ECONOMICS:Exports are the only credible strategy for growth but success is not assured. Ireland has to focus on costs and on newer markets, writes ANTHONY FOLEY

EXPORTS ARE the only credible source of reasonably high Irish economic growth for the next few years. Consumer demand will remain weak because of low disposable income, while government demand will decline as expenditure is reduced. Investment demand will also experience low growth despite a recovery from 2012.

There are no possibilities of building sustainable growth on consumers, government or investment demand.

Current Government economic projections predict a GDP volume growth of 11 per cent between 2010 and 2014. Export volume is expected to grow by 20 per cent while consumption will grow by only 4 per cent. Government demand will decline by 9 per cent and investment demand will increase by 9 per cent.

The IMF expects Irish export volume to grow by 15 per cent in the same period. Some forecasters believe the Government GDP growth projections are optimistic. The EU predicts an Irish GDP growth of 2.8 per cent for 2011 and 2012 compared to the Government’s 5 per cent. However, both expect export growth to be similar, 9 per cent according to the EU and 10 per cent in the Government’s estimation.

In the five years before the economic collapse in 2008 (2003-2007), consumption volume grew by 26 per cent and export volume grew by 28 per cent. In the first phase of the Celtic Tiger (1995-1999), export volume grew by 88 per cent compared to consumption growth of 35 per cent.

A return to 1990s-type export performance would obviously significantly boost overall economic performance. Current Government expectations for exports are lower than the five-year pre-collapse performance and lack ambition compared to the 1990s experience and our future needs.

Of course, the current export environment is different to that of the 1990s. Our main markets are growing more slowly and Irish costs are higher.

An awareness of certain features of our export structure is necessary before considering more ambitious export targets. Irish export performance is dominated by the multinational sector.

While there are notable local or indigenous export successes such as Ryanair, the horse-breeding industry, food, alcohol, tourism – up to the economic collapse – and aviation services, the overall indigenous contribution to exports from Ireland is small.

In 2009, the branch plants of multinationals in Ireland accounted for 88.4 per cent of Ireland’s manufactured exports and 94 per cent of international services exports (as defined by the development agencies). Indigenous firms accounted for only 11.6 per cent of manufactured exports and 6 per cent of international services exports totalling €11.5 billion, compared to €114 billion from multinational enterprises.

Ireland’s reputation for high technology exports is due almost exclusively to the multinational sector. In 2009, 99.5 per cent of Ireland’s chemical exports and 96.2 per cent of computer, electronic and related products were from the multinational sector.

Ireland’s excellent export story and performance is linked firmly to its success in attracting foreign direct investment. Given the current export role of the multinationals, a strong export performance in future years could not occur without their continuing significant and growing presence. Much of an Irish export strategy is actually an “attraction and retention of multinationals” strategy.

The recent Government document, Trading and Investing in a Smart Economy, includes a target to increase the exports of agency- assisted indigenous firms by 33 per cent by 2015. The starting date is not given but appears to relate to 2009.

Between 2001 and 2007, indigenous exports increased by 33 per cent. In the six years to 2008, they increased by 30 per cent. The 33 per cent target does not appear to be particularly ambitious in light of our current economic woes.

Ireland has lost market share in world merchandise exports and gained share in services exports. In 1999, Ireland was ranked 21st of the world’s merchandise exporters with a market share of 1.3 per cent. In 2009 this had dropped to 31st, with a share of 0.9 per cent.

On the services front, Ireland’s placing was 24th in 1999 with a share of 1 per cent; by 2009, we had risen to ninth with a share of 2.9 per cent.

Unfortunately, our exports are not well positioned from a geographic market perspective. Our main markets are the UK, the rest of the EU and the United States. We are well established in these markets and have what might be described as a “mature” share.

However, these markets will grow relatively slowly compared to newer markets such as the Bric countries (Brazil, Russia, India and China) in which we have a relatively small presence.

Ireland is relatively attractive for non-EU multinationals seeking to supply the EU (from within), other European countries and adjacent markets. Ireland is not necessarily a good location for a US multinational to establish a presence to supply India, China or Brazil. This concern would be less for services than for manufacturing.

Ireland’s service exports in 2009 were €66.6 billion. of which €1.512 billion went to China. Brazil purchased €211 million, India €518 million and Russia €964 million.

In the same year, total merchandise exports were €83.5 billion, of which €161 million went to India, €2.407 billion went to China and €345 million to Russia.

Just because exports are the only credible growth strategy over the coming years does not imply that success is guaranteed. We must be more ambitious in our export aims, despite the very real difficulties as identified above.

The possibility of success will demand the continuing retention and attraction of multinationals, a substantial improvement in indigenous export performance, a new geographic focus, an increased understanding of services and a serious drive to enhance competitiveness, including both cost and non-cost factors and especially Government imposed costs.

The National Competitiveness Council and the Government’s trading and investing report have identified many of the requirements. Serious intent and effective implementation are required.

Anthony Foley is a senior lecturer in economics at DCU Business School