Irish export model needs nurturing

One of the biggest mistakes policymakers made after 2000 was to disregard the notion that Ireland is, first and foremost, an exporting nation that would never have a domestic market of sufficient size to sustain itself.

Unfortunately, we bought in to the notion that the external didn’t really matter and that, because of favourable demographics, we could increasingly sustain an economic model based on domestic demand and particularly on the notion that it made sense to import workers to build houses that they themselves would rent. It was a totally stupid and unsustainable notion and it took the mother of all economic crises to force us to reconsider and hopefully to mend our ways.

There is an old saying to the effect that one should never waste a good crisis. Hopefully, the lesson we will have learned from our crisis is that becoming too inward-focused is a dangerous mistake. Ireland is a textbook example of a small open economy where two-way trade accounts for a massive proportion of national output. Our policymakers need to ensure that we increasingly focus on policies that will enhance the growth potential of the economy in a sustainable way and create a high-value-added, dynamic, innovative and productive economy, with strong exports feeding into, and supporting, the domestic economy.

There is, currently, a lot of euphoria about the dairy sector following the abolition of quotas. The fact, of course, is that this potential will only be realised through export markets. Likewise, with the rest of our agri-food sector, where growth will only be achieved through building the export potential.

To achieve our export potential, two factors will be key — the strength of external demand and our ability to produce high-quality product that is sufficiently competitive to sell into an increasingly competitive global market place.

The health of the global economy is of paramount importance, but unfortunately there is nothing we can do to influence that.

This week, the International Monetary Fund issued its latest missive on the global economy. Its overall conclusion is that global growth over the next couple of years is expected to be ‘moderate and uneven’. It has upgraded its outlook for the so-called advanced economies and downgraded the outlook for the emerging economies.

While more upbeat than in the past, the detail contained in the outlook makes for pretty sober reading. It points out that the potential growth of the developed world had been falling since the early 2000s, well before the global crisis erupted.

Unfortunately, that crisis has further undermined potential output, which is defined as the maximum output that can be produced in an economy if the factors of production are fully utilised, left a legacy of debt and fragile banking systems that will take a long time to rectify.

The long-term future for developing economies is good, but economies such as Russia, Brazil and China (three of the BRIC economies) are struggling and will take some time to get back on track.

Despite this sober global backdrop, Ireland’s export model is doing well — on the surface, at least.

In 2014, the value of merchandise exports, which account for just over 50% of total exports, expanded by 2.4%. In the first two months of 2015, merchandise exports are 15.5% higher than last year. Chemicals are up by 20.9%; machinery and transport equipment is up by 11%; but food and live animals declined by 0.4%. The two former sectors are dominated by multinationals and, hence, are far from guaranteed.

It is difficult to get a handle on the real value of the chemical and pharmaceutical sector, particularly if one looks at the value of such exports to Belgium, in particular. This is not to denigrate this sector, because it is a very important employer, but one has to wonder about its long-term sustainability in Ireland.

Ireland needs to develop a more strategic approach to its export model and ensure we’re producing the right things in the right way. The export model needs to be built on quality and competitiveness, and short-term political priorities should not be allowed deflect from this reality.


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