As the legend has it, in 5th century Ireland St Patrick drove all the “snakes” out of the country, an allegory for pagans. This St Patrick’s Day, the Irish government has much to celebrate: with a high ranking of 7th in our 2050 Index, the nation is strong in knowledge and demography, and is enjoying rapid economic growth. However, there remain some “snakes” to drive out in the form of weak innovation and a Brexit serpent on the horizon.
After its terrible nosedive during 2009, the once-lauded Celtic Tiger bounced back faster than its eurozone partners and its economic fundamentals are among the strongest of all the nations studied in the 2050 Index. With light-touch regulation and low corporation tax, foreign investment is a major asset for Ireland. Thanks to EU and euro membership and well-educated workers, Ireland provides a good base for export of goods and services across Europe. Despite a European Commission crackdown on Apple led by Margrethe Vestager, technology companies such as Intel, Google and Microsoft all still invest heavily in the nation, reinforcing Ireland’s strong levels of trade, the second highest in the 2050 Index.
The knowledge economy of Ireland is also highly attractive. More than half of workers have a tertiary education, and above average education and training overall helps Irish workers be more productive than their British counterparts.
A large spanner has, however, been thrown into that comparison: Brexit. First, the 15-20% devaluation of the pound sterling against the euro since June 2016 has hit profit margins hard for all Irish exporters to Britain, bringing especial pain to the Irish food industry: more than half of Irish beef exports head to the UK, for example. The UK is Ireland’s second largest trading partner after the United States, taking 14% of the country’s exports.
Second, with Britain now likely to be leaving the EU single market and customs union, new barriers and transaction costs are going to be faced by Irish exports to the UK, but the size and nature of those barriers remains uncertain. This is particularly problematic for relations with Northern Ireland, which in recent years have benefited hugely from the dismantling of all border controls.
Thus, despite Ireland’s economy growing 5.2% in 2016, the fastest in the EU, the Central Bank of Ireland is voicing pessimism about growth in the year ahead, continuously cutting its forecasts since the vote for Brexit.
On the other hand, English-speaking business-friendly Dublin could attract financial firms wishing to jump ship from the City of London, as the finance minister predicts. Could the historic nationalist saying: “England’s difficulty is Ireland’s opportunity” ring true for Brexit in this respect?
Ireland luckily does not suffer from demographic problems of the severity faced by other European nations. Spending less than half the amount as a percentage of GDP as Belgium on public pensions, with one of the highest fertility rates of any wealthy nation and with open immigration policies, the demographic outlook is positive.
There remain concerns and challenges for Ireland in other areas. Whilst foreign technology firms are commonplace, home-grown innovation is scarce. Patent applications running below the OECD average and low R&D spending mean Ireland could be unhealthily reliant on foreign investors bringing their own technology and development – which also makes it vulnerable to EU-enforced corporate tax reforms.
Nevertheless, there is a lot for Ireland to be optimistic about this St Patrick’s Day. Ireland has no native “snakes”, has dealt well with the viper attack of its 2008-09 property crash, and has proved pretty good at keeping other reptiles at bay.
By Max Traeger | 17/03/17
Edited by Bill Emmott