Irish Economy

Eleven reasons to be cheerful

11 Jan 2011

"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."

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.

Ireland's balance of payments, 1998-2010

Ireland's balance of payments, 1998-2010

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:

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.

In the online sphere, there are a number of institutions with a growing profile. They range from the reasonably well established, such as Hibernia College, which recently won an E-Learning award, and Intuition.com, which now has offices in New York, London and Singapore, to the brand new, most of which again we will not have heard of, but some are already getting noticed, like Pocket Anatomy (an excellent example of how the lines between sectors like education, life sciences and technology are blurring) and 24-7 Tutorials.

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.

Optimistic realism

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.

As we move into 2011, it’s worth taking stock of where we are. 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 sovereignt
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26 Comments

  1. Shane said on January 11, 2011 | Permalink

    Fare play Ronan, we need more of this encouraging commentary. Hoping you have a happy, safe and productive 2011.

  2. Seamus Carey said on January 11, 2011 | Permalink

    Great piece Ronan. Interesting, well-written and easy to follow (for a non-economics buff) as usual.

  3. Michael O'Brien said on January 11, 2011 | Permalink

    Good article but a couple of guide books have served to cover over the massive short comings in Irish tourism.

    1. For an Irish family to holiday at home for two weeks in July or August it is still very, very expensive.

    2. The Irish tourism industry never addressed/dealt with the massive influx of non nationals that were given front of house positions in many establishments, many without adequate training in customer service. Not exactly the experience our other foreign visitors were looking for. This is not a xenophobic statement, just a statement of fact. We turned the hospitality industry on its head in space of 7 years and never thought about the impact. The long term damage is immeasurable.

    3. Ireland should take a product positioning stance and move away from Ireland of the Welcomes rubbish to Ireland of the Outdoors. We have a mild temperate climate (most of the time) and we have several hundred million people on our doorstep who will pay to engage in outdoor pursuits. The Irish Tourist Board is playing lip service to the notion of Irish as a place to come for activities. I’d turn it upside down and invest heavily in all types of outdoor activities.

    The world is moving towards an awareness of the importance of fitness for a better and healthier life. People of all ages will pay, handsomely, for access to enjoyable outdoor activities.

    If you’ve read Simon Anholt then it is clear that there are characteristics that automatically accompany being Irish and we should use these brand attributes to build a tourism destination that plays to the green image – outdoor activities that have a very powerful trickle-down effect in the economy.

    There, a lot of my chest but we can really turn it around with a country that focuses on outdoor activities.

  4. Ronan Lyons said on January 11, 2011 | Permalink

    Hi Michael,
    Thanks for that – some good constructive suggestions.
    R

  5. Stephen Hamilton said on January 11, 2011 | Permalink

    Great to hear the word positive in a post about Ireland, even better to hear 11 reasons to be positive.

  6. John Gleeson said on January 11, 2011 | Permalink

    Ronan,

    I couldn’t agree more with the current irrational need to ‘get back to making things’ as the key way out of our problems.

    Manufacturing and Agri-food industries will remain important parts of the economy but you don’t need to understand how software development works to appreciate that such companies will help diversify our economy over the next five years.

    John

  7. peter donegan said on January 11, 2011 | Permalink

    A Chara Ronan

    well done. great post. guaranteed not to make the main sky news report/ 99.9% of the Irish meejia pages… for the sole fact that it is positive, encouraging and pretty darned accurate. All of the reasons I like it.

    more of this sort of thing, please.
    bulaidh bĂłs an mhĂłr
    peter

  8. Ken K said on January 12, 2011 | Permalink

    reason #12: A change in government. At this stage I think any of the current alternatives are better than the two Brian’s. Would it be too optimistic to hope for some political reform too?

  9. Cian Collins said on January 12, 2011 | Permalink

    Ronan

    Well done. Keep banging that drum. I just shared a link to your article on LinkedIn as I have a lot of international contacts and this is the stuff, particularly on the US side they need to keep seeing. Also a lot being done to develop home grown business. Particularly in Galway anyway.

    Good job.

    Cian

  10. Avril Quinn said on January 13, 2011 | Permalink

    Ronan,

    Thank you indeed for portraying the Irish situation in a more realistic and positive light. Foreign Direct Investment and Exports are imperative to our economy and we need to drive the positive message as much as possible, particularly at present.

    Well done,

    Avril Quinn, HR Consultant, Cork, Ireland

  11. Ralph Smith said on January 13, 2011 | Permalink

    Great article Ronan. The anecdote to McWilliams’s half full glass.

    Ralph

  12. Louis Gunnigan said on January 13, 2011 | Permalink

    Great to read a positive article. We need more of this type of message. Once we lift our heads and stop wallowing in the misery, we will begin to create a better future.
    RTÉ and politicians take note.

  13. James Wims said on January 14, 2011 | Permalink

    Well said – refreshing to read such a positive and ‘get up and go’ article. Someone should give it to all the ‘doom and gloom’ merchants. Thank you!

  14. Clare said on January 14, 2011 | Permalink

    Great piece Ronan. Great to see a positive spin on economic matters written so clearly! Interesting to see the centrality of farmers, tourism, exports & education. I’ll be sharing it with others.

  15. Bill Jones said on January 14, 2011 | Permalink

    Ronan
    Very well written – lovely clear concise article. Keep them coming. I agree wholeheartedly with Michael O’Briens comments on tourism – outdoor activity is the way to go – we are sitting on some excellent outdoor activity potential. The natural assets, whether land or water based, have been given to us, free of charge. We now need to build a proper, modern business around this natural beauty and the potential demand.
    Best regards
    Bill Jones

  16. JP said on January 15, 2011 | Permalink

    I think this is a great article, I think it really points out some ‘overlooked’ issues. I am interested in education, and think that the Irish government is really dropping the ball there, if you look at educational statistics of the United States before 9/11, the amount of money brought in by international students was astronomical. Universities in Ireland are currently charging International students (or as we still call them: Foreign students) three times what we charge their EU counterparts. That is ok, what’s not ok, is that we make it practically impossible for them to get into the country, and we are negligible in international university fairs, and yet we boast 5 globally competitive universities, 4 of Europe’s top universities, and 2 of the worlds top universities!

    One last thing, the only thing I found frustrating about your article are some of the comments made about it. Positive thinking is not a tangible asset, you can’t “feel yourself” out of the recession. The fact that this article presented positive issues is due to the fact that there were positive issues to present. The assumption that some of your readers make that “This country needs more positive thinking” is sophomoric at best.

  17. Fiona Ashe said on January 15, 2011 | Permalink

    Excellent article, Ronan, thanks.

    By adopting a positive attitude and taking action to implement change, we can all play a part in reviving this fantastic country.

    Let’s have lots more of this postivity!
    Fiona.

  18. idoc said on January 16, 2011 | Permalink

    and to make this optimism a reality, default on all your debt! cleanse the system like Iceland and begin the long road back.

  19. KC said on January 17, 2011 | Permalink

    additionally.. our birth rate accelerating again. just ask anyone working in a maternity hospital.. unlike Japan’s single child/small families in early 1990s, we will breed our way out of this! spread the debt inheritance widely among multiple offspring.. future demographic dividend emerging again.

  20. Gerard Sugrue said on January 17, 2011 | Permalink

    @Michael O’Brien
    Couldn’t agree more with your points – esp #3. I live in Killarney (not in the tourist business) but too much effort still goes into bussing large groups around the Ring (breakfast in Killarney, lunch in Waterville, afternoon coffee in Kenmare and back to Killarney). The lakes are barely used – except by the local rowing clubs and the odd fisherman. You are correct that we ought to be expanding kayaking, sailing, mountain biking, and even just plain walking… As they say there’s no such thing as good or bad weather – just appropriate and inappropriate clothing.

  21. ruinean said on January 17, 2011 | Permalink

    Reason #12, and maybe bigger in the long run than all those listed above, Ireland has vast oil and gas reserves off her west coast that can and will be developed. These could rival Norway and yet nobody seems to understand how important they will be going forward.

  22. Hugh Quigley said on January 18, 2011 | Permalink

    Another excellent post Ronan. One observation on the lack of Irish front of house personnel during the boom years which I too noticed at the time. However during the boom years most Irish people were simply uninterested in this type of work: advertising such a position produced a tidal wave of applications from non-Irish nationals and no home grown ones.
    So, perhaps the blame for loss of the Irish out of Irish Hospitality is not the fault of tourism industry.
    It is a rather different story today though!

  23. Eugene Callan said on January 19, 2011 | Permalink

    hi Ronan

    Excellent read and the comment piece on tourism and outdoor activities also excellent.

    This piece by IBEC on youtube also packs a punch (scrolls a little fast).

    http://www.youtube.com/watch?v=eA6iBKc0O0E

  24. Brendan Cullen said on February 10, 2011 | Permalink

    Great stuff. And it’s getting attention on http://www.smallbusinesscan.com too.

  25. J M said on February 14, 2011 | Permalink

    “Le Guide de Routard has voted Ireland’s restaurants as offering the best combination of quality, value and service in the world!”

    Le Guide de Routard must have Irish investors!! Ireland has, amongst other things, the worst quality, value and service in Europe. Food in Ireland is of medium quality, way over-priced and poor service.

    Irish people don’t know the meaning of top quality food with excellent service. Do you call €13 for a burger & a handfull of chips good value!!!

    Rip off Ireland!

  26. why can't I get a jo said on December 29, 2011 | Permalink

    Just by looking at this post, I can tell with relative confidence that this has been written by an Irish person. Not that I have anything against the Irish.

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  5. Links | Clare Herbert on February 25, 2011

    [...] 11 Reasons to be cheerful about the Irish economy. Great stuff from Ronan Lyons. [...]

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