% of firms.

A spend of less than €100,000 in the context of R&D is not serious.

Among the SMEs are over 3,000 foreign-owned firms (Eurostat has reported on High-Growth Irish SMEs but these foreign affiliates can earn the moniker from the start of operations.

In 2020 the number of large firms (250+) was 602 and 185 of them were involved in R&D.


Enterprise Ireland says the "Research and Development (R&D) tax credit, administered by the Irish Revenue Commissioners is open to all companies in Ireland that are undertaking qualifying research and development activities in Ireland or within the European Economic Area. Qualifying R&D expenditure will generate a 25% tax credit offset against corporate taxes in addition to a tax deduction of 12.5%.

This means that companies undertaking qualifying R&D can claim a refund from the Revenue of €37.50 for every €100 worth of R&D expenditure. So, effectively, the R&D tax credit reduces the real cost of R&D by up to 37.5%."

This is the most generous R&D subsidy among the OECD countries.

In Britain, a Sub-Committee of the House of Lords has "heard evidence that in recent years there has been an escalation in the abuse of R&D tax relief which has led to a loss of revenue. The relief was subject to large-scale organised criminal attacks and the activities of rogue advisers which involve targeting small companies, often persuading them to make invalid claims. In its most recent accounts, His Majesty’s Revenue and Customs (HMRC) estimated the amount of error and fraud in its two R&D schemes at £469mn."

In Ireland what was called a patent box was introduced as the Knowledge Development Box (KDB) in the Finance Act 2015. The KDB offered to reduce the rate of corporation tax (6.25% down from 12.5%) payable on such profits arising from qualifying IP assets. However, it has been a flop. The take-up has been (12 in 2016, 13 in 2017, and ‘less than 10’ in 2020).

The goal was to encourage foreign firms to carry out R&D in Ireland.

Just as the location of intellectual property (IP) assets can be shifted by making an accounting entry, patents can be shifted to take advantage of low-tax locations.

The New York Times reported in 2014: "Take the case of Gilead Sciences, which has come under severe criticism for the high cost of its in-demand new hepatitis C drug, Sovaldi, which sells for $1,000 a pill, or $84,000 for a typical course of treatment.

Although Gilead, the developer of Sovaldi, is an American company based in Foster City, Calif., the patent rights have been transferred to an Irish subsidiary. So Gilead’s profits from the booming sales of Sovaldi are taxed at Ireland’s rate, which is well below the American one.

Big pharmaceutical companies have done this for decades, as have some technology companies. Now biotechnology companies are following suit."

Gilead gets approval for €45m expansion of Carrigtwohill site

Gilead's Ireland operations in Carrigtwohill, Co Cork are responsible for manufacturing, quality control, packaging, and the release and distribution of the company's products in the European Union and other international locations. Last month an additional 500 people were employed.

Microsoft Ireland Operations Limited operates as a software development company. The company says it provides Windows, Internet Explorer, and Skype software, as well as offers computers, laptops, and video game systems.

Business R&D is typically opaque: but this government data from 2022 on the category Computer Programming (software) is clear cut. Full-time employment in foreign-owned firms was at 41,600 and very poor at 2,400 in indigenous firms.

It is likely that some of the foreign-owned R&D reported in Ireland also includes data from other affiliates. The 37.5% inducement is too generous to ignore the opportunity.

Exaggeration here is a euphemism as an Irish government would not wish to know!

For example in 2022 the Chemicals + medical devices category in custom-tracked merchandise showed €133.8bn in exports minus imports €38.4bn) with a surplus of €95.4bn. Deducting €9bn for spending in the Irish economy on pay (€5.1bn); Irish sourced materials and services at (€3.8bn), leaves a very large surplus of €86.5bn.

Then there are the fictions of overseas manufacturing which are called overseas contract manufacturing or goods for processing by the CSO. In 2022 €134.7bn less imports of €9bn resulting in another bonanza of €125.bn. This is where the fiction of Apple shipping merchandise from Ireland to China.

Services also provide dodgy opportunities for multinational firms.

Proposed reforms will take time and the MNCs will always find loopholes. See here, here and here.


Housing completions in 2011-2022 were at 163,000 while new jobs in the economy from the end of 2011 to the end of 2022 were at 710,000.

The Irish national debt is about €226bn which means it's above 100% based on Modified Gross National Income* of €202bn (further modified as I adjusted for a net additional €32bn to 'goods for processing').

The debt now is 111% and the per capita burden is over €44,000.

The windfall for Ireland in FDI (foreign direct investment) corporation tax payments from 2015-2023 is about €45bn. If it had not been available it would have been back to banjaxed time again[companies such as Apple and Big Pharma in 2015 put Ireland as the virtual location of its IP (intellectual property) and other shenanigans].

Public debt would be about 134%.

The business firm's number of 529,000 employees was 21% of 2.55mn. FDI firms in 2022 had 294,100 full-time employees while local firms had 191,000.

Temporary and part-time staff was 41,000.

In 2021 FDI firms spent €33.5bn in the Irish economy (Pay: €20.1bn; €4.1 on Irish materials and €9.3 on local services). Irish firms spent €29.8bn (Pay: €9.5bn; €14.3bn on Irish materials and €6.0 on local services.)

In May 2022 the Government launched a third aspirational report in 16 years for Ireland to be a "world-class" innovation economy. 'Impact 2030 Ireland’s Research and Innovation Strategy'has 73 mentions of 'strengthen' and variants, but no reference to weak or weakness. A reader has to do a puzzle to get in!

There were interdepartmental reports previously and one of them published in 2015 provided useful information.

Based on 2012 data, the civil servants noted that 1) Ireland's enterprise R&D expenditure is dominated by a relatively small number of firms. 2) Around 300 firms accounted for almost 70% of total R&D expenditure in 2012. 3) 13% of foreign-owned firms (107 firms), each spending over €2m, accounted for 88% of R&D spending in the foreign-owned sector in 2012. 4) There was comparatively lower absorptive capacity of indigenous SMEs. 5) A large proportion of foreign-owned firms (54%) were not R&D active.

Finally to Irish digital competence: in 2019 a report commissioned by the Irish Government (Department of Business, Enterprise and Innovation) from the European Investment Bank noted, "Unbalanced digitalisation across firms: 40% of companies (mainly indigenous SMEs) in Ireland completely lack digital technologies, with an additional 30% of businesses having few (from 4 to 6) digital assets" — that is 70% in total.

Trinity College is still promoting Dublin or Ireland as the Digital Capital of Europe or the Silicon Valley of Europe. If data matters, London is the Digital Capital of Europe.

Estonia can claim the mantle of the Silicon Valley of Europe. With a population of 1.3mn, it ranks among the most digitally advanced societies in the world.

Brian Cowen, in office as taoiseach in 2008-2011, and in the aftermath of the economic collapse, he promoted a project to develop a European Silicon Valley in Dublin. The 28-strong Innovation Taskforce reported in March 2010 and said "Were Ireland to achieve levels of employment in high-tech firms comparable with Silicon Valley, the numbers would increase substantially. More realistically, Ireland might aspire to be a leader in Europe and aim to have 15% of employment concentrated in high-tech firms. This would result in almost 346,000 people being employed in high-tech firms by 2020 — a net increase of 215,000 jobs over the period."

2010 was the bleakest year of the economic meltdown. There was a diaspora summit to seek help and weeks before the the IMF, the ECB and Britain lent a helping hand, Paddy Cosgrave and the other two co-founders of the Web Summit staged its inaugural event. It was good timing to get IDA Ireland staff in the US to lure big name techies to Dublin, while also getting some public funding.

Other information technology and computer service activities: This class includes other information technology and computer related activities not elsewhere classified, such as:- computer disaster recovery services- installation (setting-up) of personal computers- software installation services

At December 2022 the labour category 'Information and communication' was at 6.4% of total employment — it includes newspapers, broadcasting and books.

Above, I highligted the 41,600 Comuter Programming (software) in FDI firms and very poor 2,400 in indigenous firms.

The big firms also hire people for their languauge skills, admiistration and call centeres.

I also said that in Ireland since 2008 solo contractors and self-employed workers, have risen by 62,600.

That would put the average number employed as 23, which doesn't make sense.

Irish venture capital data are not reliable as foreign transactions are included, when foreign firms have become Irish for tax purposes.

Ing Media, a unit of the Dutch Bank, last month ranked Dublin at 22 of 60 European cites on digital visibility. London, Paris and Madrid are on top.

Actual individual consumption (AIC) is a measure of the material welfare of households and in 2021 Ireland slipped again from the 100 EU average to 90, while Italy was almost close to the EU average. Ireland’s AIC per capita average is down from 115% in 2006-7. AIC includes about two-thirds of GDP.