Chinks begin to show in our exports’ armour

The export sector has been the beacon of light and hope in a pretty dismal Irish economic landscape over the past three years.

Irish exports are made up of two components — services such as tourism, financial, IT, and insurance; and goods exports which include physical items such as food and beverages, IT equipment, and pharmaceuticals.

In 2012 it is estimated that service exports totalled over €85bn and exports of goods were €92bn, giving an overall export total of €177bn.

Apart from tourism, service exports are somewhat nebulous, but still an important component of the economy. Of the visible goods that we sell, food and live animals totalled over €8bn last year; chemicals and related products totalled €55bn; and machinery and transport equipment (mainly the IT sector) totalled €10.4bn.

It is clear from these figures just how important the chemical and pharmaceutical sector is to the Irish export sector, and to the Cork region in particular.

There are some worrying trends emerging in the manufacturing and export sector that are creating confusion and concern.

The manufacturing sector is characterised by two distinct components. The ‘modern’ sector is dominated by chemicals and pharmaceuticals, and the ICT sector. The ‘traditional’ sector is comprised of the rest, but dominated by the agri-food and beverage sector.

The modern sector accounts for almost 57% of gross value added in industry, but just 33% of total industrial employment. The traditional sector is more labour intensive and is dominated by SMEs and a few Irish multinationals, while the modern sector is dominated by foreign-owned multinationals.

In the first two months of 2013, overall manufacturing output was down by 3% on the same period in 2012. Output from the modern sector declined by 2.1%, and output from the traditional sector fell by 6.7%.

This decline in the modern sector reflects the coming-off patent of a number of blockbuster drugs. The IDA argues that the companies involved have already taken account of this issue&. However, this is an issue that will warrant considerable attention going forward.

Merchandise exports in 2012 were 0.8% ahead of 2011. This compares to growth of 1.7% in 2011. The patent issue affecting manufacturing output is being reflected in the export sector as well.

In 2012 exports of chemicals and related products declined by 1.8%, with the medical and pharmaceutical products component experiencing a decline of 7.4%.

This trend of weakness has carried over to 2013. In January, the value of merchandise exports was 11.5% lower than Jan 2012. Exports of chemicals and related products fell by 18.2%, with medical and pharma products component down 18.3%, and organic chemicals declining 31.8%.

These are stark numbers, and while they may not have a significant impact on employment in the affected sectors, economic growth as measured by GDP will be hit, which, in turn, will impact negatively on that all-important variable — the debt to GDP ratio.

This week, State agency Forfás — which shouted clearly during the boom years about the ongoing massive deterioration in our cost base to no avail — released a report on the costs of doing business in Ireland.

It stressed that although progress is being made, costs relating to labour, transport, utility, business services, and property all need to be carefully managed. It concludes that Ireland is still an expensive place in which to do business.

It goes without saying in the context of the challenges facing exports in an uncertain global environment, that a strong focus will have to remain on reducing costs in the economy.

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