As we move into 2011, it’s worth taking stock. Throughout 2010, and particularly in the final three months, there was lots of doom and gloom about the Irish economy, talk indeed of Ireland going bust and losing its economic sovereignty. This is simply not the case.
Everyone knows that Ireland has its problems. Two cornerstones of the Irish economy – the government and the banking system – are in dire straits financially. The three big drivers of employment growth in the 2000-2007 period – public services, construction and retail – are in various states between stasis and major contraction.
However, there is much more to Ireland and much more to Ireland’s economy than the Government, banks and builders. In wider society, for example, 2011 is the European Year of Volunteering: with two thirds of Irish adults involved in over 25,000 community & voluntary groups, volunteering is a huge generator of what an economist might call “social product” and also a huge way for those between jobs to get some great experience.
Even in the economy, though, looking ahead at 2011, here are eleven things about Ireland’s economy that will hopefully convince you all is not lost.
1. Ireland’s not bust
At the height of the boom, Ireland was borrowing up to €10bn a year from the rest of the world. This year, Ireland may not have to borrow from the rest of the world at all. So why all this talk of Ireland being bust? What people actually mean is that the Irish Exchequer is heavily indebted, not the Irish country as a whole. The graph below shows Ireland’s balance of payments with the rest of the world from 1998 on.
So the important point is that the non-Government part of the economy, a combination of households and companies, have been earning, saving and paying down debt over the past two years at a faster rate than the Government has been borrowing. So there’s definitely money here in Ireland, lots probably in nervy savings accounts. The tricky bit is making sure enough of it gets to the Government on the right terms.
2. Our farmers had a great 2010
While real income has been at best static for large swathes of Irish society, Ireland’s farmers had a bumper 2010. EU figures suggest that the typical Irish farmer’s income increased by almost 40% in 2010, well ahead of the typical 10% increase seen in the EU. Tillage farmers have done particularly well from price increases in things like cereals and potatoes, but dairy farmers have also done well, with milk prices up 10%.
3. Ireland’s top of the world for tourism
Irish tourism had a tough 2010, and between 2007 and 2010, there was a cumulative fall in revenues and visitors of about a third. Nonetheless, there is a general sense that 2010 will mark the bottom of the cycle. Two factors that may help are Tourism Ireland’s campaign to coincide with the UK Census and a new flight service connecting North Carolina to Ireland. What will also help is that the readers of Frommers have voted as the top tourist destination in the world, while Le Guide de Routard has voted Ireland’s restaurants as offering the best combination of quality, value and service in the world!
4. Ireland’s exporters continue to outperform
Ireland was one of the world’s only developed countries not to experience a sharp fall in exports during the greatest collapse in trade in recent history. (The global recession was just a coincidence for Ireland.) The only downside to this is that exporters here could not expect to have the rebound that many of the their counterparts elsewhere have enjoyed.
And yet year-on-year growth in Irish exports has soared from 4% in the first quarter of 2010 to 15% in the third quarter. Not only that, the indications from the final quarter are very positive. A survey of exporters found growing optimism among exporters during late 2010. Almost half expected their orders to grow, while just one in six expected their exports to shrink. Despite not taking a hit in 2008 and 2009, our exports are rebounding in 2010 and 2011. And this looks set to continue into 2011: the Irish Exporters Association expects exports to grow 7% in 2011.
5. Ireland is a world-leading service exporter
On the 2 January Marian Finucane show, there was a discussion of Ireland’s economy and its exporting sector. Two economist colleagues of mine, Jim Power and Stephen Kinsella, among others, both professed wanting to be part of a country “that makes things”. I disagree. I have never really understood this obsession with tangible commodities and manufacturing. “Things” are only valuable because they are useful to people, and usefulness is an entirely intangible concept.
Services, intangible by nature but definitely useful because people are willing to pay for them, constitute four fifths of economic activity in modern economies. And technological advances mean that pretty soon services will also make up about half of all trade and the bulk of growth in trade. For example, in Ireland, since the start of 2009, manufacturing exports per quarter have grown €1.3bn, while service exports per quarter have grown €3.2bn. Therefore, I’m not sure Ireland should turn its back on a growth market in pursuit of a manufacturing El Dorado, particularly when Ireland is ahead of the curve already on services trade: 46% of our exports come from service sectors, more than almost any other developed economy.
6. Ireland is regaining cost competitiveness
As late as 2009, Dublin was among the ten most expensive cities in the world for office rents. For modern economic activity, which is services-dominated, property costs are one of the most important items of expenditure. They make up perhaps 10% of costs in services and R&D, and underpin typically one third of wage costs, which constitute three quarters of the cost base, i.e. property costs are responsible directly or indirectly for about one third of all costs. Therefore, the fact that prime city centre rents have since fallen by almost half in two short years is fantastic news for Ireland’s competitiveness.
Not only that, with high vacancy rates, there is still downward pressure on commercial rents, particularly in secondary areas, which makes IDA Ireland’s job that bit easier. Accommodation costs look likely to fall into 2011, so that also eases the wage demands of new workers, which means less pressure on the single most important cost line, wages.
7. The IDA continues to find more jobs
A few weeks ago, I outlined some of the great successes that IDA Ireland has had in recent months. Since then, there have been more job announcements. Five of the larger ones are:
- 75 new jobs in medical devices in Letterkenny
- 105 new jobs in data architecture jobs in Galway
- Another 100 jobs in an international HQ operation, also in Galway
- 100 jobs for Dublin, in an Analytics Innovation Centre by Accenture
- And another 100 jobs in Dublin, this time with Facebook.
2010 was a bumper year for the IDA, with over 11,000 jobs created – again created, not announced – and they are essentially using that bumper year as their baseline for 2011 and the years following, with a target of about 65,000 jobs by 2014.
8. Ireland has its own ICT players…
Much is often made of global giants coming here and using Ireland as a base for Europe, the Middle East and Africa. There are a number of local successes that have emerged from Ireland and that pipeline will continue. We have already seen relatively significant companies emerge from Ireland in recent years, like Havok (now a part of Intel), Hostelworld and DemonWare (part of Activision Blizzard).
Currently, there is a generation of Irish successes that are emerging and going international, such as Jolt in gaming, Realex and Intrade in relation to money online, and VoiceSage and Blueface in communications. Behind them again, the next generation is just starting at this very point. Some may be relatively high profile, such as two highlighted by Adrian Weckler last week, tweak.com in design/publishing and Datahug in relationship management. But the vast majority are known probably only to themselves as they get started.
9. … and its own life science successes
A second key sector in job announcements over the past few months – and indeed past generation – has been life sciences, a broad sector that includes pharmaceutical, biotechnology and medical devices. For those trapped in the mindset of “why can’t we create our own jobs instead of importing them”, it’s worth remembering that Ireland’s targeting of jobs from abroad in these activities has spawned a very significant number of local companies that almost certainly would not exist otherwise.
And it’s not just Irish spin-offs of multinationals. Early in 2010, Galway-based Crospon launched its own spin-off, Janisys. In fact, according to Enterprise Ireland, of 160 medical technology companies in Ireland, 90 of them are Irish-owned. And there are other life science success stories out there too. Have you, for example, ever heard of Icon? Icon is an Irish company listed on the NASDAQ. It is one of the world’s leading “Central Lab” service providers – in plain English, it does very high skilled outsourcing services for pharma, biotech and medical devices firms.
10. Ireland is exporting education
Earlier in the year, I mentioned the huge potential for Ireland in education as an export. I identified a €4bn export opportunity for Ireland, in terms of physically bringing students here to learn. We must also consider, though, licensing our education services abroad or exporting them online.
On bringing students here, and on licensing their service aboard, every Irish person should be proud of the Royal College of Surgeons in Ireland. In Ireland, the college has 3,500 students, 70% of which are non-Irish. In addition to many non-economic benefits, these students bring jobs (RCSI has about 800 staff) and spending to the local economy (it’s estimated each student spends about €8,000 locally per year). This is something that, if well managed, could be replicated across the country, providing much needed jobs and consumer expenditure to our economy. Not only that, RCSI is expanding overseas, with operations in Penang, Bahrain and Dubai.
11. Ireland’s entrepreneurs
An argument you often hear about jobs is along the following lines: “It’s all well and good attracting jobs from abroad, but why don’t we have more home-grown jobs?” Hopefully the last few items have shown that these are not an either/or, they are in fact complements. In a modern economy, activity tends to agglomerate in certain locations. If we can’t attract foreign capital and labour here, we’re less likely to keep domestic capital and labour here also.
The reverse is also true. By attracting so much foreign direct investment into Ireland, it can look from a narrow perspective that we are diverting those most likely to set up local companies into multinationals. In fact, viewed from a bigger perspective, we are making sure there is an economic future in Ireland, by creating a hub where local business can emerge.
So, while Ireland faces very significant challenges, we should not write ourselves off just yet. Yes, our problems are largely our own fault in not preparing for life in the eurozone. Yes, the next five Budgets are going to be tough ones for everyone. And yes, Ireland in 2016 will not be what we might have thought it would in 2006…
But Ireland in 2016 will probably be a far better place to live than any of us thought possible in 1996, 1986 or indeed any previous decade. The Celtic Tiger was not a mirage. And we have a very real economy that, with a good bit of hard work and with a fundamental reorganisation of how government raises and spends money, can deliver for us again. That starts in 2011.