Economy of the Republic of Ireland

Template:Economy of Ireland table The economy of the Republic of Ireland is modern, relatively small, and trade-dependent with growth averaging a robust 10% in 1995–2000. Agriculture, once the most important sector, is now dwarfed by industry, which accounts for 46% of GDP, about 80% of exports, and employs 29% of the labour force. Although exports remain the primary engine for the Republic's robust growth, the economy is also benefiting from a rise in consumer spending and recovery in both construction and business investment. Inflation stands at 2.3% as of 2005, but this is only a recent recovery from rates of between 4% and 5%. House price inflation has been a particular economic concern (average house price was €255,776 in February 2005 [1] (http://www.rte.ie/business/2005/0323/housing.html)) as well as service charges (utilities, insurance, healthcare, legal representation, etc.). Dublin, the nation's capital, was ranked 22nd in a worldwide cost of living survey in 2004 [2] (http://www.finfacts.com/costofliving4.htm) - a rise of two places on 2003.

History

Main article: Economic history of the Irish state

The state known today as the Republic of Ireland seceded from the United Kingdom in 1922. The state was plagued by poverty and emigration until the 1990s. That decade saw the beginning of unprecedented economic success, in a phenomenon known as the "Celtic Tiger". Over the past decade, the Irish government has implemented a series of national economic programmes designed to curb inflation, ease tax burdens, reduce government spending as a percentage of GDP, increase labour force skills, and promote foreign investment. The Republic joined in launching the euro currency system in January 1999 along with ten other European Union nations. The economy felt the impact of the global economic slowdown in 2001, particularly in the high-tech export sector – the growth rate in that area was cut by nearly half. GDP growth continued to be relatively robust, with a rate of about 6% in 2001 and 2002 – but this was expected to fall to around 2% in 2003. Since 2001, GNP growth has been much worse, with an almost three-fold decrease in 2001 from the previous year. After a near stagnant year in 2002, growth started to pick up once again in 2003 [3] (http://www.finance.gov.ie/documents/publications/other/bes_04.pdf).

Infrastructure

Ireland's transport infrastructure varies substantially in quality. On the East coast, the country is served by a modern road network which includes a north-south motorway (the M1), various by-passes and several dual carriageways. The rest of the country however is still served by a relatively poor standard of road. The main national routes are centred on Dublin, leading to other population centres. There is only one major non-Dublin route (or series of routes), extending through the western half of Ireland from Cork through Limerick to Galway, Sligo and Donegal. The nationwide road network is currently being upgraded and improved by the National Development Plan. The Dublin area - the best connected area in the country - is served by a light rail network (the Luas), the Dublin Port Tunnel the M50, Dublin Airport, commuter rail and the DART. Also most major national road and rail routes converge on the city.

Ireland's rail network is run by the semi-state body Iarnród Éireann, a subsidy of CIÉ and is made up of 9 national lines and several regional commuter lines such as the DART. IÉ retain some freight customers, though few new freight services have started in recent years. Only some major ports remain technically freight-connected, the connection at Sligo for example was removed in 2003, while the link to Foynes has remained unused since 1999. The efficiency of the train network is poor, with regular delays and overcrowding on major routes ([4] (http://www.thepost.ie/web/Home/Document%20View%20Business/did-889012424-pageUrl--2FBusiness-2FNews-2FAll-News.asp)). Some regional routes have few services, and as a result, struggle to achieve passengers. Much new rolling stock has been acquired since 1994, and as of 2004, this is finally beginning to expand capacity rather than just replacing old stock. Most major routes have been relaid with continuous welded rail, and signalling has in most cases been upgraded from the more than century-old mechanical semaphores.

The country has a total of 36 airports and airfields, of which 4 - Dublin Airport, Shannon International Airport and Cork International Airport are of a substantial size. The country is served by several airlines, most notably Aer Lingus, Ryanair, Aer Arann, and Cityjet. Air transport is relatively cheap. The main ports are Rosslare Europort, Limerick, Dublin and Cork. There are daily ferry services to Britain [5] (http://www.infrastructure.ie/).

The telecommunications network is slowly improving, admittedly from a low base. As of 2004 broadband is available to approximately 50% of homes and businesses, with about 15% geographic coverage - however it remains relatively expensive. Coverage may expand if the telephone network is refurbished - currently 25% of lines connected to broadband-enabled exchanges cannot avail of broadband, due to bad line quality. The former state telecoms giant, Eircom, is on the record as not keeping up with line degradation in their network maintenance. The mobile market has three providers - O2 Ireland, Meteor Ltd and Vodafone Ireland. The electricity transmission system is run by the Electricity Supply Board and is available nationwide. The gas network is currently being expanded.

See also: Transportation in Ireland, Rail transport in Ireland, Roads in Ireland, Communications in Ireland

Natural resources

Ireland's main economic resource is its large fertile pastures. Most of Ireland, particularly the midland and southern regions are suitable for agriculture. Ireland also contains some forestry - mainly pine. Its coastline - once abundant in fish, particularly cod - has been overfished for several years and fish stocks have yet to recover. However Ireland's waterways remain plentiful in salmon and trout. As for mineral resources, the country has large quantities of lead, gypsum, limestone and zinc, and smaller (unviable) quantities of copper, silver, gold, barite, and dolomite. In the midlands, Ireland has huge reserves of peat - however its economic usefulness as a fuel resource has diminished in recent years due to environmentalist calls for the protection of Irish bogs. To the south of the country and to the west, Ireland has significant exploitable reserves of natural gas (current proven reserves of 9.911bn cubic metres).

Energy

The vast majority of Irish energy needs are met by fossil fuels. About 98% of the Republic of Ireland's final energy demand is produced by burning coal, oil, peat, or natural gas [6] (http://www.irish-energy.ie/content/content.asp?section_id=454). This over reliance on fossil fuels - particularly oil - has left the Republic vulnerable to international price fluctuations - the state imports all of its oil needs. Renewable energy is beginning to meet some demand in the Republic - Airtricity and Hibernia Wind Energy (a subsidiary of the ESB) are developing wind farms across the country. As of December 2001, there were over twenty wind farms operational in the state, with a combined capacity of 125MW - generating enough energy for 80,000 homes. The government's Green Paper on Sustainable Energy calls for a further 500 MW of electricity generated from renewable sources in the five years following 2000. If properly developed the Republic could eventually become an exporter of wind energy. [7] (http://www.irish-energy.ie/home/index.asp)

Statistics

Peat used to provide much of Ireland's energy needs

• Electricity production: 23,530 GWh (2001)
• Electricity production by source: fossil fuel: 94.12%, hydro: 4.63%, nuclear: 0%, other: 1.25% (1998)
• Electricity consumption: 21,630 GWh (2001)
• Electricity exports: 285 GWh (2001)
• Electricity imports: 38 GWh (2001)
• Oil consumption: 174,400 barrel (27,730 m³) per day (2001 est.)
• Natural gas production: 815 million m³ (2001 est.)
• Natural gas consumption: 4.199 km³ (2001 est.)
• Natural gas proved reserves: 9.911 km³ (As of 1 January 2002)

Monetary system

The national currency is the euro (Ireland is a member of the EMU). The banking system is dominated by the Big Four - AIB Bank, Bank of Ireland, Ulster Bank and National Irish Bank. The banking system is generally quite expensive and uncompetitive. There is a large Credit Union movement within the country which offers an alternative to the banks. There is a stock exchange (the ISEQ) in Dublin, however, due to its small size, many firms also maintain listings on either the AIM, FTSE or NASDAQ. The insurance industry is poorly regulated and dominated by a handful of foreign players. Premiums are very high, particularly for motor insurance. Because Ireland is a member of the EMU, it cannot dictate its own interest rates, these are set by the ECB. At present the ECB has set a very low interest rate - to try and stimulate the German and French economies - however Ireland's economy is already growing at a very fast rate, this has led to increased house price inflation as young couples take on large mortgages, and older couples buy investment properties. As of 2004, average Irish house prices stand at €220,000 (this compares to IRE£9,000 - €11,430 in 1973).

Statistics

• Reserves of foreign exchange & gold: $4.152 billion (2003)
• Historic Exchange rates (Irish pounds per US$1:) 0.9865 (January 2000), 0.9374 (1999), 0.7014 (1998), 0.6588 (1997), 0.6248 (1996), 0.6235 (1995)
• Historic Exchange rates (Euro per US$1:)0.7819 (2004)

Economic makeup

The Irish economy's secondary and tertiary sectors are of a similar size in fiscal terms however in terms of labour, the tertiary sector is far larger. Similarly in fiscal terms the primary sector appears small, however it still employs about 8% of the workforce.

Primary sector

The primary sector constitutes 5% of Irish GDP, and 8% of Irish employment. It is largely made up of cattle grazing, dairy production, fishing and tillage farming; particularly of turnips, barley, potatoes, sugar beet, and wheat. Forestry has become a sizeable part of the Irish Economy under the incentivisation of state body Coillte. Zinc and Lead are mined in County Meath by Tara Mines. Quarrying is generally only for the internal market. In recent years, natural gas exploration has become a significant contributor to the economy - there is gas off the south of County Cork and to the West of County Mayo. Peat exploitation in the midlands provided large employment and a valuable contribution to the energy needs of the country for much of the 20th century, however its significance has dwindled in recent years. Other natural resources include Gold deposits in the Wicklow Mountains, which however are at present not exploited due to their commercial unviability.

Secondary sector

The secondary sector constitutes 46% of Irish GDP — but only 29% of the labour force. Dominated for many years by textile companies like Fruit of the Loom, the sector is now largely made up of high-tech/high value multi-nationals such as Dell, Intel, Pfizer and IBM. The secondary sector in Ireland manufactures products such as computers (25% of Europe's computers are made in Ireland), computer parts (Intel processors are made in Ireland), drugs (much of Europe's supply of Viagra is made in County Cork), confectionery (HB, Jacobs and Cadbury-Schweppes all have significant Irish operations), beer (the Guinness and Smithwicks, and Harp lager breweries are located in Ireland), high quality glass and crystal (Waterford Crystal is made in County Waterford), software (Ireland is the worlds largest exporter of software - Oracle and Microsoft both have large operations in Dublin) and machinery. The sector faces increasing competition from cheaper Eastern European countries such as Poland and many Asian countries such as China, particularly in the lower skill areas such as confectionery manufacturing. The industrial production growth rate in 2003 was 6.7%.

Tourist sites such as Newgrange, County Meath are vital to the Irish economy

Tertiary sector

The tertiary sector constitutes 49% of Irish GDP and 64% of Irish employment. The tertiary sector is by far the largest driver of modern Irish economic growth — the Celtic Tiger. It is made up of several industries such as accountancy, the legal sector, call centers and customer service operations, finance and stock broking, catering, and tourism. Many US firms (such as IBM and Apple Computer) located their European customer service operations in Ireland due to the availability of a young, well educated, English speaking workforce. The Irish tourism industry attracts over 5m visitors annually and employees over 100,000. The IFSC in Dublin created some 14,000 jobs in the 1990s, all in the high-value finance and legal sectors. The hospitality and retail sectors are quite large — there are hundreds of domestic and foreign retail firms in Ireland (such as Next and Argos), and many cafe and restaurant firms operate in Ireland (such as McDonalds, Burger King and Subway.)

State role in the economy

State ownership and deregulation

At present the Irish Government still controls several large and key parts of the economy:

• Through CIE they control most of the bus and all of the railway market, a significant amount of the scheduled land transport services are accounted for through CIE companies.
• Through the ESB the government controls much of the electricity generation market, and all of the electricity transmission network.
• Through RTE the government control much of the radio and television broadcast sector, although commercial enterprises are gaining market share - the states control is by no means propaganda but it has a large financial and regulatory control of the sector.
• Through ownership of Aer Lingus and various airports, the government operates a large part of the aviation industry which is often accused as adopting change slowly — although in recent years Ryanair, Aer Arann and Cityjet have brought competition to the market.
• Through An Post, the government has a monopoly of the light mail deliver industry and a large portion of the partially deregulated parcel and express deliver market.

Although the government owns the incumbents in the electricity, mail, broadcasting, land transport and air transport industries, many are wholly or partially open to competition from the private sector. Traditionally large and key sectors of the economy were dominated by government ownership. Some of these industries are currently being reformed and opened to competition however some of them are regarded as being slow to adopt change and reform to work practice — work pay and conditions are often much better than that in the private sector with some having overstaffing or underproductivity which is seen as an impediment to reform.

The government is currently considering the privatisation of Aer Lingus and part of the Electricity Supply Board, but it is somewhat reluctant because of an earlier situation that resulted from the privatisation of Eircom — hundreds of thousands of small shareholders lost money, private investors took control and established a virtual monopoly and under-investment led to a slow roll out of broadband infrastructure.

Tobacco products are heavily taxed in Ireland

Taxation

Main article: Taxation in the Republic of Ireland

The present government (1997–) has favoured a low taxation policy to encourage FDI in Ireland. Consequently, the government opposes moves by the European Commission to restrict tax competition. (The corporate tax rate is only 12.5%, versus between 20% and 60% in the rest of Europe). The income tax system is designed to redistribute wealth from the richer to the poorer segments of society. There are 2 tax bands, based on income levels. These range from a top rate of 42%, to a bottom rate of 20%.

The government receives much of its revenues from taxes on goods — these include a 21% VAT rate on most consumer goods, high levels of excise duty on tobacco, petrol, and alcohol and several smaller taxes on items such as plastic bags, cheques, ATM cards, credit cards and debit cards. The taxes in the personal financial sector, as well as the television licence, are often seen as regressive.

The welfare state

The Irish government runs a Welfare state system. The government provides free education at all levels, and for all Irish or EU citizens. Free healthcare is not universal, being restricted to the unemployed and very low earners at the General practitioner level. However hospital care is free to all, allthough waiting lists and delays characterise the public health service. People who are unemployed receive unemployment benefits and retired people are entitled to a state pension - both benefits are quite high by international comparisons however recent changes in the cost of living in Ireland have greatly eroded their relative buying power.

Healthcare

The healthcare system is poorly operated with many accident and emergency wards overcrowded and understaffed and tends to be seen as a patronage system rather than patient focused, something often colloquially referred to as "The Eleven Kingdoms". People with disabilities are entitled to have carers and their other living expenses paid for by the government, however services can be patchy. Healthcare in Ireland is comparatively expensive, with an average GP visit being €40 (or more) and dentist's visit €70 (or more). The "medical card", eligibility for free healthcare, is only available to the unemployed, extremely low earners or those who can present a medical reason, although over one million are registered on the system - the system is also criticised for being reactionary rather than preventative. Ireland has one of the highest levels of take-up of private health insurance in the world. This, though expensive, does not result in entirely private healthcare. Those with health insurance are treated privately in public hospitals. The main benefit is avoiding the long waiting lists for major treatment that those without health insurance must endure. Thus Ireland is frequently said to have a "two-tier" health service. The health system, despite having millions spent on it throughout the Celtic Tiger years, has severe problems. An ongoing issue is the "waiting lists", for those requiring in some cases, serious operations. These are over a year for some procedures. Another problem is accident and emergency (A&E) overcrowding, with patients frequently left on trolleys in corridors for hours. A reorganisation of the health service is planned, but this is also controversial, with several cases of people dying en-route to centralised facilities (the inferior nearby facilities being shut down).

Education

Main article: Education in the Republic of Ireland

The education system is generally quite good with standards in mathematics, science and technology being among the highest in OECD member nations, but the state has a virtual monopoly in higher education — there are few private colleges and these are highly specialised. The primary and secondary school enrollment levels are quite high and at these levels choice is wide. Third level entry is competitive; cost is relatively cheap and courses adjusted to the needs of the economy. Irish adult literacy is 99% — in line with other OECD countries.

The only recognised universities are Dublin City University, National University of Ireland (with constituent universities at Cork, Dublin, Galway and Maynooth), University of Limerick and University of Dublin. The Institute of Technology system has recently overtaken the universities in terms of first year enrollment numbers and this trend appears to be accelerating; this is the realisation of the binary system's strength in Ireland.

Economic ties

United States

In 2003, trade between Ireland and the United States was worth around $33 billion, a $4 billion increase over 2002. U.S. exports to Ireland were valued at $7.7 billion, an increase of almost $1 billion over 2002. Irish exports to the U.S. were worth some $25.7 billion — a 500% increase since 1997. Ireland had a trade surplus of over $15 billion with the U.S. in 2003. [8] (http://www.census.gov/foreign-trade/balance/c4190.html#2004) The range of U.S. products imported to Ireland includes electrical components, computers and peripherals, drugs and pharmaceuticals, electrical equipment, and livestock feed. Exports to the United States include alcoholic beverages, chemicals and related products, electronic data processing equipment, electrical machinery, textiles and clothing, and glassware.

U.S. FDI in Ireland has been particularly important to the growth and modernisation of Irish industry since 1980, providing new technology, export capabilities, and employment opportunities. The major U.S. investments in Ireland to date have included multi-billion dollar investments by Intel, Dell, IBM and Abbott Laboratories. Currently, there are more than 600 U.S. subsidiaries operating in Ireland, employing in excess of 100,000 people and spanning activities from manufacturing of high-tech electronics, computer products, medical supplies, and pharmaceuticals to retailing, banking and finance, and other services. Many U.S. businesses find Ireland an attractive location to manufacture for the EU market, since it is inside the EU customs area. Government policies are generally formulated to facilitate trade and inward direct investment. The availability of an educated, well-trained, English-speaking work force and relatively moderate wage costs have been important factors. Ireland offers good long-term growth prospects for U.S. companies under an innovative financial incentive program, including capital grants and favourable tax treatment, such as a low corporation income tax rate for manufacturing firms and certain financial services firms.

Once a beneficiary of the EU — particularly of CAP grant — Ireland is now a net contributor to the EU

European Union

Ireland has grown much closer to Europe in recent years — particularly since it joined the European Union (EU) in 1973. It is also part of the EMU and thus has the euro as its currency. Many US companies have located their European headquarters in Ireland and this has led to increased Irish-European ties. Ireland regularly comes near the top in polls of the most enthusiastic Europeans [9] (http://www.eubusiness.com/afp/031228021601.psvrd1gm) [10] (http://futurum2004.eun.org/ww/en/pub/futurum2004/news/enlargement_news/new_year.htm) and spent some €60m during its presidency of the EU [11] (http://www.nicva.org/policy_and_research/europe/article.asp?ArticleID=8810). The EU now accounts for the bulk of Irish trade, with the United Kingdom being the largest trading partner. Ireland's main exports to Europe are beef, computers (Dell, HP, EMC, and Apple Computer all have manufacturing facilities in Ireland) and software (Oracle and Microsoft operate in Ireland). Ireland's major imports from Europe include cars, machinery, trucks, steel, oil and consumer goods. A major economic bonus Ireland has received from EU membership has been agricultural subsidies from the CAP and large amounts of EU investment in Irish road infrastructure. However Ireland is no longer a net beneficiary of the EU, it now gives more than it receives. Since the acceptance of the 10 new Eastern European nations in 2004, Ireland's ties with Europe further increased. Many workers from countries such as Latvia, Poland and Estonia, no longer requiring work permits, came to live and work in Ireland.

Wealth distribution

The unemployment benefit (the dole) in Ireland is €134.80 per week as of 2004

Ireland may somewhat aspire to be an egalitarian society — wealth is partially redistributed among the poorer segments of society through the progressive tax system — however large disparities in wealth still exist among the employed and unemployed, with one of the worst rich-poor gaps among Western nations. Wealth is more concentrated in the eastern region around Dublin.

There are many spots in Dublin marked by poverty, particularly in the inner city. The poorest segments of society are foreign nationals working in manual jobs and people from some of the older social housing schemes in Dublin. The national minimum wage is €7.65 per hour for full time staff over the age of 18 — this is quite high by historic levels. However, this wage is taxable, and above the threshold for free healthcare.

Ireland is also quite unique in Europe in that land ownership is still quite high. In particular house ownership (at approx 80%) is the norm. This contrasts with most of Continental Europe, where renting is the norm, and the United Kingdom. Social housing schemes do exist but the government has not progressively invested in these schemes in recent years.

Statistics

• Household income or consumption by percentage share: lowest 10%: 2% highest 10%: 27.3% (1997)
• GDP per Capita (2003): $29,600
• Pop below poverty line (1997): 10%
• Unemployment rate (2004): 4.3%

References

Print

• O'Kane, Brian. Starting a business in Ireland - Oak Tree Publishing, 1993, 1995, & 2001. ISBN 1872853943
• O'Grada, Cormac Rocky Road: Irish Economy Since Independence - Manchester University Press, 1997. ISBN 0719045843
• O'Hearn, Denis. The Atlantic Economy: Britain, the US and Ireland - Manchester University Press, 2001. ISBN 0719059747
• Burke, Andrew E. Enterprise and the Irish Economy - Oak Tree Press in association with Graduate School of Business, University College Dublin, 1995. ISBN 186076004X

Online

• CIA World Factbook (2004) CIA World Factbook Entry on Ireland (http://www.cia.gov/cia/publications/factbook/geos/ei.html#top). Retrieved November 11, 2004
• Business Access to State Information and Services Doing business in Ireland (http://www.basis.ie/). Retrieved November 11, 2004
• Irish Central Statistics Office (http://www.cso.ie/). Retrieved November 11, 2004
• Irish Economy News/Reports (http://www.finfacts.com/irecon.htm). Retrieved November 11, 2004
• The Economic and Social Research Institute (ESRI) (http://www.esri.ie/content.cfm?t=Irish%20Economy&mid=4). Retrieved November 11, 2004
• The Economist Survey (http://economist.com/surveys/showsurvey.cfm?issue=20041016) 16 October 2004
• BBC Article Ireland is named 'best country in the World to live (http://news.bbc.co.uk/2/hi/europe/4020523.stm) 17 November 2004

See also

• Central Bank of Ireland
• Central Statistics Office
• Companies Registration Office
• Economy of Europe
• Economy of Northern Ireland
• IDA Ireland
• International Financial Services Centre
• Irish Stock Exchange
• Irish topics
• List of Irish companies
• Republic of Ireland corporation tax

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