Jim Power: Pharma and food can feed the economy's eventual recovery
IDA-supported foreign multinationals have done much to underpin Irish economic health.
Any lingering hope that New Year’s Eve would herald the end of a generally nasty year and the beginning of a better one has been cruelly dispelled over the past 18 days.
In most countries, the virus has taken a strong and sinister foothold, and it appears to be running faster than the vaccine rollout at this juncture.
As cases increase, more stringent lockdowns are being implemented and it appears the first quarter will see a sharp decline in economic activity.
There are still considerable grounds for optimism, however, but this optimism is largely contingent on the rollout of the vaccine, and the hope that the different vaccines will be able to deal with the various viral mutations we are seeing.
Although now relating to the year just past, we have received lots of evidence over the past couple of weeks of the strength of some of Ireland’s key economic fundamentals, and also where the main vulnerabilities are in the economy.
Throughout 2020, we got ample evidence of the dual nature of the economy.
Those sectors in lockdown are being decimated. On January 12, 398,000 workers were in receipt of the Pandemic Unemployment Payment (PUP), which is not surprising, considering the effective locking down of large swathes of the economy in recent weeks.
The accommodation and food services sector accounted for 26.7% of the total, and the wholesale and retail sector accounted for 16.4%.
Unfortunately, these sectors are likely to remain subject to current serious restrictions for much of the first quarter.
Meanwhile, other sectors, such as construction, will swell the numbers in receipt of PUP over the coming weeks and add significantly to the heavy drain on the public finances.
There is not a lot that can be done about any of this, as it is clear that the priority now has to be to get infection levels as low as possible, as quickly as possible.
One of the brightest lights in the economy at the moment is the multinational segment.
The end-year results from the IDA show that IDA-supported companies increased net employment by 8,944 during 2020 to reach 257,394. This is really important in the current challenging environment.
The trade data released at the end of last week also reinforce the significance of the foreign direct investment (FDI) component of the economy.
However, the strength of the chemical and pharmaceutical sector masks the relative weakness in all other sectors.
The sector saw its exports expand by 13.8% and it accounted for an enormous 66.1% of total merchandise exports. For the national economy, the significance of this sector cannot be exaggerated, and for the local economy in Cork, this significance is magnified.
Those critics of ‘big pharma’ in this country should recognise just how important it is to the national economy.
With tourism on its knees, and with the prospects of any meaningful recovery still some distance away, it is important to have the FDI anchor in the economy. Thankfully, one of the other most important indigenous sectors is holding up well.
Last week, Bord Bia published the details of the export performance of the food and beverage sector last year. Exports declined by 2% in 2020, and were valued at €13bn. In the context of the very challenging circumstances that prevailed last year, this performance is impressive.
Covid restrictions had a dramatic impact on the foodservice sector; shipping costs increased; global economic growth weakened considerably; sterling was relatively weak; and Brexit created immense uncertainty.
Despite all of this, the sector performed strongly, and it will have a key role to play in the rebuilding of the Irish economy post-Covid.
