Impact of Brexit on Exports– it’s about prices so far but watch out for those airplanes

The release today of the December 2016 External Trade figures saw a number links to Ireland’s export performance and the UK referendum on the EU back in June - notably Brexit wipes half a billion euro of Irish exports to Britain.

While it is true that our goods exports to Great Britain were lower by €496 million in 2016 the link to the referendum is less clear-cut.  And with goods imports from Great Britain falling by €1,354 million our net external trade position with Great Britain actually improved by €858 million in 2016.

The reason why imports are lower this year is largely related to refined fuels and natural gas. 

Up to November 2015 we imported €1.7 billion of refined fuels, whereas up to the same point in 2016 these imports were €1.1 billion.  The average price per tonne of these fuels fell from €500 to €385 with the quantity of these exports falling by ten per cent.  In 2015, 82 per cent of refined fuel came from Great Britain; in 2016 this fell to 72 per cent.  Imports from the United States filled the gap rising from six per cent to 11 per cent of imports in this category.  In total we imported three per cent more refined fuels by volume for 28 per cent less by value. 

We only import natural gas from Great Britain and the volume of gas imports are down 33 per cent in 2016. In value terms natural gas imports fell €1 billion to €0.6 billion.  It is these movements in refined fuels and natural gas that account for most of the improvement in Ireland’s balance of trade with Great Britain.

However, it is exports to Great Britain that are primary interest.  Since the shutting down of the “missing trader” VAT scam in 2002 Ireland’s goods exports to Great Britain have been remarkably stable. In 2003, Irish goods exports to GB were €13,488 million; in 2016 they were €13,314 million, just one percent higher in 13 years.

The half a billion drop seen in 2016 is not unusual but it is worth looking a little closer at the categories which are the source of this decrease.

On its own SITC 7 – machinery and transport equipment – experienced a fall equivalent to more than three-quarters of the total fall in goods exports to Great Britain.  We only have the detailed data to November but most of the fall in this category is down to two sub-components:

• SITC 79: Other transport equipment (including aircraft)
• SITC 75: Office machines and automatic data processing machines

In the 11 months to November 2015, we sold 41 wide-bodied aircraft (SITC 792.40) with a value of €501 million to Great Britain.  To the same period in 2016 wide-bodied aircraft sales numbered 32 for a value of €266 million.  This represents a drop in exports of €235 million and is largely down to a small number of decisions taken by an even smaller number of aircraft leasing firms.

For SITC 75 the culprit appears to be storage devices (whether or not with the rest of a system), i.e. SITC 752.70.  Up tp November 2015, we sold €263 million worth of these devices to Great Britain, with exports of €221 million recorded in 2016 – a drop of €42 million.  And this may be a price effect.  In the first 11 months of 2015 the number of units sold was 68,000 while that actually increased to 78,000 in 2016.  So almost half of the drop in the value of goods exports to Great Britain can be attributed to wide-bodied aircraft and the decreasing cost of digital storage devices.

However, while we might be able to dismiss the fall in SITC 7, the drop in food exports to Great Britain is likely to be of real significance.  These exports were down €221 million or 5.5 per cent in 2016 though it should be noted that overall food exports had their best ever year in 2016 and exceeded €10 billion for the first time.

And it is also the case that the poor performance of food exports to the UK was evident right from the start of the year, though did accelerate markedly around the middle of the year (i.e. post the referendum on the EU).

However, whatever export losses were experienced with Great Britain were, in aggregate terms at least, more than offset with increases elsewhere.  The most significant of these increases were in exports to the US and China.  Food exports to the US rose €144 million (up more than 50 per cent in the year) while food exports with China rose €207 million (a rise of almost one-third).   This €351 million rise in food exports to these two markets more than offset the €221 million reduction in sales to Great Britain.

The biggest increase in food exports to China was “Food preparations for infants, for retail sale, or flour, meal, starch or malt extract” (SITC 098.93) which one assumes contains baby formula.  Up to November these exports to China rose to €444 million in 2016 from €305 million the previous year.  It not clear what the extra sales to the US actually comprised.  Exports in the food category “Other food preparations, nes” (SITC 098.99) to the US rose from €37 million to €123 million in the first eleven months of 2016.

So, at an aggregate level, increased food exports to the US and China are offsetting the fall in good exports to Great Britain but it is not clear that the value added from these exports are accruing to Irish residents.  We don’t know who is selling the powdered milk to China and we don’t even know what it is that we are selling more of to the US. 

But a more pertinent question is to determine what exactly it is we are selling less of to Great Britain?  We can answer that using Trade Statistics figures and here are the outturns to November 2016 compared to the same period in 2015 for the three-digit SITC food categories. By November 2016 food exports to Great Britain were running €171 million behind what they had achieved the previous year.

The biggest drop is the €66 million decrease in category 017 other meat, with the majority of this relating to poultry, where exports to Great Britain fell by €47 million.  The next largest category is the anomalous 098 for items not classified elsewhere and within this is 098.93 - food preparations for infants - where exports to GB fell by €40 million.  These  

After those two there was a €34 million drop in cheese exports and a €20 million drop in butter exports through a combination of lower price (possibly via the exchange rate) and slightly lower quantities.  The only other category to show a decline of more than €10 million was that for cocoa and chocolate.

There aren’t too many categories showing increases and the only notable increase was for beef or veal which was up €42 million in the first 11 months of 2016 compared to the same period in 2015.  However, this 6 per cent increase in value should be considered in the context of an 18 per cent increase in volume.  Beef exports to GB rose from 127,000 tonnes to 155,000 tonnes.  Thus, the price per ton of beef exported to GB fell from €5,400 to €4,700. 

If fact if we look at the prices across all categories the price pressures are clear.

The prices are measured per tonne of goods exported in each category so is rather crude.  But the pattern is clear.  Prices are down.  The price of beef exports to Great Britain are 13 per cent lower, cheese prices are nine per cent lower with mushroom prices six per cent lower.

Weighted by the value of export sales in 2016 the average price of food exports to Great Britain are eight per cent lower in 2016 compared to 2015.  This is likely the result of fixed prices in sterling translated into lower euro receipts.  In markets with tight margins this may not be sustainable.  So maybe with these pressures, something like this is merited.  And all this without the UK having actually left the EU.

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Ireland’s “traditional” Industrial and Food Manufacturing Sectors

Some of the recent industrial production data has pointed to a slowdown in the Irish economy.  This is particularly true of the “traditional” sub-index in the data.  Here are the annual changes in the volume of production in this sector since 2011.

Annual growth rates have declined from around 10 per cent in late-2014/early 2015 to showing contraction in the most recently available data.

The “traditional” sector is simply the residual of the sectors that are included in the “modern” sector.  Sectors are included in the modern sector if 85 per cent or more of the turnover in that sector is generated by foreign-owned companies.  The sectors in the modern sector are:

• NACE 20: Chemical products
• NACE 21: Basic Pharmaceutical products and preparation
• NACE 26: Computer, electronic and optical equipment 
• NACE 27: Electrical equipment
• NACE 18.20: Reproduction of recorded media
• NACE 32.50: Medical and dental instruments and supplies

Under the current weightings these sectors comprise around 60 per cent of the overall index so the remaining sectors which give us the “traditional” sector make up the other 40 per cent.

The main sectors of the traditional sector are:

• NACE 10: Manufacture of food products (0.65)
• NACE 11: Beverages (0.28)
• NACE 24-25: Basic metals and fabricated metal products (0.54)
• NACE 28: Machinery and equipment, not elsewhere classified (0.41)
• NACE 35: Electricity, gas, steam and air conditioning supply (0.33)

Between them, these categories make up around three-quarters of the “traditional” sector so whatever if driving the pattern in the chart above show be identifiable in one or more of these categories.

The numbers in the brackets give the correlations between the annual growth rates for these categories and the annual growth rates of the “traditional” sector.  The two that probably stand out are those for food products and basic metals and the weighting for food products is about ten times greater than that for basic metals.

The growth rates for each of the five sectors can be seen here but just taking the first category above, i.e. the manufacture of food, gives the following:

And this, it seems likely,  is where the pattern for the overall “traditional” sector comes from.  As the manufacture of food products makes up about one-third of the “traditional” sector, naturally the swings in this category are larger than for the overall sector.  The change in the growth rates is from annual growth of 20 per cent in early 2015 to negative growth approaching minus 10 per cent in the most recent data.

The data break go further and break the food sector into the following sub-categories:

• NACE 101: Meat and meat products (0.52)
• NACE 105: Dairy products (0.10)
• NACE 107: Bakery and farinaceous products (0.60)
• NACE 106,109: Grain mill and starch products; Prepared animal feeds (0.29)
• NACE 102-104, 108: Other food products (0.92)

All the annual growth rates are shown here but it is pretty obvious (from the correlations which are again shown in brackets) which category to focus on.  That is ‘Other Food Products’ which by weighting makes up about three-quarters of the manufacture of food category. 

This could be fish (NACE 102), fruit and vegetables (NACE 103) or oils and fats (NACE 104) but we are probably looking at something in the broad other category (NACE 108).  With retail sales for food not showing anything like the volatility described above we should probably turn to the export data to see where these patterns are reflected. But nothing in the food export data (commodities categories 00 to 09) fits what we have seen here.

However, there is another export category that seems to fit the bill.  Here is the quarterly industrial production turnover index for Other Food with a quarterly index of exports for commodity category 55. 

I think we found a match.  The output from “Other Foods” in the Industrial Production data is sold under Category 55 in the External Trade data.  Category 55 is listed in the trade data as “Essential oils, perfume materials, toilet preparations etc.” which doesn’t seem to match.

If we look at the more detailed Trade Statistics releases we can see that Category 551: Essential Oil, Perfume and Flavour Materials is where most of the exports in Category 55 arise from with the bit “Flavour Materials” getting us back to something food related.  Going a little further it can be seen that all the action is in Category 551.41: Mixtures of odoriferous substances for use in food/drink.  In 2015, exports in Category 551.41 were €7.3 billion.  The use of “odoriferous” suggests something that smells but it’s much more likely to be related to some form of concentrate.  Total exports for Category 55 in 2015 were €8.0 billion so we can see that 551.41 provided over 90 per cent of those.

I’m not going to check the Trade Statistics release but item 551.41 seems to one of our most widely dispersed exports with country data provided for 56 countries.  Exports for Jan-Oct for recent years are:

• 2013: €4,743 million
• 2014: €5,274 million
• 2015: €6,234 million
• 2016: €6,132 million

And we see strong growth in 2015 of near 20 per cent with a steep slowdown resulting in a contraction in 2016.  Just as has been described as happening in Ireland’s “Traditional” manufacturing sector.

This suggests it is probably worth taking a broad look at the “food manufacturing” sector in Ireland.  Here is some aggregate data for the sector.

Unfortunately, the data only go up to 2012 but by then we can see that we have an industry with an output of €20 billion from over 500 companies with 35,000 employees.  [The data cover enterprises with 10 or more employees.]  These companies generated a gross value added of nearly €6.5 billion,with around €1.5 billion going in pay to employees leaving a Gross Operating Surplus of €5 billion.  Ireland’s food industry seems remarkably profitable.

However, the analysis of the industrial production and export data means that it is probably worthwhile to sub-divide the industry into domestically-owned and foreign-owned sectors.  Here is the contribution of foreign-owned enterprises to Ireland’s food manufacturing industry.

We can see that almost half of the production arose in just 30 foreign-owned companies who have about 15 per cent of the persons employed in the industry.  These are higher-paying companies as they contribute 25 per cent of the personnel costs of the industry with an average cost per employee of €62,500. 

These companies generate around 70 per cent of the gross value added in the industry and earn about 85 per cent of the gross operating surplus (with a gross operating rate of over 35 per cent in 2012).  It turns out the Irish food sector is so Irish after all.  Inclusion in the “modern” sector as defined by the CSO requires 85 per cent of the turnover from a sector to come from foreign-owned firms.  Although the manufacture of food products achieves this for gross operating surplus, the proportion of turnover generated by foreign-owned firms is around 50 per cent.

In 2012, exports in category 551.41 were €5.7 billion which is 60 per cent of the production value shown above.  The  manufacture of food products industry in Ireland is very concentrated.

For completeness, here is the contribution of domestically-owned enterprises to the Irish food manufacturing industry.

In contrast to the foreign-owned companies, domestically-owned companies had a gross operating rate of 7 per cent in 2012 (GOS as a per cent of turnover).  The labour share of gross value added was almost 60 per cent though average personnel costs per person employed were €35,000 – almost 45 per cent lower than in foreign-owned companies in the sector.

What should we take from all this?  Simply that Ireland’s “traditional” manufacturing sector may be subject to many of the same MNC effects we see in the “modern” sector so interpreting changes as reflective of the economy outside the MNCs may not be appropriate.

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Exports: Dipped in Chemicals but Driven by Dollars

This week’s monthly External Trade data from the CSO showed that goods exports in April reached an all-time high of €9.2 billion.  Here are the monthly export and import figures for goods since January 2010.

The rise in exports has also seen the trade balance increase though the recent movement in imports is also important.

As is well understood around 60 per cent of Irish exports come from one sector: chemical and related products and it is this sector which accounts for the recent surge in overall exports.  Chemical exports in the first four months of 2015 are 26 per cent greater than in the equivalent period in 2014.

So what explains this recent increase in pharmaceutical exports?  Typically we could look to Industrial Production data to track what is being produced but those figures data (and for the pharmaceutical sector in particular) are polluted by the effect of external ‘contract manufacturing’.  Here are the monthly industrial production indices for chemical and pharmaceutical products since the start of 2010.

The ‘volume’ index measures the output actually produced in a given month, while the ‘turnover’ index measure output sold in a given month (regardless of when it was produced).  Both measures show a 50 per cent year-to-date increase but a lot of the rise (and volatility) is due to the impact of ‘contract manufacturing’ – this is manufacturing that takes place elsewhere but is booked in Ireland because key parts of the value-adding risks, functions and assets are based here. 

There might have been an increase in pharmaceutical output produced in Ireland (and only goods which physically leave the country are included in the External Trade data) but we can’t see that from the noisy Industrial Production figures.

Is there something else that accounts for the increase in chemical exports? Yes, prices. Or more particularly the currency in which those prices are denominated.  A huge amount of the pharmaceutical output produced in Ireland is generated by US MNCs and these companies price their products in dollars in their transfer pricing agreements.  And what has happened to the USD-EUR exchange rate recently?

Yip, the dollar has appreciated by about 20 per cent against the euro since the middle of 2014.  Thus dollar-denominated prices will have a higher nominal euro value.  And that is precisely what we see if we look at the industrial price index for pharmaceuticals.

Since the middle of 2014 the wholesale price of pharmaceuticals has risen by 15 per cent (which was likely driven by the depreciation of the euro).  It is this factor which accounts for most of the recent rise in the value of pharmaceutical exports shown in the External Trade data.

Will this have much of an impact on GDP? Real GDP growth should not be affected by the price/currency factors shown above.  And there probably won’t be much impact on nominal GDP as the increased value of goods exports pushing up the balance of trade will be offset by increased outbound royalty payments (which will also be dollar denominated) that will reduce the balance of services.  The net effect will be small.  And of course the impact on GNP will be nil unless there is an increase in employment and/or corporation tax payments – but somebody is paying more Corporation Tax.

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The top 10 exporting companies…

… account for 34% of total Irish exports.

That is all.

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2010 External Trade Figures: Dipped in Chemicals

The CSO have released the preliminary 2010 External Trade figures.  They show a record trade surplus of €44.7 billion.  This is up on the 2009 surplus of €39.2 billion and nearly €20 billion ahead of the pre-crash surplus of €25.7 billion recorded in 2007.  If one was to report a positive economic indicator for the Irish economy, our surging trade surplus would be it.

The trade balance is significantly ahead of the levels recorded at the end of the export-led Phase One of the Celtic Tiger in 2002.  As the construction- and credit-fuelled Phase Two of the Celtic Tiger took hold from 2003 to 2007 the trade balance fell.  However, since the onset of the current recession the trade balance has gone into a steep incline and this has made a substantial positive contribution to our growth figures (though one that has been swamped by the collapse of some sectors of the domestic economy).

So the prospects of the much-claimed “export-led recovery” must be good, right?  Not quite, I’m afraid.  The trade balance is the difference between exports and imports.  If we look at these we see that the current increase in the trade balance is not due to the same factors that drove the increases during the Celtic Tiger Phase One.

The period from 1995 to 2002 was characterised by rising exports and imports, with the faster rate of rising exports increasing the trade balance.   Irish export growth stalled in 2002 (and has not recovered) and in the period 2003 to 2007 the trade balance narrowed as imports rose.  Finally, it is pretty evident that since 2008 the huge increase in the trade balance has very little to do with a stellar export performance (strong, resilient, and robust are popular descriptors).  Instead, the trade balance increased because imports collapsed.

Imports are now back to a level last seen in 1999 and while some might be crowing about our export performance, Irish exports in 2010 were lower than they were in both 2001 and 2002.   While a growing trade balance is good for growth arithmetic, it does not have a significant real effect on the economy if it is based on falling imports.  For an analysis of this see our post on Ireland’s import performance from back in January.  This gives a different insight to the otherwise positive spin that has been put on our trade figures and why this drop in imports is actually bad for the economy.

Here, we will continue with some analysis of the monthly trade figures from the CSO release.

The drop off in imports since 2007 is self-evident.  The performance of our exports has been relatively stable for the five years shown, though the slight decline that was seen towards the end of 2009 has been reversed and exports in 2010 (€90.0 billion) were very slightly ahead of the those from 2007 (€89.2 billion).  A “export-led recovery” will need a bit more than a 0.9% increase in exports to make any dent on our employment crisis.

Here comes the good news again but this time in monthly figures.  Our monthly trade surplus is now up to around €4 billion a month.

As per usual it is important to consider the key sectors in our merchandise exports.  Of course, in Ireland’s case it’s actually just one sector.  With only preliminary figures available for December, data by category until November 2010 has been published and this is shown in the following graph.

Nearly 60% of Irish merchandise exports are accounted for by one category – Chemicals and Related Products – and this category itself is dominated by one sub-category – Medical and Pharmaceutical Products.  See a previous post for the the impact of the chemical and pharmaceutical sector on the Irish economy using Forfás data.

Here are our pharmaceutical exports since 2005.

It would be great if employment in this sector was also close to doubling since 2007 but it is unchanged – the same workers are generating nearly twice as many exports.  In fact, workers in the chemical sector make up about 1% of the workforce and generate nearly 60% of our trade exports.

If we take out the capital intensive chemicals sector from out export figures and see what has happened across the other sectors we do not see the “strong, resilient and robust” performance that is frequently referred to.

 

In 2007, exports excluding chemicals were €43.6 billion in the first 11 months of the year.  In first 11 months of 2010 the equivalent figure was €33.6 billion – a drop of 21.1%.  Not much sign of strength here.  The “recovery” in 2010 has seen a rise of 0.6% in these exports on the 2009 figures.

Irish export figures are been masked by the dominating effect of the high value chemical and pharmaceutical sector.  If we take this sector our (which is “booming” but has added zero jobs) our export performance is scratchy at best.  If we take this one sector out of the trade balance what do we see?

Yikes.  For the first 11 months of 2010 Ireland had a total trade surplus of €41.2 billion.  Take the impact of chemicals out of that and there was a trade surplus of only €268 million.  The trade balance in the chemicals sector is equivalent to 99.4% of Ireland’s total trade surplus.  Any chance of an extension on those patents??

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The Computer Services Sector in Ireland

After our analysis of the largest merchandise export sector (chemicals at 60% of the total) we will now consider Ireland’s largest services export sector. According to the most recent Balance of Payments data, Computer Services now account for close to 40% of our total service exports.

You can find some analysis of the official CSO data here.  The CSO data is great for the quantities but is lacking information on the impact.  To this end we have turned to the Annual Business Survey of Economic Impact from Forfás, which by value covers about 85% of our total exports (and the missing proportion is largely tourism and travel).

Here’s a run through our Computer Services sector using this data.  And like the Chemicals sector we start with the same conclusion.  Exports have increased (particularly since 2005) but direct expenditure in the Irish economy hasn’t budged.

Since 2003 exports of computer services have grown by 76.8% from €27.9 billion to €47.4 billion.  During this period direct expenditure in the Irish economy has fallen by 13.1% from €11.5 billion to €10.0 billion.

Like the Chemicals sector, Computer Services are dominated by foreign-owned firms which in 2009 accounted for 98.2% of exports in the sector.

As expected most of the contribution to the Irish economy comes from the foreign-owned sector, but this is down on the levels seen in 2001-2003 period.

The computer services sector does buy nearly €7 billion of materials a year, but the vast bulk of this comes from abroad.

Not surprisingly, these companies buy a lot of services, but unlike the Chemicals sector where only 6.4% of services are bought from Irish sources, in the Computer Services sector the purchase of Irish services makes up 41.7% of the total.  In fact, across the companies in the survey purchases of Irish services totalled €13.6 billion in 2009.  At €6.4 billion purchases from the Computer Services sector made up 47.3% of the total.

We can get some information about the purchases of these Irish services by looking at a breakdown of the type of companies buying the services.

Over half of the purchases of Irish services are by Computer Programming companies.  Computer Consultancy companies purchase the bulk of the remainder with the than 5% bought by Facilities Management companies.

Although the purchases of Irish materials and services by these companies has declined from peaks seen nearly a decade, payroll expenses have risen.

Total payroll expenses rose from €2.1 billion in 2000 to just under €3.0 billion in 2009, with most of this rise coming from foreign-owned companies.  However, this has not been because of an increase in employment.  Again we have the situation of a sector with booming exports offering no employment growth.

[Forfás do not directly provide the employment numbers.  These figures are derived from the Total Sales and Average Sales per Employee figures and are cross checked against Total Payroll and Average Payroll per Employee figures.]

Total employment was 52,800 in 2000 and had FALLEN to 49,700 in 2009.  This 5.8% drop in employment took place during the same period when exports rose by 80%.  Thus the increased payroll costs are due to increases in the costs per employee.

Average payroll costs in the computer services sector was €62,400 and unlike the Chemicals sector the cost for Irish- and Foreign-owned companies were largely the same.

What isn’t the same is the added value per employee.  There was always a gap between Irish and Foreign-owned firms but beginning in 2005, this gap has ballooned.  In 2009, foreign-owned firms had an average added value per employee of €745,000, dwarfing €104,000 added value per employee in Irish-owned firms

Here is a breakdown of added value by company type.  Can you spot the series break??

Those Computer Facilities Management workers sure are productive!!  Looking at a breakdown of exports by the type of company.

We see that, while all categories are growing, most of the growth in computer services exports is attributable to Computer Facilities Management (again with a huge jump after 2005).  This sector must be contributing hugely to the economy.  Let’s see.

Where’s the jump? Initially I thought that this graph was wrong but unless the original Forfás data is right then this is what has happened.  The the Computer Facilities Management sector exports have increased from €1.8 billion in 2000 to €16.2 billion in 2009.  This is an increase of nearly 800%.

At the same time the direct expenditure by companies in this sector (i.e. their contribution to the economy) has gone from €733 million to €810 million, a rise of 10%.  Maybe it’s worth putting these two lines on the same graph.

And  what about employment in this sector that is clearly driving our “export-led growth”?

A sector that has seen exports rise by nearly €12 billion since 2005 (our total exports were €145 billion in 2009) has seen employment FALL from 11,000 in 2005 to 7,600 in 2009.

Sometimes I’m sorry I ask myself these questions.

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The Chemical and Pharmaceutical Sector in Ireland

The CSO released the November External Trade statistics earlier today and we will consider them in due course.  The dominant category of our merchandise exports is the Chemicals and Related Products category which now accounts for nearly 60% of goods exports from Ireland.  We will use the Annual Business Survey of Economic Impact from Forfás to examine the size and contribution of the Chemicals Sector to the Irish Economy.

First up is the key graph – exports in the chemical sector and the level of direct expenditure (payroll, goods and services purchases) in the Irish economy.  Mind the gap!

In the ten years from 2000 to 2009 chemical exports, in the Forfás sample, increased from €18.2 billion to €37.7 billion, an increase of 107%.  Over the same period the direct contribution from this sector to the Irish economy from €2.1 billion to €3.1 billion, an increase of 48%.  As a percent of exports of the direct expenditure from this sector in the Irish economy is just 8.2%.  Exports can soar in this sector (and they have) but there will be little impact felt on the ground of this “export-led growth”.

Now we will work through the sector in a little more detail.  First up total sales.  There is an Irish Chemicals sector there I promise. Look closely.  Sales in 2009 from Irish-owned companies at €412 million make up just over 1% of the €39.7 billion total sales in the sector.

In fact, looking at sales is a little redundant as exports make up 96% of sales, though this figure is 57% for Irish owned companies.  The only a negligible difference between the total sales graph above and the total exports graphs below.

Although Irish firms only make up 1% of sales they do manage to contribute 7% of the direct expenditure in the Irish economy from this sector (€235 million versus €3,113 million).

Of course, there is no way Chemicals companies in Ireland can generate nearly €40 billion of sales from just €3.1 billion of inputs.  They do spend much more than than but the vast majority of it comes from abroad.  First, let’s look at materials.

Only 6.4% of the €7.6 billion of materials purchased in 2009 came from Irish suppliers.  The pattern of services purchases is not much different.

It may seem strange in a manufacturing industry that over 50% more is spend on service inputs than materials inputs but that is to forget that the most expensive input into the production of a pharmaceutical product is the cost of the patent.  Import expenditure on patent royalties has been soaring in recent years.

These companies have been using more materials and more services in the period that has seen exports rise by more than 100%.  But have they employed more workers? Erm, no.

In the period of this huge increase in exports total employment in the sector has fallen by 1,100 from 24,500 to 23,400, with most of this drop occurring in foreign owned companies.  Although Irish companies generate only 1% of sales they do provide just over 10% of the employment (2,400 versus 21,000).

The numbers might be falling but total payroll has been rising and in 2009 was up almost 60% on the 200 level – up from €1 billion to €1.6 billion.

Falling employment numbers and rising payroll costs must mean that payroll costs per employee are rising and indeed they are, particularly in the foreign-owned sector.  According to the Forfás data, the average payroll cost across all exporting manufacturing sectors was €49,800 in 2009.  The sector that ranked highest was the chemicals sector with an average payroll cost of €68,300.

But don’t feeling sorry for these chemical companies.  In the foreign-owned sector where average payroll costs are €71,200 the value added per employee (as defined by Forfás) is a staggering €934,700.  Now that’s productivity.

All that aside, the key issue remains.  Our export figures may provide the arithmetic for growth but it is likely that an “export-led growth” strategy will make little inroads into our unemployment crisis given that, over the last ten years, our most important trade export category has seen exports rise by over 100% and employment has fallen!

The Chemicals and Pharmaceutical category accounts for nearly 60% of our exports and these are generated by just 1% of the workforce.

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