The Economy April 2012

Size: 70,282 km 2 Population: 4.5 million GDP: €161bn GDP per Capita: €36k ―Eurozone Average = €28k Exports: €161bn Imports:€123bn English Speaking Currency: Euro EU Member Population 500m 28% of world GDP Ireland – The Basics

Ireland’s underlying strengths Ireland ranks 10th out of 183 economies in terms of ease of doing business, making it the highest ranked euro area country, and the third highest-ranked country in the European Union.* According to the World Competitiveness Report 2011 Ireland is…. 1st for helpful corporate taxes 1st terms of attractiveness for foreign investors 1st for availability of skilled labour 4th for labour productivity 5th for overall productivity 4th for exports of commercial services 6th most attractive place in the world for researchers and scientists 8th for percentage of population with 3rd level education 3rd in the world for the number of patents in force *World Bank’s 2012 Ease of Doing Business Index, World Competitiveness Yearbook 2011

The Entrepreneurial Island Ireland has a high rate of entrepreneurial activity Ireland ranks 2nd of 13 EU-15 countries for early stage entrepreneurs and 4th of 13 EU-15 countries for established entrepreneurs. Established Entrepreneurs as a percentage of population Ireland 8.6% OECD average 6.8% Australia 8.5% US 7.7% UK 6.4% Israel 3.1% Irish entrepreneurs are the most innovative of advanced economies, offering innovative and novel products and services to global consumers 64% of early stage businesses set up in Ireland have an international orientation (i.e. are exporting); above the rate in Germany, the UK and the majority of other advanced economies. Source: The Entrepreneurship in Ireland 2010 Global Entrepreneurship Monitor 2010 and Global Entrepreneurship Monitor, 2010

The Entrepreneurial Island The 2009 Index of Economic Freedom ranks Ireland 7th in the World and 1st in Europe. (Heritage Foundation and Wall Street Journal) International recruiters believe that Ireland produces the most highly- employable graduates in the world (2010 European Commission study of third-level education) Ireland ranks fifth in the world for protecting investors and seventh for creative products and services and export earnings of creative industries. (Global Innovation Index Report ) Start-ups do not pay tax on any profits made in the first three years Significant R&D tax credits are available which can be carried forward in future financial years Tax write offs for the capital cost of acquiring qualifying Intellectual Property assets

The Irish Economy in Perspective Explaining….. The history of industrial policy Ireland’s Rapid Growth from the mid-1990s Economic downturn: Collapse of a Housing Bubble Economic recovery: Government Policy Export led recovery: The role of Enterprise Ireland

Ireland – Industrial Policy 1922 – 1960 Agrarian economy; 50% of population involved in Agriculture Economic War with Britain Protectionism; restrictions on foreign ownership of Irish companies, high tariffs on imported goods. 1950s: Move away from protectionism 1960 – s: Free 2 nd level Education Free Trade & FDI encouraged 1973: Entry into EEC 1980s: High Unemployment & mass emigration. Mid 1980s: Let dying firms disappear 1987: Tallaght Strategy led to economic reform focused on deficit reduction 1990 – mid 2000s Celtic Tiger Investment in education & increased female participation Social Partnership EU structural Funds: €10bn EU investment in infrastructure Low corporate tax rate to attract FDI High-tech export focused enterprise base

Ireland’s Rapid Growth…… MAY 1997

Explaining Ireland’s Rapid Growth… Costs were competitive; Successfully attracted foreign direct investment; Infrastructure investment, with EU assistance; Reforming the tax system to promote growth and employment; Pro-enterprise culture; Favourable demographics & investment in education and skills; Social partnership approach to economic development Innovation and R&D Participation in EU / EMU.

Explaining Ireland’s Downturn….. Lost competitiveness slower export growth Shift in drivers of growth: away from exports towards domestic demand Domestic demand driven by a housing boom house building reached unsustainable levels employment in construction unsustainably high living standards were artificially inflated Unbalanced growth International Financial Crisis Irish Banking Sector very exposed to Construction Industry

External Assistance Joint EU / IMF assistance programme… Up to €85 billion of financial support available: Based on strong conditionality drawn from Ireland’s own Programme Key objectives: Return our economy to sustainable growth Fiscal consolidation Ensure that we have a properly functioning healthy banking system Main elements of strategy: structural reforms to raise growth potential ensure fiscal sustainability through fiscal consolidation and reform restore financial stability Programme is on track: Troika have concluded five quarterly reviews External funding partners: ‘Policy implementation has continued to be strong’

Government Strategy for the Recovery of Ireland’s Economy.. The economic strategy of the Irish Government is based on 3 essential elements: Correct Public finances - reducing the interest rate for Government debt by cutting the government deficit and reforming the public sector Repair the banking sector - building the banking system’s capacity to extend credit into the economy The Action Plan for Jobs - increase the number of people at work in Ireland by 100,000 by 2016

Restoring sustainability to public finances and improving employment Irish Government fully committed to: reducing deficit below 3% of GDP by end-2015 was 31.3% in 2010*, 10% in 2011, forecast at 8.6% in 2012 The stock of total public debt is expected to peak at 118% of GDP in 2013 before declining to 112% by Reforms to enhance competitiveness and support growth and job creation are moving forward: The Governments Action Plan for Jobs 2012 aims to create an additional 100,000 jobs by 2016 *Including banking support

Repairing the banking system Banks are following deleveraging plans agreed as part of the Programme Loan to deposit ratios are improving, largely as a result of deleveraging The IBRC (Irish Bank Resolution Corporation) and NAMA continue to manage down their balance sheets through selected asset disposals

Recovery in a small open economy… Source: Department of Finance As a small open economy, the sequencing of recovery in Ireland can be categorised into 5 phases. In terms of the current juncture, the Irish economy appears to be between Step 1 and 2.

The importance of Exports in a small open economy Due to the small size of Ireland’s domestic economy, Irish companies must export to create sustainable employment and wealth creation at home. EMPLOYMENT Exports and Tourism directly account for over 25% of employment in Ireland. GENERATING INCOME Exporting companies spend approximately €38bn in the Irish economy annually while tourists generate revenue of over €4.6bn on an annual basis. Together this totals approximately 27% of Ireland’s GDP.

Source: IMF World Economic Outlook April *Forecast World Growth Rates Growth prospects for Ireland’s main trading partners revised downwards in 2012… *2013* US Eurozone UK China Japan Russia Brazil India Ireland

Ireland Remains A small island punching above its weight globally 2nd Largest exporter of Infant food in the world behind the Netherlands (Source: Largest exporter of Cider in the world – Korea is a distant 2nd (Source: 6th largest exporter of beef in the world and 2nd in Europe after the Netherlands. (Source: 15% of the world’s infant food exports come from Ireland (Source: 7 of the world’s top 10 aircraft leasing companies are head quartered or have a significant presence in Ireland. 50% of the world’s leased aircraft are estimated to be managed from Ireland. (Source: €1.9 trillion euros in funds administered from Ireland 50% of world’s leading financial services companies based in Ireland (Source: Irish Funds Industry Association) Ireland ranks 9th worldwide in the 2012 Global Cleantech Innovation Index and 4th for the commercialisation of cleantech innovation (Source: The Global Cleantech Innovation Index 2012, cleatech group llc and WWF) The FAO Statistical Yearbook

Enterprise Ireland Clients account for: Exports: Total Exports €13.9bn, Sales €29.6bn (2010) Jobs Direct Employment 141,228 (FT) & 21,464 (PT); Indirect Employment 100, % jobs outside Dublin; Spend in Ireland Annual spend c €17.6bn in Ireland: €5.5bn payroll, €8bn raw materials & €4bn services Similar to FDI Sector

Enterprise Ireland Client Exports recover to 2007 levels (€Bn) Client Exports 2010 € Billions Source: – ABSEI

Growth in R&D performance of EI client companies €100k R&D Spend €2m R&D Spend Source: ABSEI 2010