Background Information - Ireland

Ireland has had a reputation over the past few hundred years as being a county with hardships. People throughout Europe enjoyed a reasonable standard of living while the people in Ireland lagged behind. The Introduction of the Single European Act in 1987 gave Ireland hope in economic terms as times before that had been hard for most. Ireland lacked confidence in competing at an international level and so growth in this area was slow. Business had access to a much larger market and the country no longer had to depend on the UK. In 1987 Ireland’s economy was having real problems and was close to economic disaster. Ireland needed to attract foreign investment and become a location for international companies as a low cost manufacturing base. The EU really helped Ireland to recover from its economic bleakness as it offered an opportunity for Ireland to position itself as a feasible base for large manufacturers exporting to Europe. The EU was trying to create a single market by removing bureaucratic obstacles, non-tariff barriers, state aid and financial assistance from a national government to a domestic industry or company. The EU further promised to deepen integration between the EU which assisted Ireland as it attracted higher levels of foreign investments from countries such as Japan and the US. Ireland became more commercially aware as it was faced with the challenge of competing with the leaders of Europe. Many Irish exporters expanded abroad and the single market gave the guarantee and protection of common technological standards and protection through EU legislation. This new challenging opportunity brought about an increase in productivity and efficiency from Irish firms. Due to the safety net of the single market, Ireland was able to reduce its reliance on the UK and open itself up to a new trading scenario.¹

1 Ireland and the EU, November 9, 2007,

2.1.1 Ireland’s economic progression

Ireland has had a problem in the past with persistent emigration, and since the emergence of the Celtic Tiger, emigration has slowed down and almost reversed with a huge amount of highly skilled natives returning to the island to take advantage of the thriving economy. Ireland can now boast one of the highest standards of living after Luxembourg in the EU and has achieved exceptional growth over the past few years.² Employment is one key area that has seen the most exceptional levels of growth relative to other EU countries. From the years between 1990 and 2005 employment levels went from 1.1 million to 1.9 million.³ The population increased almost 15% between 1996 and 2005 which throughout the past had seen successive decreases.⁴ The population of Ireland as of July 2007 figures was estimated to be 4,109,086.⁵ After the 1996 census it was revealed that 40% of the population was under the age of 25. This young workforce coupled with the concentration of people in urban areas has spurred the growth in the population over the last ten years.

Economic openness to global markets became key in shaping the policies and structures that still exist today. The core of these policies was to try to sustain low tax rates in order to attract investment. Open the country up to investment and make the island seem more attractive to investors. The thinking was to constantly develop and keep innovation at the forefront of thinking, and to build on what was already starting to take shape. The thinking was shared by the whole country who wanted a better future for themselves and their children without the previous trend of emigration. Government policies and decisions were driven by the public’s willingness to succeed.

Industry predominantly consists of agricultural industries, forestry and fishing, high tech manufacturing, textiles, clothing and footwear, food, drink and tobacco, construction,

2,³,⁴ How Ireland became the Celtic Tiger by Sean Dorgan, June 23, 2006 http://www.heritage.org/Research/WorldwideFreedom/bg1945.cfm

5 Country Reports, Ireland, Stastics, November 13, 2007

http://www.countryreports.org/country.aspx?countryid=118&countryName=Ireland

financial services, tourism and retail.⁶ Government policy usually favors private enterprises. In areas where private investment was lacking the state established firms to operate these essential services in the hope that it would encourage industrial development. The areas this happened most notably was in the sugar, peat, electricity, steel, fertilizers, industrial alcohol, and transportation sectors. The annual growth rate of industry was in the region of about 5% from 1968-1981 and it reached 12% in 1984. The high tech sector such as the electronics and pharmaceuticals industry saw the most substantial growth, they also saw a huge increase in labor productivity so the increase in employment didn’t follow the same trend. In 2000 industry employed 28% of the labor force and accounted for 36% of GDP in 2001 a 12.3% rise from the previous year. The dramatic increase in productivity at this time came mainly from foreign owned computer and pharmaceutical enterprises.⁷

2.1.2 Ireland’s Industry

Industry predominantly consists of agricultural industries, forestry and fishing, high tech manufacturing, textiles, clothing and footwear, food, drink and tobacco, construction, financial services, tourism and retail.⁸

Agriculture is centered mainly on the export of beef and livestock which made up 50% of output value in 1998. In 1999 the EU agreed to reduce beef prices, this was followed by the BSE (Bovine Spongi-form Encephalopathy) crisis which hit the industry hard causing a 27% drop in beef consumption from the European market. This was followed in 2001 by an outbreak of foot and mouth disease in Britain. This brought about a heightened level of fear in consuming animal products and challenged the industry as the export markets in the EU reduced their intake of animal produce. Livestock products also suffered throughout this time with the most dramatic decline being seen in the dairy industry where output decreased from IEP1,132 to IEP1,113 million. Crop output also

6 Encyclopedia of the Nations, Europe, Ireland, by Catherine Lynch and Eoin O’Mally http://www.nationsencyclopedia.com/economies/Europe/Ireland.html

7 Encyclopedia of the Nations, Europe, Ireland, by Catherine Lynch and Eoin O’Mally http://www.nationsencyclopedia.com/economies/Europe/Ireland.html

8 Encyclopedia of the Nations, Europe, Ireland, by Catherine Lynch and Eoin O’Mally

saw a marginal decrease at the same time. The most important products during this period were milk, eggs and fresh vegetables with the highest commercial value coming from sugar beet, wheat and barley.

Forestry cover within the country is among the lowest levels in Europe at just 8%, against a 25% European average. Ireland has been working on reforestation programs since 1922 when only 1% of the country was under forested. Current EU policy encourages reforestation programs and timber based agriculture. Fishing on the other hand is an extremely important economic activity for the island especially in rural coastal areas where the concentration of industry is low. The fishing industry includes fish farming and employment in this area has increased 40% since 1980. The EU supports the industry by offering grants and government spending to encourage expansion, in 1997 exports were reported to reach IRE240 million.

High tech manufacturing consists of more than 1000 foreign-owned firms mainly concentrated in the areas of chemical production, metals, electrical engineering and computer hardware. Foreign owned manufacturing accounts for more than half the country’s total manufacturing output. In 1998 foreign owned firms employed around 45% of the manufacturing sector’s workforce or 28% of the total workforce. In the years between 1993 and 1997 engineering accounted for an increase in employment of 49%

and an increase in output of metals and engineering of 96%. The chemical sector experienced similar levels of growth, while during the same time employment in the sector increased by 38% and output by 116%. Ireland’s indigenous high-tech sector has also experienced impressive growth. The sector saw a growth in volume from 1987-1995 by 37%. Due to the links between the foreign owned firms and the indigenous market Ireland has emerged a world class competitor with world class management and manufacturing standards. There have been great movements made with the quality and reputation of local firms as many are now sought out by the foreign firms as their preferred source of supplies. This results in an impressive total expenditure of foreign companies in the Irish economy of IRE6.9 billion in 2000 which has risen from IRE2.9 billion in 1990. Foreign Investment has been encouraged by the government body, IDA (Industrial Development Authority). The IDA attracts foreign investment mainly in the

pharmaceutical and computer software industry’s, the number of high tech industries they have encouraged has created a cluster that will further sustain the growth in these sectors.

In the clothing, textiles and footwear industry’s indigenous companies have usually been the majority players in this sector. There was no significant growth throughout the 1990s and as a result the industry has suffered due to cheaper foreign imports. The production of textiles remained stagnant during the 1990s while employment in this industry fell by 20%. From 1993 to 1997 the clothing and footwear industry saw their output fall by 20%

and it has remained at a similar level ever since.

In the traditional indigenous manufacturing sector, food, drink and tobacco production recorded the strongest growth with a 6.1% increase in 1997. This sector not only concentrated on the home market but it also worked on the export markets too. The food industry mainly sees the largest revenues coming from beef, milk, eggs, fresh vegetables, barley, sugar-beets and wheat.

The construction industry benefited from the increased business investment, the infrastructure development and the housing shortage which saw construction output go from IEP13.7 billion in 1993 to IEP16.1 billion in 1996. The abundance of quarried stone in Ireland gives a ready supply to the construction industry.

There are four main clearing banks in Ireland – Bank of Ireland, Allied Irish Banks, Ulster Bank, and National Irish Banks. Employment in this sector has grown significantly increasing from 25,200 in 1994 to just under 30,000 in 1998 with banks now offering more financial services. In 1987 Ireland introduced an incentive to foreign financial institutions by setting corporation taxes at a low rate of 10%. This encouraged more than 300 banks mainly from North America and Europe to make a presence in the Irish Financial Services Center (IFSC) in Dublin, the IFSC employs somewhere in the region of 7,000 employees. These banks offer services such as investment banking, fund management, capital markets, leasing and re-insurance.

Ireland has long attracted tourists due to its small landmass, its culture, its beautiful scenery, beaches and friendly people. Tourism over the last few years has grown due to the government’s overseas promotion programs and the easy access for Europeans as a popular weekend break destination. Revenue from tourism reached IRE2.8 billion in 1997, but dropped slightly in 1999 with figures of IRE2.5 billion. In 2000 at least

120,000 jobs were estimated to depend on tourism with the biggest threat coming from poor quality services, the shortage of skilled labor and transportation disruptions, terrorism hadn’t begun to make its impact on this industry yet.

The retail industry was aided by the economic expansion which facilitated a more diverse retailing industry. Retail sales in 1997 reached a total value of 53% which, resulted in attracting large groups of retailers from the UK, this brought about competition which helped to control consumer price inflation.⁹