November 2010

Last week NIRSA/NCG launched the All-Island Research Observatory website –

The website is a free resource  for the public sector and civil society organisations and includes a number of different mapping and data modules designed to improve evidence-based decision making.

AIRO makes available a set of multi-scalar (local, county, regional, all-island, European) spatial datasets and a suite of specialist tools to aid their analysis.  These include:

1.  Browse by Theme

Data on 14 key themes including agriculture, demographics, economy, education, health, housing, regional development, transport

  • An inventory of a few hundred pre-prepared maps
  • Direct access to a series of key statistics and datasets
  • Detailed inventory of key publications and organisations

2.  Mapping Modules

  • A set of 95 interactive census mapping modules (one for each partnership areas, local authorities, regions) that allow users to produce thematic maps
  • A set of specialist mapping modules including: housing, Live Register, community, regional economy, social deprivation, unfinished estates
  • Interactive time series data and statistical information

3.  Geographical Profiling

  • Create on-the-fly detailed census profiles of any user defined area on the island of Ireland
  • Create user defined catchments and specific buffer distances; includes the locations of key geo-referenced places such as schools and GPs

4.  News and Events

  • Keep up to date with the latest news and events in relation to spatial data and evidence informed analysis in Ireland

Go to the site to register.  There will be a short delay in being able to use the mapping modules as we’ll need to approve your registration.  We’re looking into access for private industry – the issue is data licenses as these are restricted to non-commercial activity.

Justin Gleeson and Rob Kitchin


Ireland’s recently adopted four-year recovery plan promotes an export-led strategy. The idea is to introduce measures to assist the export sector. These measures will assist export recovery through enhanced competitiveness and sector specific initiatives. Export growth will in turn deliver high value employment and act to stimulate the domestically trading sectors of the economy. These developments will in turn boost consumption, reduce unemployment and increase tax revenue. Confidence in this strategy is supported by the recent performance of the internationally traded sector. The government estimates exports have grown by over six percent in 2010.

Given the importance of the pharmaceutical industry to Ireland’s economy and its large share in Ireland’s exports, it is useful to take a closer look at the developments of this sector and their implications for the recovery plan.

The Irish pharmaceutical industry is performing strongly throughout the economic crisis. CSO external trade data show that exports in the combined chemicals and pharmaceuticals sector (which is dominated by the pharmaceutical sub-sectors) grew from €44.2bn in 2008 to €49.4bn in 2009 (+12%). The most recent CSO release shows further export growth by 4% in the first eight months of 2010 (compared to the first eight month in 2009). This compares with falling exports in other important manufacturing sub-sectors, notably the office machines sector (computer hardware), which experienced a drop of 32% in exports. As a result the combined chemicals and pharmaceuticals sector now accounts for 60% of Ireland’s manufacturing exports.

Now let’s take a look at the employment figures of the CSO. Between Q4 2007 and Q4 2009 employment in basic pharmaceutical products and pharmaceutical preparations (NACE 21) dropped by 9%, from 30,800 to 27,900.  How can we explain this apparent paradox?

Part of the job losses are related to corporate merger activity and the concomitant reorganisation of global manufacturing capacity. Other job losses are related to pharmaceutical companies losing markets when some of their products reach the end of their patent life. I discussed the implications of this “patent cliff” issue for Ireland in a previous IAN post. These processes were responsible for the recent high profile job-losses and plant closures at Pfizer and GSK in Cork. But one would expect these processes to translate in a drop in pharmaceutical exports, not an increase.

After talking to some pharmaceutical company managers, I believe the answer to the puzzle lies in a parallel development which may be termed “fat pharma going lean”. Traditionally, because of obscenely high pharmaceutical prices, pharma companies’ main concern was to have a sufficient supply of product. Pharma companies paid little attention to production efficiencies. However, product prices have come under serious pressure due to increasingly stringent price controls in many markets, as well as increased competition. In addition, changes in the regulatory environment have significantly increased the cost of bringing a drug to the market. In response, following the example of the electronics industry, most pharmaceutical companies are now introducing more efficient processes. As a result, Irish plants are starting to produce significantly more output, while at the same time reducing their head count. In some Irish plants, staff numbers have been reduced by over 10 per cent, completely under the radar of the media.

One might argue that this development will make the plants more efficient and put them in a better position to attract future investments by the parent company. However, efficiencies are implemented globally, not only in Ireland.

The recent growth in Irish pharmaceutical exports has not been job-less, it has been job-shedding. At least in the context of the pharmaceutical industry, the Government’s export-led recovery strategy may be problematic. In this sector, in the short term, increased exports are unlikely to lead to significant number of new jobs. Without new jobs, there will be no boost to consumption, no boost to the domestic sector, and no boost to income tax. Pharma is, of course, a specific case. The increasingly important internationally traded services sector may lend itself better to the export-led recovery plan.

Chris van Egeraat

On Wednesday a single lot of 47 nearly complete apartments in Ballybofey, Donegal, went under the hammer.  The reserve price was €550,000.  The main build is complete and the apartments need to be fitted out.  The developer has gone bust and Ulster Bank called in the receivers to recoup whatever it could from the development.  The units, ranging from 63 sqm to 108 sqm were due to be sold at €200,000+ per unit.  At the sale of price of €11,700 per unit, the complex seems like a bargain.  And yet there was no bidder and the starting price was dropped to €300,000 (€6,300 an apartment).  The auctioneer is now seeking a private sale.

Ballybofey Apartments

Donegal has the sixth highest number of unfinished estates (133) in the country, and the lowest level of completed units occupied on those estates (47.5%), but prime reason as to why there was no bidder was due to a protest by c.100 workers from 20 subcontractors who claim to be owed c.€900,000 for their work on the site (and who also have equipment locked on the site which they can’t recover).  Quite rightly, they expect to be paid for their labour and expenses and to reclaim their equipment.  The bank simply want to salvage whatever money it can and pass on the finish-off and future of the estate to a third party.

The collapse in the construction sector is already making it difficult for many sub-contractors to stay afloat.  Not being paid only adds to the pressure.  And as businesses go to the wall, workers are being added to the Live Register, and family life suddenly changes as household income drops.  Income is taken out of the local economy and other businesses start to suffer.   14% of Donegal workers (8,124) were in the construction industry in 2006 (the national average was 11%).  The Live Register rate for the county has grown from 8,498 in Apr 2006 to 20,994 in Oct 2010 (147% increase) – in the Ballybofey Office it has risen from 705 to 2,580 (265% increase) – much of the growth taken up by out of work construction workers.

This story has been replicated across the country over the past couple of years, most recently with the collapse of Pierse and McNamara construction groups which has seen sub-contractors locked off of numerous sites, including those commissioned by the state.  Yesterday, more than 190 sub-contractors held a meeting to discuss the issue, calling for a change in the law concerning the arrangements and obligations between sub-contractors and those who they are working for.

One thing is clear, whilst the apartments in Ballybofey appear to be a bargain, whoever buys it will potentially be gaining enormously at the benefit of those sub-contractors owed money for their work (assuming that they will be able to sell them on to new owners).  Giving apartments away, however, has costs and consequences that’ll reverberate through the local community for some time to come.

Rob Kitchin and Justin Gleeson

The CSO has just published its Survey of Income and Living Conditions (SILC) for 2009, and it makes for sobering reading. Gross household income dropped by 6.7% between 2008 and 2009, and is now close to 2006 levels. The deprivation rate (2+ items) increased from 13.8% in 2008 to 17.3% in 2009 – this measures the extent to which individuals experienced enforced deprivation, measured by a range of indicators including being unable to afford heating, being unable to afford a warm waterproof coat, or being unable to afford a roast once a week. In terms of indebtedness, almost a quarter of households had been in arrears at least once during 2009 (on either rent/mortgage, utility bills, hire purchase/loan or other bills), compared to just over 10% in 2008. Almost half of households said they would have to borrow to meet an expense of €1,085. People living in the Midland region are the most at risk of poverty, but the biggest increase in the at risk of poverty rate was recorded in the Mid-east (from 10% in 2008 to 14.6% in 2009). Read more in the press release or the full report, which cover the period up to January 2010, and thus do not include public sector pay cuts. If the measures announced yesterday are implemented, particularly in relation to taxation and social welfare cuts, expect significant increases in indebtedness, deprivation and the at risk of poverty rate for 2010.

Mary Gilmartin

When asked about yesterday’s savage budgetary cuts affecting some of the most vulnerable in society along with stinging cuts in the public sector, Brian Cowen suggested that “Those who can pay the most will pay most, but no group can be sheltered” from the cutbacks.  But yet there is no mention of pay cuts for elected representatives.  It seems it still doesn’t rain in Dáil Eireann!  This indicates that even now nothing has changed in the political system.  If there is to be any sense of social justice even hinted at, the first thing that needs to happen is for politicians of all parties to demand, accept, and implement their own pay cuts.  Step up now if you want to join the human race!

Mural in south Dublin


Cian O’ Callaghan

The four year, National Recovery Plan 2011-14 was published this afternoon.  For those looking for a copy it can be found here.  A summary is here.  Interesting, but not pleasant reading.

Of the deluge of alarming analyses and media commentary on the Irish/European debt crisis that have emerged over the last 24 hours, surely the most unnerving proposition is that the financial markets have already moved on from Ireland and all attention is now focused on Portugal.  The “worst-case scenario” consequences feared from such a development are the spread of the financial contagion from Portugal to Spain (which, given the size of the Spanish economy would be difficult for the EU and IMF coffers to contain), and ultimately an existential crisis for the euro currency. Whether or not this worst-case scenario comes to pass remains to be seen, though recent increases in Portuguese and Spanish bond yields are far from reassuring. With this risk of financial contagion in mind, one wonders just how exposed are European member states to one another’s debts? The chart (below) from a recent Bank of International Settlements quarterly report illustrates just how interwoven the EU member states are in terms of the financial exposure to one another.

A number of features BIS quarterly report have surfaced in recent analyses but perhaps have not been succinctly stated:

  • As has been recently reported elsewhere, total exposure of British based banks to Ireland is in the region of $230 billion. Exposure of German banks is not far behind at $175 billion.
  • The chart above distinguishes between foreign claims on the public sector, the banking sector, and the non-bank private sector. In both the Irish and Spanish cases, the share of British, French, and German bank exposure to the non-bank private sector appears to be very high. One wonders what exactly will be the consequences of this. Does this mean that even when Irish banks are bailed out, there are still substantial non-banking sector debts that have to be tackled? Do these debts relate entirely to the legacy of Irish property development mania or is this exposure spread more broadly across the Irish economy?
  • Government debt accounts for a relatively smaller part of euro zone bank exposure to Ireland than in the cases of Greece, Portugal, and Spain.
  • It’s also apparent from the chart above that whatever Greece’s woes may have been, they didn’t stem from a bank crises on the scale of the shocking fiasco Irish banks have become embroiled in. Or, as the Greek finance minister succinctly put it, “Greece is not Ireland”.
  • That said, it’s clear that German and French banks were very exposed to Greek debt and are also very vulnerable to Irish, Portuguese, and (in particular) Spanish debts.
  • As one would expect, Spain does indeed face the largest exposure to Portuguese debt (coming in at over $100 billion). However, this is by no means the largest exposure of an EU member state to a peripheral neighbour, as indicated by the British banks’ exposure to Irish debts.
  • As of 31 December 2009, banks headquartered in the euro zone accounted for 62% of all internationally active banks’ exposure to Greece, Ireland, Portugal and Spain. However, that’s not to say that the other 38% is of no consequence! US banks, in particular, appear to have a significant exposure to both Ireland and Spain.

All in all, one would be forgiven for thinking that  the kindness of strangers is driven by the desperation of worried bankers.

Declan Curran

The financial and economic crisis that has hit the world and Europe since Autumn 2008 has had its most severe impact on a few European countries, countries that are often referred to as ‘peripheral’ from the standpoint of the geography of Europe or the EU: Greece, Ireland, Spain and Portugal. Does that mean that their geographically ‘peripheral’ position is at the heart of their current financial and economic problems? Not really. Or maybe, somehow. Maybe it was their location on the margins of Europe that played a part in their lagging economies compared to their EU partners in the 1970s and 1980s as they all joined the EU (1973 for Ireland, 1981 for Greece, 1986 for Spain and Portugal)? And maybe that explained to a certain extent the ‘fast-track’ paths to economic growth that some of them went for then, with the support of European funding for infrastructural upgrades in particular, but also based on what Henri Sterdyniak, from the OFCE research center, has called “macroeconomic strategies that have become illusory”. And that’s precisely what’s more important than their ‘peripheral’ location: the fragility of their respective economic development model. In the case of Ireland, that has been largely explained, discussed, documented through many posts on the Ireland after NAMA blog (since its creation at the end of November 2009, almost a year ago now) and other forums such as or The Irish Economy among others. But there hasn’t been too much discussion about how the Irish model compares to its ‘peripheral’ counterparts and what lessons Ireland could learn from them and their own crisis as it looks for a way to get out of the crisis and to rebuild its growth and a (hopefully) viable growth model. There’re a few things that I would like to highlight to that effect.

The Irish and Spanish experiences have been quite similar so far. Their public debt was quite low, their growth levels quite high, but in both cases growth was heavily reliant on real-estate and financial speculation. In Ireland, at the end of 2007, loans for real-estate development amounted to 250% of the GNP. That made for a huge real-estate bubble, the same kind of bubble that exploded in Spain a few months after the Irish one. While a large amount of the bursting of the Irish bubble is being cleaned up by NAMA, Spain has not created its own toxic bank to absorb the current 325bn euros of debts of the real-estate sector.

Portugal and Greece are in a different situation. Their major problem has been the lack of growth in the past decade or so (while Ireland and Spain were experiencing high levels of ‘growth’, but one that was highly illusory given its speculative nature). Their main problem is that their governments have been very keen on entertaining the idea that growth was happening: to international investors, to their own population, and to EU officials. They did so through rather irrational budget decisions. While Greece deliberately falsified and concealed its high levels of public debt and justified 4% annual growth since 2000 by emphasizing the performances of its real-estate industry and tourism (two sectors that are highly volatile), Portugal went overboard with public spending to stimulate domestic consumption while it struggled to boost the growth of its leading industries and main exports (e.g. textiles).

Among the four countries, Ireland is actually the only one that has developed a real and successful export-oriented economy, in particular in knowledge-based sectors such as (e.g.) pharmaceuticals, electronics, software …etc. But the problem is that the success of this strategy relies to a great extent on the very low corporation tax (12.5%, as opposed to 25.7% on average across the Euro zone, almost 30% in Germany, and over 33% in France). And this is something that may be challenged in the near future as part of the EU/IMF bail-out package that is currently negotiated. As noted in a post from yesterday by Rob Kitchin, the IMF has indicated in its position paper on structural reform in the Euro area that harmonization of macroeconomic policies should be a priority in the Eurozone, and an harmonization of the corporation tax across the area, or at least some degree of convergence, is not to be excluded. This does not mean that firms are necessarily going to massively flee out of Ireland if the corporation tax is raised by a few percentage points. While the potential short-term negative effects of raising the corporation tax has recently been discussed by Chris van Egeraat in another post on this blog, there are also a series of factors that make firms more locally-embedded than implied by the hypermobility of capital argument mobilized by those in favour of maintaining a low corporation rate in Ireland. I’ll leave that aside for the moment, and I will pick up on another point raised by Chris van Egeraat in his post and many others in the past few months, which is the fact that Irish recovery and a viable Irish economic model cannot be built upon a low taxation model. It needs to be rebuilt on strong foundations, including a proper industrial policy, that would send the right ‘signals’ to global markets and international investors, i.e. the image of an economy that is actually managed and doesn’t threatened to spiral out of control again.

A major problem here is that it is going to be very difficult for Ireland, but also Greece, Portugal and Spain to build the foundations of a strong economic model with the austerity plans that are currently being designed or implemented because the priority being the reduction of national deficits through major cuts in levels of public spending, this leaves close to nothing to support these sectors that could create a solid base for these economy (e.g. textiles in Portugal, food industries in Spain and Greece, new technologies in Ireland). That includes, for example, continuous funding for education to keep training indigenous youth, mentoring and internship programmes to help graduates enter the workforce, financial and structural support for start-ups to create jobs ….etc (as discussed in this post for example). If their respective economic bases do not solidify in the next few years, all four countries are likely not only to be prone to future crises of the sort that we are dealing with right now.

Delphine Ancien

There a couple of breaking stories concerning a report by the IMF about what needs to happen in Ireland (see Press Association here and Reuters here).  This is actually a report about structural reform and governance across the Euro area and includes recommendations for every country, principally about kick-starting growth through comprehensive labour and service market reforms.  The report then does not specifically focus on Ireland and actually only gives very broad brush policy suggestions.  These are:

Raise employment to avoid persistence of current high unemployment rate:

  • Introduce gradual decrease of benefits over time of unemployment spell and stricter job search requirements
  • Provide more resources to the unemployment agencies (FÁS) to provide efficient job search assistance to the growing number of unemployed
  • Review the level of minimum wage to make it consistent with the general fall in wages

Improve competitiveness to promote exports as a sustainable source of growth:

  • Reform planning and licensing systems in network industries, so as to increase competition in sheltered services sectors
  • Focus public resources on high-priority projects in the knowledge-based economy

The report does not deal with the specific parameters of these suggestions, which are not really a surprise.   The report does, however, give a general framing of the IMF view.  For example, the following statement re. taxation and benefits very much favours harmonization across the Euro area: “Improving access to the labor market should be high on the priority list everywhere—including through some harmonization of key features of the labor market, which will help deal with intra-euro area imbalances. Differences in labor taxation, unemployment benefit systems, and employment protection will need to be reduced. Improving regulation and reforming taxes and social benefits will be essential to make inroads.”  It does not mention corporation tax specifically, but one imagines it is not off the agenda.

As for the broader kinds of structural reforms needed in Ireland and elsewhere, the following heatmap from the report gives some indications of where the IMF see the gaps.

IMF structural reform gaps in European economies

The report then gives some indication of the broader IMF view re. the Euro area, but we’ll probably have to wait a little while before they flesh out their specific recommendations with respect to Ireland.

Rob Kitchin

In the context of Ireland’s banking and fiscal crisis and the impending bailout by the EU and IMF, the finance ministers of Austria and France have suggested that the bailout should be made conditional on Ireland raising its 12.5% corporation tax rate. This would help squeeze Ireland’s budget deficit and resolve what has long been a bone of contention between Ireland and its European partners.

The Irish government has been quick to rule out any such move and most commentators (in Ireland) tend to support this on the basis that such a move would make Ireland “less competitive” and would lead to foreign multinationals leaving the country. Although these comments make a lot of sense, they do miss a more important point – in the short term, raising Ireland’s corporation tax rate is unlikely to have strong positive effect on the corporate tax take from foreign operations.

We must realise that Ireland’s 12.5% corporation tax rate is only one aspect of Ireland’s constellation of incentives to attract foreign direct investments. Other important pillars include, amongst others, recent legislation for holding companies, taxation of patent royalties, double taxation agreements and the (US) legislation for cost sharing arrangements.

All these elements together have made Ireland an attractive location for foreign “headquarters”, notably for “managing” intellectual property (IP). In addition to their traditional involvement in manufacturing and services operations, many multinationals such as Pfizer and Google have established separate headquarter subsidiaries in Ireland for the management of IP and other intra-firm financial services. The US parents have licensed large shares of their IP to holding companies in Ireland. Although, in some cases, the royalty income is again re-allocated to genuine tax havens such as Bermuda, the Irish subsidiaries do pay 12.5% over some of the profits. Because we are talking about billions of royalty income, this is a substantial source of revenue for a small country like Ireland. One example of such carefully designed corporate structures was recently outlined in the context of Google.

It is not difficult to imagine what would happen were Ireland to raise its corporation tax rate to the level of its European counterparts. Because most of the manufacturing, and even services, operations are relatively inert in the short term, the corporation tax take from such operations would rise. However, the situation is different in relation to holding companies involved in IP management and other intra-firm financial services. In reaction to a hike in corporation tax rate, IP can relatively simply be relocated to other jurisdictions using buy-in payments. This would result in a serious loss of corporation tax revenues from foreign companies in the short term. Thus, in the short term, raising Ireland’s corporation tax rate is unlikely to have strong positive effect on the corporate tax take from foreign operations and is unlikely to help squeeze Ireland’s budget deficit. This point has been missed in most of the current commentary on corporation tax. Raising the corporation tax rate would, of course, also affect the indigenous sector. I am in no position to estimate the effect of this on the corporate tax take, but, given the embattled state of this element of the Irish economy and the limited profit margins, I expect that this will not have a strong positive effect on the tax take either, while many indigenous companies will simply call it a day – a double whammy.

So, this does not appear the right moment to raise the corporation tax rate. This is not to say that Ireland should not raise its corporation tax rate at some stage – quite the contrary, in fact. The low level of corporation tax rate has done wonders for Ireland’s economic development. But we had reached a threshold level that would have allowed us to divert to a more sustainable economic development trajectory, both from an economic and social point of view. If we want to develop a sustainable economy we will need to adopt a strategy that will eventually involve a proper level of taxation. Very few equitable societies are built on a low taxation model. In the short term, it would clearly be counter productive to touch the corporation tax rate. But I don’t buy this idea that, even in the long term, Ireland can only be competitive on the basis of a low level of corporation tax, or other taxes for that matter. What is so special about Ireland?

Chris van Egeraat

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