Dublin Chamber of Commerce’s largest ever international business mission
Ireland’s trade growth opportunity
Ananth Krishnan, head of trade and supply chain at HSBC Corporate Bank Ireland
Ananth Krishnan, head of trade and supply chain at HSBC Corporate Bank Ireland, looks at why a recent report predicted Irish trade will grow significantly faster than the global rate.
A recent HSBC report predicted that Irish trade will grow 125pc by 2026, much stronger than the previous forecast of 76pc and now faster than the projected growth in global trade of 98pc. Growth is expected to be 4.5pc over the next five years, before accelerating to 7.2pc to 2021.
The report identified Ireland’s linkages to a number of key existing markets, such as the US, UK, Belgium, France and Germany and future growth markets, such as Saudi Arabia, Romania, China and Hong Kong. Growth in these markets will be driven by sectors such as medical products and chemicals, biopharma and agri-foods.
With everything that has gone on the last couple of years and the EU crisis still showing no signs of abating, readers are entitled to be a bit sceptical If this level of growth is possible.
A quick look back into recent history provides the answer. Ireland went through severe fiscal restraint bringing government spending down from 49pc of GDP to 39pc of GDP between the mid 1980s to the early 1990s, yet by the late 1990s and early 2000s, was the shining example of economic growth to the world thanks to its trade, industrial, tax and education policies.
Net foreign direct investment averaged $1.1bn a year between 1991-1997 as compared to $100M a year between 1986-1990.
This time around, the budget deficit has been cut from 32pc of GDP in 2010 to around 15pc after IMF-EU grants and GDP has now grown by 1pc in last 12 months.
Already, industrial production, manufacturing industries output and agricultural output have all gone up in the past year and notably, HSBC’s trade forecast has also grown on the back of a significant pick up in FDI activity in Ireland, which increased 22pc in 2011 compared to the EU average of a 3pc decline.
Ireland’s corporate tax rate does make us an attractive destination for foreign investment, but it is not the only criteria viewed by investors. The recent IMD World competitiveness index makes for interesting reading. Out of 59 economies it ranks Ireland 20th overall which is a creditable position.
However, Ireland is ranked 1st for availability of skilled labour, flexibility and adaptability of workforce, investment incentives and attitudes towards globalisation. We rank 2nd for business legislation, openness to foreign investors, for large corporations that are efficient by international standards and for adaptability of companies. We are ranked 4th for our corporate tax rate.
Clearly then, there is not one, but a number of key drivers for Ireland’s future growth. Three of these are looked at in greater detail here in the context of the report: location and demographics; opportunities in emerging markets growth; and tapping newly developed trade corridors.
Location and demographics
It is notable that Ireland is one of the few western economies that are expected to have a positive change in working population between 2010 and 2050. This key driver of growth, more often associated with emerging markets, and coupled with a well educated population, will clearly be a significant benefit to our economy.
Geographically, Ireland is also well positioned to take advantage of the growth opportunities in some of the fastest growing economies. Ireland is at the heart of Europe and is already a trade hub and a gateway to Western Europe for many multinational corporations (MNCs), particularly industries such as Biopharma and Aviation Leasing, who use Ireland as their base for global and regional distribution.
With demand in some of the developed markets drying up, these MNCs have begun to shift their focus to emerging markets. It makes logistical and economic sense for them to use Ireland as a base for expanding their distribution. Once these trade routes are established, indigenous Irish companies can only benefit.
Emerging market growth
Ireland's exports are predicted to grow at twice the rate of GDP with emerging trade routes to the Middle East and Asia of particular note. There are two key opportunities for Ireland here. The first of these is infrastructure.
Emerging markets are building their infrastructure at an incredibly fast pace. China plans to spend at least $1.3 trillion over the next five years to ease transport and freight bottlenecks, and spending on infrastructure has been increasing at 25pc per annum in recent years. India plans an investment of $1 trillion over next five years building ports, airports, roads, rail links and power generation capacity.
Latin America is hosting the FIFA world cup and the Olympics and want high speed trains connecting major cities and a vast network of highways connecting farmers and factories to ports and more.
These new markets present opportunities for producers of high-end products and services across engineering and construction. Ireland has a proven track record of building infrastructure in the form of roads, motorways within Europe and US. We have the technical expertise and the know-how to manage large projects of a complex nature and Irish construction firms are already winning a number of contracts in the Middle East and Asia.
The second opportunity is well known — food and agriculture are right at the heart of our core-competency. It is not just the growing population but the growing affluence and expanding middle classes in some of the big emerging markets that presents the opportunity. More sophisticated tastes and greater demand for quality and branded goods means that the Irish agri sector has a significant motivation to increase production and exports, especially in the post-quota era.
Ireland certainly has the necessary skills and capability to take advantage of this opportunity and we already have some outstanding examples of Irish companies who have made rapid strides to take advantage.
Emerging trade corridors
Our third growth driver revolves around emerging trade corridors. Of course, Ireland will still have significant trade flows with the US, EU and UK and must continue its focus on these markets to sustain and reap the benefits for all the hard work that has gone into developing them. However, the fact is that these economies have slowed down and will take time to recover. This is why we need to continually look for newer opportunities.
Ireland is widening its trade into the Middle East with countries like Saudi Arabia and UAE and opportunities exist with countries in Europe such as Poland, Russia, Switzerland and Romania.
Of course, at the forefront of most people’s thinking at the moment is China. Ireland was no doubt privileged to host the Chinese Vice President earlier this year as it was the only European country he chose to visit during that trip. The EU is China’s largest trade partner and some of the subsequent interactions between Irish and Chinese delegations at senior levels reflects the earnest commitment from both sides to boost trade and economic cooperation.
In summary, Ireland is superbly well positioned for growth, and the next 15 years represent an exciting period for businesses here if we take steps to capitalise on how the world is changing now.
For businesses that are looking to grow, international trade is the real opportunity. Now is the time to move and ensure that the right strategic partners are in place, learn from your peers, consider alliances and partnerships and be sure to look at your supply chain to minimise risk and maximise opportunities.