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In the past week,
In “We have a growing population, full employment, strong job creation, rising household income, a high savings ratio together with strong retail sales and industrial production. This economy is in great shape and the outlook remains positive,” Brian Goggin, Bank of This is all uncontested. The SSIA bonanza matured just last month and a reasonable number of consumers have some spare funds to provide for the rainy day or to just boost retail spending. Whether or not the current slowdown in the housing sector results in a so-called “soft landing,” as significant economic trends generally have long gestation periods, nobody should shy away from asking about a likely outcome in say a decade, when the construction boom in both housing and infrastructure is effectively over. Also last week, the principal Irish business representative group IBEC, launched an Asia Business Network, to promote knowledge of markets in the region. Speaking at the launch of the network IBEC Head of Trade and International Relations Pat Ivory said: "There is massive potential to increase Massive potential may be a correct analysis but there is a pertinent fact that we often ignore when we opt for superlatives and dare I say – end up deluding ourselves. Last February, IBEC published a report on trade with However, most Irish exports to Asia are made by foreign-owned firms in In 2006, foreign firms were responsible for 92% of Irish exports and Irish-owned firms mainly exported to the Irish industrialist Eoin O'Driscoll, who is chairman of the Irish Government science and policy advisory agency Forfás, told a conference in 2005, that most of the products we manufacture, are designed elsewhere and the bulk of our exports, are marketed/sold by organisations outside Ireland. In the Irish Times on Friday, April 6th, economist Paul Tansey wrote that In the Celtic Tiger period, only a small number of Irish companies have succeeded in scaling the international platform of significant companies. CRH has become the biggest building materials supplier in the At an international level, Irish tech firms are small. One of the biggest
No Irish company has floated on the US Nasdaq Stock Exchange since 1999 – an exchange that lists more than 70 Israeli companies. In total 86,000 jobs were created in 2006, according to the CSO. The strong growth in the Construction (+28,400) and the Health (+18,700) sectors accounted for just over 55% of the annual increase in the numbers employed. Only 6,000 jobs were created in the tradable goods/services sector of the economy, according to policy advisory agency Forfás. It had reported in January 2007 that 83,000 jobs were created in 2006. So 7% of the jobs were in businesses producing exportable goods and services. 2,913 permanent full-time jobs were created in foreign-owned companies, and 3,014 in Irish-owned companies, supported by the State enterprise development agencies, during the fourth year of a global economic boom.
Only six jobs were created in the €110m That is 6 jobs from a total of 86,000 created nationwide in 2006. The park was opened two years ago by Enterprise Minister Mícheál Martin, who said it had the potential to create 3,500 jobs over the next 15 years. However, at the current rate, the IAPE will create just 330 at the end of the 15-year period. A Shannon Development spokesman said that the numbers working at the The number of companies increased from 14 to 19. IDA Ireland has so far failed to attract any foreign direct investment into the park, with only one visit by a potential investor to Ennis, The rankings are in US dollars and most of The annual rise in US dollar terms in 2006 for Ireland of 3%, was the lowest increase of the world's top 30 exporters and compared with a rise of 15% for the global number 1 - Germany. Global export volume grew by 8% in 2006, the second highest rate since 2000, according to preliminary figures from the World Trade Organisation. The world is in the fifth year of the longest sustained period of economic growth since the late 1960’s but The simple truth is that the opportunities in In May, Bank of Ireland Chief Economist Dr. Dan McLaughlin, said in an address to the Irish House Builders Association that it is not clear from some of the more bearish forecasts on the Irish economy whether the authors envisage a cyclical slowdown or a structural shift in Irish growth. The former would be relatively short lived as in time lower interest rates would eventually prompt a cyclical recovery, as in the 2001 – 2003 period. A move to a lower potential growth rate would be more serious but it is not obvious why the potential growth of the Irish economy should fall from 5.5% - 6% to 3.5% - 4% in eighteen months as it would require a sharp fall in productivity or a substantial fall in labour force growth. Some even argue that the Irish potential growth rate is not currently in this 5.5% - 6% range, but if lower, unemployment would have surely fallen, when in fact it has been very stable over the last few years.
The Government plans to spend €3.8 billion on R&D to create a “world-class knowledge economy” by 2013 – note that I did not write that it has a “plan.” The overall goal is a pipedream although deepening the Irish research base will pay some dividends long-term. In the long-run we’re all dead as the renowned British economist John Maynard Keynes onetime remarked but looking beyond the time horizon of bank economists, just consider an interesting factoid - in the first quarter, €4.2 million in venture capital was invested in young innovative firms in Ireland, significantly down from €26.3 million in 4Q’06 and the €28.6 million invested in 1Q’06. Only one deal was completed in 1Q’07, down from 4 deals in 4Q’06 and 7 in 1Q’06 – and wonder if such a development in the context of: - poor productivity in the agricultural sector - unchanged productivity in the food sector between 1995-2005 (See : Perspectives on Irish Productivity - March 2007) - poor export growth during a global economic boom - Construction and Civil Engineering companies continuing to dominate Irish start-ups - Irish-owned exportable goods/services sector looking unlikely to fill void left by contracting foreign-owned sector - the high watermark of the construction sector with 281,000 employed compared with 126,100 in early 1998 - a society where entrepreneurship is a greater challenge than it has ever been is nothing to get excited about. Compared with Israeli companies, Irish tech companies have been unable to sale up fast to be significant players. Think of Ryanair in aviation and Nokia in electronics. So even with a lot of State support, the promoters can sell out before roots are put down in home territory. Should we focus more attention on food rather than tech? We will always have the raw materials and being pioneers in Europe where people will always eat, potential opportunities will always be there.
Property Investment long a No-Brainer Venture capital investment in Irish companies in 2006 amounted to just €192 million invested in 52 enterprises compared with Irish investors putting €11 billion in commercial property - €3 billion of this was spent on domestic deals. While some lollipops have been offered to promote business start-ups in the export sector over the past decade, a halving of capital gains tax from 40% to 20% coupled with a massive extension of tax incentive schemes for domestic construction at a time when economic fundamentals were very strong, made property the default investment and the riskier export sector was just frozen out. Accountancy firms soon found that producing business plans for start-ups was a mugs’ game compared with getting involved in property investment. On Monday, June 4th 2007, a unit of a firm of chartered accountants from the West Cork town of Clonakilty, announced plans to invest a further €100 million in German commercial property. CMC Capital, the Cork-based wealth management and property investment division of Crowley & McCarthy Chartered Accountants plan to raise €20 million in equity for their new German commercial property syndicate from Irish investors. CMC Capital has successfully invested €500 million in German commercial property on behalf of syndicate and private client investors since first entering the market in 2004. This includes the recent purchase, through a joint venture with a So Post-Property Boom During the Celtic Tiger period, the chasm between the public and private sectors was illustrated by the success of public service trade unions in winning demands while much of the private sector received scant coverage in the traditional national media. The public sector, which has grown by 77,000 since 1997, has held the public megaphone and received special sham benchmarking awards without having to accept any significant reform. The Paris-based government think-tank, the OECD, is due to put forward proposals on Irish public service reform by December 2007 but it’s a fair bet that apart from some cosmetic changes, nothing of significance will be adopted. Some segments of the private sector have done well from the Celtic Tiger. Hired hands of established companies in segments with little exposure to international competition, have coasted while convincing themselves that success is due to managerial brilliance. Developers have reaped a bonanza and have left a footprint in the commercial property markets in Europe and the In the services sector, almost all enterprises (98%) are small. There were 83,500 small businesses which employed over 400,000 people in services in 2004. This was more than half of total employment in the sector. It’s not clear how many have also rode the property tiger but we will know in time. While 100,000 jobs will be shed in the construction sector (housing accounts for 66% of the output) in the next decade, it may be some consolation that the average annual industrial earnings of €40,000 in the sector, is far above the average industrial wage of €32,0000. Irish factory gate prices decreased by 0.3% in April 2007. This compares to a decrease of 0.2% recorded for April of last year. As a result, the annual percentage change showed a decrease of 1.5% in April 2007, which compares to a decrease of 1.4% in March 2007. Trying to achieve productivity gains with inflation running above the EU average and unable to raise prices, life has been far from rosy. In our apparently prosperous economy, some 900,000 workers from a total of 2,100,000 have no occupational pensions. It is estimated that the annual pension cost for the recipients of the sham benchmarking payments, is 28% of salary for each year of a 40-year career. A fund of almost €20 billion has already been built up for public service pensions while the majority of private sector workers who retire, rely on the being part of a political auction at election time. As tax revenues from property were in the range 25%-30% of total revenue in 2006 (17% directly from property taxes), a sustained contraction in the property market, will involve a painful adjustment for politicians and public. The free lunch was never invented. Adjusting the Mindset? When the decline of the construction sector will hit the economy, investment in overseas commercial property will become even a bigger play for people with money. In recent days, Goodbody Stockbrokers have invested €210 million in two buildings in In our globalised world, there will likely be opportunities for killings somewhere. Investment in the Irish exportable goods/services sector will remain the poor relation. The increase in the Business Expansion Scheme in the December 2006 Budget will have a marginal impact on investment in Irish enterprise. So the aspiration of creating a world class knowledge economy is to provide more research personnel for the foreign-owned enterprises. Some jobs termed as “high quality” or “high calibre” by Enterprise Minister Micheál Martin will be created but process jobs will be lost and it’s hard to see where sufficient jobs will be created to enable us to remain a Top 30 global exporter. An international advisor to Irish government and State agencies warned on Wednesday, June 06, 2007 that Irish businesses lack the confidence to become world business leaders. Innovation specialist Professor Danny Breznitz of the Georgia Institute of Technology says our research infrastructure is too narrow in its focus and may not be sustainable. He says we are not creating enough new businesses, and when new businesses are set up, the financial supports are not there to keep them innovating. Breznitz says the building of Ireland's R&D infrastructure is something that should be imitated by other countries, but he said he feared that Irish research is too narrowly focussed on biotech and the ICT, or information and communications technology industries. Professor Breznitz said that if a country wants sustained economic growth it has to focus on innovation, not only on the research side but on the commercialisation and the growth of productivity. The rise of consumerism will also make it a challenge to motivate people to risk all as entrepreneurs. Selling deferred consumption to teens and partners today is not easy. The GEM (Global Entrepreneurship Monitor), the world's most comprehensive study of start-up activity that was published in January 2007, found the percentage of people who were either thinking of going into business or had just started a new venture slid substantially in Rebecca Harding, executive director of GEM, said the fall in house prices had a particular impact in the "It has been difficult for people to think that they have the freedom to borrow a bit of money off their house," to start a business, she said. The report, which analyses levels of entrepreneurship in 42 countries, found substantial declines in the of people involved in early-stage start-up activity in several of the world's richest nations. In the There is also a crucial issue of confronting what appears to be a common conservative Irish mindset in both business and the public sector. Last March I asked: Does the glacial adoption of Broadband in Ireland tell us more about ourselves than we would care to know? On Monday June 4th, it was reported that Online advertising in UK, the Netherlands and Denmark exceeds 10% of total annual advertising spend but lags at 3.5% in Ireland Businessman and Senator Feargal Quinn told an audience of managing directors and senior engineering and HR managers at a symposium in May, that for the prosperity created by the Celtic Tiger to continue, we needed technological capability, and the ability to use technology as a driver of competitive advantage for this country. He praised the Government’s decision to invest heavily in scientific research, but he said that turning He said, it “simply beggars belief that a State that could develop such an enlightened attitude to scientific research should be the very same State which through inertia and ineptitude has allowed Do we still believe that we have got the best education system in the world? In a 2006 OECD report Upskilling of the workforce is a good aspiration but without being part of a credible coherent policy, it will flounder like much else. A re-vamp of Irish statistics One factor that would alert us to the challenges ahead would be to separate data in foreign owned enterprises and indigenous firms where feasible. There would at least be less of a chance of deluding ourselves about the task to seriously create a knowledge economy that will continue to provide full employment. We may marvel at the surging rate of economic growth in China and India, but we have limited capacity to take advantage of it. As noted above, market destination decisions on most Irish exports are not made in Ireland. So how do we respond to falling foreign direct investment? We can change little that is going to happen in the coming five years. The focus has to be on outcomes in the 10-15 years. The use of stealth taxes that boost costs, the lack of political will to push reform of anti-competitive sectors of the economy and the public service, coupled with the continuing overwhelming dominance of commercial property investment, will continue to leave the export sector in a very exposed state.The ultimate price to be paid, will be significant.
Postscript - June 07, 2007: Just one day after the above article was posted, Minister for Enterprise, Trade and Employment Micheál Martin, T.D. in an address to a conference on China, at University College Cork, provided a vivid example of the conflation of the performance of multinationals in Ireland with the small indigenous sector. Martin said: "Ireland’s knowledge –based economy, built on innovation and technology, is substantially shaped by the emergence of strong technology-led and export-focused Irish companies. Companies, which have become world leaders in their respective industries." RELATED
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