Irish economy - are there clouds ahead?

[dontaskme]

What does this say about risk of repossesions in a downturn given that it
is an overseas entity that holds the rights to an Irish mortgage portfolio?

My understanding of securitisation is that the mortgages remain on the bank´s or building society´s books, but the future cash flows generated by the portfolio go to the overseas entity.

 

[Duplex]

Intel are undertaking a strategic 90 day review of their workforce requirements, they recently announced 1,000 management job cuts. This Indo article suggests that a further 10,000 to 15,000 jobs will be cut from its global payroll. Indian media suggest that 13,000 jobs will go.

http://www.unison.ie/irish_independent/stories.php3?ca=35&si=1657133&issue_id=14391 (http://www.unison.ie/irish_independent/stories.php3?ca=35&si=1657133&issue_id=14391)


Financial Express India

 

[room305]

Well obviously they ( continual influx of temporary overseas workers ) contribute to inflation in - housing and the rental sector.

The only thing contributing to house price inflation is the mania of Irish buyers. There is no scarcity of houses and no scarcity of land.

Prices in the rental sector are deflating so your argument does not hold up here.

But i was mainly suggesting companies like Intel or pharmacuitical Co.for example, have enormous energy needs and extra demands on the water supply ...etc, Hence - recent increases to the consumer here, and more to come in the future ( are businesses paying their fair share or even the true cost of utilities ) Maybe Gov. departments should take a closer look at some Co. in the Industry sector ..etc

Energy costs are rising because the cost of generating that energy is rising. Ireland's consumption of oil and gas is miniscule in world terms so a reduction in our demand would have little global effect. Business energy costs are priced differently to residential energy costs and in the electricity sector, businesses appear to subsidise consumers.

Are you seriously suggesting it would be good for the country if we lost Intel, Dell and Microsoft etc. because the amount of energy we consume would reduce?

 

[edo]

Well, as a member that rarely seen, Highly endangered species : an employee of an Irish owned, Irish based (for the mo) high tech manufacturer which exports all its products outside the EU (North America, Japan and the Far east) , the discussion of particular interest to me.

A few observations on the last few years:

The export manufacturing industry surge that revived the irish economy in the nineties , set up the foundations of the Celtic Tiger and brought home many emigrants like myself is dying, on its knees at the moment. The large multinationals that fuelled this have already made their last serious investments in this state - see previous posters mention of intel etc etc reviewing their operations - as a somewhat industry insider - believe me - its only the tip of the iceberg.

Ireland was chosen as a destination for these companies as it was relatively low cost , low corporation tax and a relatively skilled workforce for what was required - assembly and manufacturing work - no R&D - an important point which i will come to later.

Many local small companies , like my own, were set up the late nineties to service these giants, outsourced R&d for particular projects - most of these startups were blown away in the industry recession 2000/2002 - looking at it 4/5 years later it is like walking through an elephants graveyard - We survived purely down to the fact that we quickly diversified away from the Irish based mulitnational branches and took on the world market head on, had an extremely strong product in a niche but very profitable market and an a strong R&D base (out of a workforce worldwide of 300 over 70% are in R&D) and most importantly our investors who have a long term view and the balls to support it.

All manufacturing industries are constantly in state of some degree of flux - technologies become obsolete , no longer profitable etc etc , old industries either adapt or die and are replaced. The big problem facing this country is that industries are dying, moving on and are not being replaced. This was unheard of 10 years ago. Every week more and more both domestic and foreign owned companies are shutting up shop . In our canteen every monday its like a roll call of the dead in battle as we discuss who went down the previous week. I havent done any serious statistical analysis on this , but for my own part as an operations manager and junior purchasing officer I will give you this small example.

On an average machine system we would spend approx 800,000 euros on material inputs alone , not including R/D, software and our own assembly costs. We produce approx 60 machines a year(they take 4 months to build) and they sell for 7 figure sums . In 2001 We would have spent approx 35-40% of the material cost in sourcing materials from Ireland. this year that figure has fallen to 14% and next year when we outsource the production of low skill metal parts , doors etc to Germany and Japan (those notorious low cost labour centres) that total amount we will spend here will be less than 3%.

Why??? -

A) the technology involved in the high value areas of a machine(Lasers,robots optical pieces) are simply not done here - We develop the technology we require with our partners in the US, Japan and Germany.

B) over 60% of our Irish suppliers have gone to the wall in the last 3 years, for the rest,1) they are making so much moolaa fabricating Balcony railings and other construction property related work that they have downskilled their workforces and are no longer in a position to meet our requirements 11) after much effort and expense on our behalf working with them, pulling them up to world industry standard and still getting the same crap service and excuses , we have simply given up on them and moved our business to companies that will fulfill our needs - Cost is normally one the least of our considerations - much more important is that you can produce the product consistently , show consistent improvement and be able to meet deadlines.

Im afraid in that aspect the domestic irish industry is in the dark ages , a shambles ,and the reason you werent able to deliver components on time to a production line was because the boys were on the piss for a week after Munsters victory doesnt cut much ice in Boardrooms in California or Seoul.

to summarise

Ireland is going from an average skilled economy to a low skills economy. Our productivity is falling away. We should have built on the prosperity started in 90s and seriously invested in Research and Development for the next wave and moved on up the Value food chain. We should have come up with serious financial incentives for capitalists and entrepreneurs to invest in High tech and environmental tech , which will be next big thing , and make Ireland the inventor as opposed to the hired labour in the technology game. We should have invested the resources and more importantly the brain power in developing proper infrastructure for the country - Its a joke - It takes a courier an average of 2 1/2 hours to get a package from one end of Dublin to the other on a weekday - 12 miles!

Well other countries , primarily our ever so sensible and long term thinking Scandanavian cousins have done precisely what i've outlined above - What have we done ?- pissed it all away on a consumption spurge, an inefficient and unreformed public service and the least benefical of all "investments" - property

I heard recently that a company closed down after after operating profitably for 30 years with a wealth of experience and market share built up - because the simple bricks and mortar is still worth more than all that combined - you know we are in serious trouble


later

 

[Duplex]

Edo thanks very much for that post a very interesting insight into the dwindling Irish manufacturing sector. You mention environmental technology as a area that Ireland should consider exploiting, I agree wholeheartedly. Wind turbine technology for instance, we are the best place on Earth in which to generate power from wind, now that we are building all these new houses we could make it a requirement that all new homes have a micro turbine fitted at construction, developing a domestic market and reducing or need to import energy. Government could offer some type of incentive to encourage wind turbine r&d, manufacture etc.

 

[Howitzer]

.......We should have come up with serious financial incentives for capitalists and entrepreneurs to invest in High tech and environmental tech , which will be next big thing , and make Ireland the inventor as opposed to the hired labour in the technology game. We should have invested the resources and more importantly the brain power in developing proper infrastructure for the country .......
Well other countries , primarily our ever so sensible and long term thinking Scandanavian cousins have done precisely what i've outlined above ......

You mention environmental technology as a area that Ireland should consider exploiting, I agree wholeheartedly. Wind turbine technology for instance, we are the best place on Earth in which to generate power from wind, now that we are building all these new houses we could make it a requirement that all new homes have a micro turbine fitted at construction, developing a domestic market and reducing or need to import energy. Government could offer some type of incentive to encourage wind turbine r&d, manufacture etc.

One of the world leaders in wind power is an Irish company (Airtricity).

On the other hand the contract to integrate the North and South electricity networks of the island of Ireland has been won by a Swiss/Swedish company, will be designed and built in the US and will use software provided by a Norwegian company.

http://www.abb.ie/cawp/seitp202/75af86d692f8173bc125718c00274aec.aspx

 

[room305]

Thanks Edo for that very interesting post.

The number of factories now servicing the building industry rather than a productive exports industry and successful businesses or factories closing because they cannot justify continuing trading when a comparison is made with the "worth" of the bricks and mortar in which they operate really rams home (pun unintended) the senselessness of it all to me.

Being originally from Carlow and having seen the sugar factory there close despite making €30M annual profit in what is essentially a property-play again highlights where we are headed. In Florida, they could not get the oranges off the trees because all the labourers were building houses.

Perhaps, Ireland has hit the House Event Horizon?

Many years ago this was a thriving, happy planet - people, cities, shops, a normal world. Except that on the high streets of these cities there were slightly more shoe shops than one might have thought necessary. And slowly, insidiously, the number of the shoe shops were increasing. It's a well-known economic phenomenon but tragic to see it in operation, for the more shoe shops there were, the more shoes they had to make and the worse and more unwearable they became. And the worse they were to wear, the more people had to buy to keep themselves shod, and the more the shops proliferated, until the whole economy of the place passed what I believe is termed the Shoe Event Horizon, and it became no longer economically possible to build anything other than shoe shops. Result - collapse, ruin and famine. Most of the population died out. Those few who had the right kind of genetic instability mutated into birds who cursed their feet, cursed the ground and vowed that no one should walk on it again. -- Douglas Adams, The Restaurant at the End of the Universe

 

[shnaek]

Well other countries , primarily our ever so sensible and long term thinking Scandanavian cousins have done precisely what i've outlined above - What have we done ?- pissed it all away on a consumption spurge, an inefficient and unreformed public service and the least benefical of all "investments" - property

Great post, Edo. I have never been able to understand why our government pisses away so much money on consultants and studies when all they have to do is look abroad at the countries that are getting it right (eg. our Scandanavian cousins) and copy them. I would be afraid to long-term commit to Ireland at the moment.

 

[Askar]

What availability does a micro turbine in an urban estate have? What do you do on a cold winters night when no wind is blowing, and you need light and heating?

As a conventional turbine in a good wind area will do well to achieve 40% availability (whereas a modern combined cycle gas turbine will have a 90% availability), I think all these fuzzy green notions need to be exposed, just like the concept of moving up the value added chain. Are the engineers and scientist graduating in vast numbers from the low cost economies in China and India less intelligent than Irish graduates? Are Asians less Entrepeneurial and hard working than the Irish? Edo, I think you have answered the last question.

 

[Howitzer]

What availability does a micro turbine in an urban estate have? What do you do on a cold winters night when no wind is blowing, and you need light and heating?

As a conventional turbine in a good wind area will do well to achieve 40% availability (whereas a modern combined cycle gas turbine will have a 90% availability), I think all these fuzzy green notions need to be exposed

See what you do then is link your turbine into the grid and buy when you can't supply yourself and sell when you've an overcapacity.

Similarly on a larger scale windfarms link up with other windfarms across Europe (preferably on an east/west axis to avail of time differentials) so your 40% availabilty goes up towards 90%. Easy peasy. You just need people to link up the networks. Oh wait, they already are ........



An Irish company too!

 

[Duplex]

What availability does a micro turbine in an urban estate have? What do you do on a cold winters night when no wind is blowing, and you need light and heating?

As a conventional turbine in a good wind area will do well to achieve 40% availability (whereas a modern combined cycle gas turbine will have a 90% availability), I think all these fuzzy green notions need to be exposed, just like the concept of moving up the value added chain. Are the engineers and scientist graduating in vast numbers from the low cost economies in China and India less intelligent than Irish graduates? Are Asians less Entrepeneurial and hard working than the Irish? Edo, I think you have answered the last question.

First time I've been called green, (or fuzzy for that matter). I think that current development in sustainable energy technologies is in some way 'symbolic' a gesture rather than an earnest attempt to replace fossil fuels. However there is a market for alternative energy sources and the market will grow.

 

[Eurofan]

Edo thanks for such a detailed and thoughful post, it's a fascinating insight into homegrown industry or rather the lack thereof.

I was particularly interested in the comment about difficulties with suppliers since they, amongst other things, are "making so much moola fabricating balcony railing" etc.

Similarly the notion that long-standing and otherwise capable businesses are giving up due to the development value of the land under them is a scary prospect (petrol stations anyone?).

If we're not quite over the House Event Horizon (brilliant room305!) then we are certainly very close.

For such a small nation once a construction slowdown, never mind crash, materialises the knock-on effect on both the exchequer and the economy in general will be very tough. The timing, higher energy prices/rising interest rates and slowing global economy, couldn't be worse.

 

[conor_mc]

Great post Edo.

It makes you think though that a property bust sooner rather than later would be a very welcome thing, before we've lost all semblance of a manufacturing industry. At least if it happens sooner, what little manufacturing capacity remains can re-gear themselves for other markets before they've all sold up due to the "bricks and mortar" being worth more than the business itself. Hopefully it will happen before a global recession so that the manufacturing industry gets a chance to re-build some of its capacity, skill-set and reputation.

 

[edo]

Hi Autumn Leaf

getting back to your original questions:

Do you think the Irish Economy is heading for a meltdown?

Well - thats the million dollar question and really is a matter of what perspective you choose to look at it from and the timeframe you are talking about

It really comes down to where you earn your daily bread. If you are a public servant - no worries mate - I'll be iceskating in Hell before Fianna Fail will start laying off civil servants and there'll be a lot more of them before this election cycle is over guaranteed.

the private sector:

if like myself ,you are in manufacturing and you're still hanging in there despite this government doing everything in its power to put you out of business - things are starting to look up - companies worldwide are starting to spend capital money again after 5 lean years after the dotcom meltdown. However its a changed world ,and nobody is throwing silly money around apart from Irish property investors. As I said earlier the indigenous Irish manufacturing sector is extremely weak , almost totally devoted to servicing the property monster.

Exports , well 87% are producted by a handful of multinationals and the exchequer sees precious little of that apart from income tax paid by the thousands of people employed by them - depending on what timeframe you are taking - the multis will be on their way to pastures anew - it wont be all of sudden - Jeez if it is - may the lord have mercy on us all - but they will slowly shift their human resources to more profitable sites over time , leaving hollowed out entities here to take advantage of our favourable corporate tax rates - that is, if the rest of Europe will still put up with us tax dumping and the IRS in the US isn't looking for a bit of extra funding for Mr Bushs deficit bonanza - 2 big buts

Services outside property are almost entirely devoted to the multi's and the public service so if they start to wind down and tax receipts decline you will see a reflection of that.


Agriculture -

again another 2 speed sector - those farmers large enough and the Agribusiness will do ok - commodities are much in demand and if the Doha trade round doesn't descend into complete anarchy and tariff mania there is good business to be had with the Far and Middle east - for the rest - well most farmers are resigned to being welfare junkies with a nice side in real estate and some artisan gear for the foodies - but I think outside the the greater dublin area and the other major commerical centres - tough times lie ahead - there is no plan bar relocating pissed off civil servants to try and compensate for the reduced handouts from Brussels.


then we come to the "Biggie"

the elephant in the room so to speak

If you are part of the giant pyramid scheme that has taken over the nation called property(EA, banks, auctoneers,dodgy plumbers and assorted cowboys , bouncy castles etc) you should be good for next 2 years at least - that monster stampede has still got lots of legs in it yet - however when it does turn - as it will unless we are living in a parallel universe where the laws of economics have been totally turned on their head - all I can say , having begun my productive working life in Japan in the early nineties , is you sure better have a fast horse or SUV with the engines warmed up because it's not going to be pretty - forget about all that soft landing nonsense - we flew through that junction years ago .

Im not going to go into great detail into the Irish nations psycotic fixation with the accumulation of badly built houses in dead end estates - this site has more than enough of that already. All I will say is that the whole property explosion has completely masked the true economic condition of the country over the last 10 years.

Our wealth has not increased dramatically due to the usual way ,ie hard work ,producing and selling useful expensive stuff to foreigners, and then spending the proceeds in our own nation - most of the proceeds of our exports ends up far way in more tax friendly climes . Collectively We have gone out and borrowed , borrowed , borrowed to fund the current "boom" (well , to do the monty python thing - except me! - 3 years living in deflationary Japan engenders a certain feeling of profound disquiet when every eejit ya meet on the street these days is a flipping property tycoon and a total expert - prices can only up didn't ya know - Jeez we should find the source of this gravity defying matter , bottle and sell it and our collective economic anxietes would be banished forever. I could say "lemmings" but hey.....

2) Is there anything that can be done on a large scale...........

Well yes and no (another non-committal - there is definitely political potential in ya yet Dude!)

All of which you mentioned is on the money - with certain caveats to whether it can be done politically or in relation to our membership of the Eurozone.

The large scale things that could be done , if we still controlled our own economy - which we dont - WB Yeats hasn't been seen in a long time - would be monetary - interest rates , public funding and the like - however as we are now 1% of the economy of the land of Eurozone and like it or not that is the way we will be treated - if our interests coincide with those of Germany and to a lesser degree , France - party on Dude - If they dont , well dont say you weren't warned and go to your room.

the Government still has control of Taxation (for the moment) and can offer public funding , under strict guidelines from Brussels , whose competiiton authority frowns on such activites and when it comes to strict free trade practices makes the US Congress look like a Warsaw pact love in.

Contrary to the various opinions expressed here , the Irish economy is not that fleet footed nimble beast she once was - all this rich lifestyle recently has had an effect.

Infrastructure , diversifying the industrial base , a proper engagment with the small businesses and a proper entrepreunarial set up will take lots of time, patience and resources and I mean lots - it will also require a new mind set and attitude from the people of this nation - a capability that I have profound doubts about.

When I returned here in late '99 after 8 years away in which I didn't return once - the mother has never forgiven me - after having been seduced, yes I think that is the correct word , by Irish goverment and all the great stories coming out of the place I kind of expected to arrive back in a country transformed and high tech and modern. Boy, once the novelty of being back has worn off , did I get a comedown.

Yes Superficially the country had an new air about it , people had jobs ,the consumer splurge had begun and it appeared that this was a bright new Ireland for everyone - but when you did a little deeper that facade wears off - on top of the solid foundation of the decisions made in that crucial year of 1987 - where to paraphrase Winstons Churchills remark about the Americans , our body politic finally did the right thing after exhausting all other options - we had basically won the lotto twice , first the biillons pouring from Brussels were finally having a postive effect and secondly the adoption of the euro released a cascade of easy money into the Irish economy - we should have been planning ahead and used this unexpected windfall to secure our futures and build on the splash we made on the world economy at this time .Instead like all receiptents of easy money , we went mental - spending on all those luxuries we were denied in the hard years . The next chapter in our economic history will be the most challenging yet , and we're on our own, no more bailouts from Brussels , We ll have to manage our own financial affairs from now on.

Well whats done is done

turning around an economy is like trying to turn around an ocean liner - its hard enough when everybody on board can see the rocks - it will be extremely challenging given the condition of the good ship Ireland Inc - with most of the guests still at the party and the captain and crew as drunk as lords at the wheel .

Anything worth doing will have be long term - well thought out and tough decisons will have to be made - something which the current Irish political establishment and the Irish public in general are allergic to - oh for a latter day TK Whittaker and Lemass .

any investment in infrastruture will have to be long term and maintained over a long period financially - given Bertie's addiction to seeing good his friends in the Unions and other vested interests I wouldn't be holding my breath - The cleverest politician of his time is just that - a politician - he measures time in electoral cycles - and the electorate , without wishing to appear elitist (Me -God Forbid) only counts the money in their pockets not in a salary check a decade hence and we are still, I believe, very immature when it comes to choosing our political masters and their policies . Is there something genetic in us that makes us celebrate the "stroke" ,the cute hoer mentality with getting something for nothing or very easily ? A discussion for another day maybe.

Good God is that the time!!! - Im done (Thank Christ the entire forum says in unison!) - if you deciper any thing of interest , value or otherwise out of the above ramblings, dreadful punctuation and brutal grammar - Fair play to ye.

Im off to watch the golf and have beer and cry in it when Harrington Breaks me heart (and me wallet) yet again.

Adios Amigos

Ed

 

[joe sod]

Excellent post Edo its not often you see someone going to the effort of posting such a thought provoking article. Its also unique to hear from someone who is really at the coalface of the irish economy. I would hate to be someone leaving school in ireland now. Everything looks so rosy to them but I think they will get it very hard.

 

[joe sod]

On a completely different note in relation to money wasting in government. I was totally shocked to hear that the tribunal into the Abbeylara shooting cost 18 million and took 4 years. At the end of it all they came to the conclusion that the gardai were negligent. I think it was pretty obvious from watching the news after the incident that this was the case. Who in the public service is watching over taxpayers money. The government allows these tribunals to run and run with no consideration for costs. Barristers and solicitors are allowed charge what they like. It is pretty obvious that an awful lot of foot dragging is going on.It appears that the legal system in this country needs a thorough shake up. However no one in government or the public service has the guts to do it.

 

[thewatcher]

edo,probably one of the best posts on this site,EVER !.

 

[room305]

I would hate to be someone leaving school in ireland now. Everything looks so rosy to them but I think they will get it very hard.

Yeah, it'll be like the bloke who knows he is going to be late for a party but can't get off work early. All night his mates are ringing, screaming down the phone "Jaysuz, it's deadly, come on!".

Finally, work ends and he gets ready in double quick time and pegs it to the party, bursting in the door, ready to let loose. Only by that time anyone not passed out is busy getting sick and the place is absolutely trashed.

Written in large letters on the fridge is our motto for future generations: "You clean it up."

Still while the party is raging it is futile to point to mess being made or mention the inevitable hangover that will succeed it.

Great post Edo, fantastic insight into modern business in Ireland.

 

[CelloPoint]

Excellent post Edo its not often you see someone going to the effort of posting such a thought provoking article. Its also unique to hear from someone who is really at the coalface of the irish economy. I would hate to be someone leaving school in ireland now. Everything looks so rosy to them but I think they will get it very hard.

I would hate to be 25 - 30 and have a 35 year mortgage in Ratoath right now! At least you can just up and leave when you've no committments... (Up and leave is exactly what I'll do if things go pear shaped - I'm already making precautionary arrangements).

I work at 'the coal face' of the Irish economy too I guess, in that I'm working as an engineer in a multinational. I can see the operation being moved to pastures greener in the not too distant future. The process has begun already (100 jobs transferred to Croatia last year), although the management are maintaining an artifical upbeat position.

 

[joe sod]

"although the management are maintaining an artifical upbeat position."

Id say the management of this country will also be maintaining an artificial upbeat position for a long time yet