Economic Consulting

Irish Construction

and Chemical

Sector Analysis Research Methods

Stephen Denham

1/1/2010

Table of Contents

1. Introduction ........................................................................................................................1

2. Methodology........................................................................................................................1

3. Building and Construction Industry in Ireland .................................................................1

a. Recent Developments .....................................................................................................1

b. Contribution to GDP and GNP ......................................................................................2

c. Inflation of House Prices ................................................................................................3

d. Social Changes ...............................................................................................................4

4. Chemical Industry in Ireland .............................................................................................4

a. Major Transitions in Sector ...........................................................................................5

b. Concerns in the Media ...................................................................................................7

c. Social ..............................................................................................................................7

5. Comparison with Another EU Country - Germany ...........................................................7

a. Building and Construction .............................................................................................7

b. Chemical .........................................................................................................................7

6. Predictions ..........................................................................................................................8

a. Building and Construction .............................................................................................8

b. Chemical .........................................................................................................................8

7. Conclusion ..........................................................................................................................9

8. References .........................................................................................................................10

1

1. Introduction

The Irish economy has been through many highs and lows in the last thirty years. These

changes have had a huge bearing on culture and the type of country Ireland aims to be. As the

economic downturn may be easing off, there is time now to reflect on what works and what

doesn’t.

This report analysis the construction and chemical industries in Ireland since the nineteen

eighties, and compares contrasting performances. It looks at a number of topics to get a full a

picture as possible. There are clearly very different in their inherent nature, but also in how they

have changed. The report also contrasts Ireland to another EU country, Germany to gain

another perspective of how the global economic downturn affected a more stable economy.

2. Methodology

The report was compiled based on research of a number of different methods. A large body of

quantitative data was extracted from the Central Statistics Office of Ireland’s public web

database. Periodical articles were researched to gain an understanding of the public perception.

Expert analysis was also sought through an interview with Frank Barry of the Trinity College

School of Business.

3. Building and Construction Industry in Ireland

a. Recent Developments

Construction has been the hot topic in Ireland in the last two years. Ireland’s economy became

too reliant on it in recent years and it was ultimately, unsustainable. The national accounts

became dependent of properly taxes which have now fallen through (BBC, 2008).

Figure one is a good indication of how during the boom years, unemployment dropped

dramatically. Figure two shows the employment in construction since nineteen eighty. It is

interesting to note that employment in this sector was strong in the nineteen eighties, even

though the economy was slow at the time.

2

(CSO, 2010)

(CSO, 2010)

b. Contribution to GDP and GNP

Figure three and four show the portion of Gross Domestic Product and Gross National Product

which was due to the constuction industry between two thousand and five (2005) and two

thousand and nine (2009).

0

2

4

6

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16

181983

1984

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2000

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2005

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2007

2008

2009

Fig 1. Seasonally Adjusted Annual Average Standardised

Unemployment Rates

%

Year

0

20

40

60

80

100

120

140

160

180

1980

1981

1982

1983

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2005

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2007

2008

Fig 2.Annual Average Index of Employment in Constuction

Year

Base 2000

=100

3

(CSO, 2010)

c. Inflation of House Prices

Figure five shows how near the turn of the century, house prices began to spiral upward, just

until two thousand and seven (2007) when the economic bubble burst.

(CSO, 2010)

020000400006000080000

100000120000140000160000180000200000

2005 2006 2007 2008 2009

Year

€million

Fig 3.Constuction's Contribution to

Gross Domestic Product

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

2005 2006 2007 2008 2009

Year

Fig 4.Constuction's Contribution to

Gross National Product

€million

0

50000

100000

150000

200000

250000

300000

350000

400000

New House Prices (Euro)

Second Hand House Prices (Euro)

Index

Year

Fig 5.Average Price of Houses Nationally

4

d. Social Changes

The bursting of the construction industry bubble has had major social effects in Ireland.

After the crash, a large amount of houses are unsalable or left incomplete in new suburban

towns. An estimated thirty five thousand (35,000) new homes are vacant. These areas have

become known as ghost towns (Oliver, 2010).

The other side to this is that these houses may be made available to people on the edges of

society. The following graph shows the increase in social affordable housing.

(CSO, 2010)

4. Chemical Industry in Ireland

The most significant part of the chemical industry in Ireland is pharmaceuticals (pharma). It

began in the nineteen sixties (1960). Back then, it was involved in producing ingredients for

other countries to process to the final product. Now the industry has evolved into a pillar of the

Irish economy.

Pharma is now the largest contributor to corporate tax (three billion annually)

Ireland is the second largest net exporter of pharmaceuticals in the world, contributing to

nearly half of all Ireland’s exports

Twenty four and a half thousand (24,500) are directly employed by the industry

0

5000

10000

15000

20000

19941995199619971998199920002001200220032004200520062007

Fig 6.Households Assisted through Social and Affordable

Housing Measures

Year

Numberof

Houses

5

(Irish Pharmaceutical Healthcare Association, 2010)

a. Major Transitions in Sector

As seen here in figure seven, since the late nineties, the value of the goods produced by the

sector has increased rapidly. Figure eight shows that the number of persons engaged in the

industry has not increased by the same amount. This demonstrates part of the shift to more

high-end of the market and higher value creation (Barry, 2008). Although there has been

significant growth in this sector, it is not nearly enough to fill the void left by the collapse of the

inflated construction industry (Frank Barry, 2010).

(CSO, 2010)

0

50

100

150

200

250

300

350

400

450

1980Q

1

1981Q

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1982Q

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1983Q

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Fig 7.Chemical Production Value Indices

Base 2005

=100

Year

6

(CSO, 2010)

Chemicals were also the highest valued type of product Ireland in two thousand and nine

(2009). Basic pharmaceuticals were the fourth most valuable. This again reinforces the fact that

although the chemical industry does not employ on the same scale as construction, is still

produces highly valued assets.

(CSO, 2009)

0

5

10

15

20

25

30

1995Q

1

1995Q

3

1996Q

1

1996Q

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1

Fig 8.Persons Engaged by Industry

'000

Years/Quarters

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

Fig 10.Total Value of Products manufactured in Ireland and sold - 2009

EUR '000

Industry

7

Ireland has become an extremely attractive location for large pharmaceutical companies. This is

due to our highly skilled work force and low corporation tax (Barry, 2008).

b. Concerns in the Media

The media raised concerns recently after Pfizer cut seven hundred and eighty jobs the Irish

plant (Gumuchian, 2010), though according to Frank Barry of Trinity College Dublin, this was

simply part of the expected restructuring of the company after its high profile merger with

Wyeth(McGeehan, 2009). According to Barry, Ireland lost relatively few jobs in this move

compared to the size of the global restructuring.

c. Social

There are risks involved in Ireland having a large chemical industry. Such large plants can

cause pollution the environment. There have been incidents of this in the past (Deegan, 2009).

5. Comparison with Another EU Country - Germany

When Ireland is compared to Germany there are many similarities, but also many differences.

Thirty seven of the world’s largest five hundred corporations are registered in Germany. These

are typically organically grown German companies. This is in contrast to the two Irish registered

companies, CRH (which is organically Irish) and Accenture (which simply benefits from Ireland’s

low corporation tax) (CNNMoney.com, 2010).

a. Building and Construction

In stark contrast to Ireland, Germany’s construction industry is one of its most stable economic

sectors. Ireland’s construction industry was centrally focused on the domestic housing market,

while in Germany it has closer links with the manufacturing industry and production of building

materials (Portal, 2010b).

The construction industry in Ireland was inflated far above its natural level so it will be a long

time before and growth is expected. In contrast, the German housing sector has recovered from

the damage of the global economic crisis and is growing again (Portal, 2010b).

b. Chemical

8

Germany has a long tradition of chemical production. Many of the large chemical company

giants are German (CNNMoney.com, 2010). The chemical industry scame to Ireland in the

nineteen sixties (Barry, 2008). Considering the large barriers to entry (Chandler, 2005), it is

difficult to envisage such giants to emerge from Ireland.

Today, the German industry targets consumer products for the end user(Portal, 2010a), while

Ireland focuses on the high end drugs market (Frank Barry, 2010).

6. Predictions

a. Building and Construction

In two thousand and eight (2008), it was predicted that there would be no signs of any recovery

in the Western Europe construction sector until two thousand and eleven (2011) (RTE, 2008). At

the moment, the indications are that the sector is contracting at a slower rate so recovery is still

may be on the horizon (Burke-Kenned, 2010).

There has been growth in a black market of construction. In a measure to combat this and

stimulate growth, the Construction Industry Federation (CID) has suggested the abolishment of

stamp duty ahead of the new budget release.

b. Chemical

The pharma industry will go through a changing time. Two major patents are running out. This

will badly affect the larger firms based in Ireland as the production of these drugs will move to

generics in Asia (Frank Barry, 2010). The big contrast between the pharma and construction

industry is that pharma has been expecting these market changes for a long time.

According to Barry of TCD, the pharma industry is shifting towards biotechnology. Though not a

chemical industry, it seems to be large pharma’s strategy to cope with losses in revenue due to

the finishing of major patents. Ireland is well positioned still, to adjust to this change (Frank

Barry, 2010).

If one were to do a SWOT analysis of Ireland (Strengths, Weaknesses, Opportunities, and

Threats), there is a new threat. Ireland’s low corporation tax may be in jeopardy from the EU. As

a move to help small and medium enterprises, the EU is considering one standard corporation

tax. This would have a huge impact on Ireland’s economy. (Oliver, 2010). Such a move would

be so damaging to the Irish economy, it is unlikely it would be passed in the short-term.

9

7. Conclusion

The chemical industry in Ireland is a relatively stable sector of the Irish economy. Although it

may have some challenges ahead, it is in a strong position to face those challenges given its

commitment to attracting large corporations, particularly large pharmaceuticals.

The consistency of the chemical industry is in stark contrast to the turbulent construction

industry with has gone through a major downturn in the last three years. The recession may be

bottoming out but this is not certain and beyond the scope of this report.

In Germany on the other hand, both the construction and chemical sectors weathered the global

economic storm and are back track for stable growth.

In terms of recovery, the building and construction industry will have a long wait. The outlook for

the chemical industry, with pharmaceuticals in particular in mind, is more positive. It too has

challenges ahead but it has been preparing for them for a long time now. Unfortunately, a large

growth in the chemical industry would still not be able to fill the gap left from the collapse of the

Irish construction sector.

10

8. References

BARRY, C. V. E. F. 2008. The Irish Pharmaceutical Industry over the Boom Period and Beyond.

National Institute for Regional and Spatial Analysis.

BBC. 2008. Irish economy goes into recession. 25 September.

BURKE-KENNED, E. 2010. Construction sector contracts at slower rate. The Irish Times,

Tuesday, July 13.

CHANDLER, A. D. 2005. Shaping the Industrial Century: The Remarkable Story of the Evolution

of the Modern Chemical and Pharmaceutical Industries, Harvard University Press.

CNNMONEY.COM 2010. Our annual ranking of the world's largest corporations.

CSO 2009. Total Value of Products manufactured in Ireland and sold - 2009 PRODCOM

Product Sales €000's. Central Statistics Office of Ireland.

CSO 2010. In: OFFICE, C. S. (ed.).

DEEGAN, G. 2009. Chemical firm guilty over factory plume emission. The Irish Times, July 23.

FRANK BARRY, T. 2010. RE: Interview on the Irish Pharma Industry. Type to DENHAM, S.

GUMUCHIAN, M.-L. 2010. Pfizer job cuts deal blow to recovering Ireland. Reuters.

IRISH PHARMACEUTICAL HEALTHCARE ASSOCIATION, I. 2010. Pharmaceutical

Healthcare, Facts and Figures.

MCGEEHAN, P. 2009. Thousands of Job Cuts Likely After Drug Merger. New York Times.

OLIVER, E. 2010. EU threatens to target our key tax break for foreign firms. Irish Independent,

September 9.

PORTAL, G. B. 2010a. Chemical Industry - Making the Right Mix for You.

PORTAL, G. B. 2010b. Construction Industry - Building on Solid Ground. Federal Ministry of

Economics and Technology.

RTE 2008. Construction sector won't recover until 2011.