Eastern promise awaits Irish exporters

IRELAND’S eggs are no longer in one basket. For many decades we were almost totally reliant on Britain for our imports and exports.

However, our accession to the EEC opened up new trading opportunities to domestic businesses. Indeed, in the opening quarter of 2005 Britain accounted for just 22% of our total trade.

This diversification is positive, as it reduces the impact on our economy of a slowdown in any of our trading partners. Similarly, adverse exchange rate movements won't have as serious an effect as before. This is because the currency we have the biggest exposure to sterling accounts for just one-fifth of our trade.

An increasingly important export market for Irish companies is East Asia. This region has enjoyed stellar growth rates over the past quarter of a century. Huge investment is pouring in, as multinational corporations are attracted by cheap labour and billions of potential consumers.

The outperformance of these countries led to the phrase "Tiger economies" being coined to describe their dramatic growth rates.

Similarly, "Celtic Tiger" was applied to the Irish economy in recognition of the similar transformation here over the past decade.

Despite the geographical distance between Ireland and the Asian 'tigers', CSO trade data show that the volume of exports and imports between ourselves and these new emerging economies has soared in recent times. The eight countrieswhich have made the most economic progress are China, India, Japan, Hong Kong, Malaysia, Singapore, Thailand and Taiwan. In the opening quarter of this year, total two-way trade between all of those countries and Ireland rose by just over 10.5%.

By way of illustration, those eight countries now account for a remarkable 11.6% of our total trade. Collectively they represent our fourth most important market after the eurozone, Britain and the US.

Nevertheless, the exponential growth in Asia has led to fears that companies in the manufacturing sector will outsource an ever increasing proportion of their operations to the Far East from this part of the world. While some talk of a race to the bottom, with Western employers actively seeking out armies of low paid workers, the reality is quite different.

Average incomes have soared across East Asia in line with the new-found prosperity in those countries. To take one city in China as an example, the Shanghai World Expo

Coordination Bureau predicts that GDP per capita there will rise from $6,000 now to $10,000 by the end of the decade. That would put Shanghai on a par with EU member states such as Estonia and Slovakia.

As incomes rise, the cost advantage that the Asian Tigers enjoy over the West will gradually diminish. There are two consequences of this. Firstly, the outsourcing of manufacturing jobs to Asia will be reduced. More significantly, over three

billion consumers across those eight nations will have ever more resources at their disposal to spend on goods.

Some of this money will come here. Irish firms exported 1.5bn worth of goods to the Tigers in the first quarter of this year. As incomes continue to rise, this figure is set to go much higher, provided that Ireland increases its presence in this region. January's trade delegation to China, comprising 120 companies, was a sign that Irish exporters' eyes are wide open to the opportunities to be found in the East.

Philip O'Sullivan is an economist with Goodbody Stockbrokers.