Ireland is the world’s third most globalised nation in terms of GDP and remains the most globalised nation in the western world, according to Ernst & Young’s latest globalisation Index released at the World Economic Forum in Davos recently.
Since 1995, Ireland has remained within the top 3 globalised nations based on its overall score; it has risen by 1.21 points above the global average of 0.70 points. Globally, Ireland ranks sixth overall in terms of trade (+0.91 out-performing the global average +0.63) and it ranks first on openness and ease of trading.
The globalisation index has five measurements to assess a country’s individual global ranking, including openness to global trade, global capital movements, global exchange of technology, global labour movements and cultural integration. The report, drafted in collaboration with the Economist Intelligence Unit (EIU), confirms Ireland is the second most globalised economy in culture and joint third with Singapore in the global movement of finance and capital.
“Despite having been hit hard by the recession, research confirms that Ireland is well placed to compete with larger economies worldwide,” Mike McKerr, managing partner at Ernst & Young explained.
“Globalisation continues to define our business landscape with increasing levels of cross-border trade, capital and labour integration. This is underpinned by the number of multinationals located within Ireland.
“These rankings demonstrate how well positioned Ireland is to build on this brand and grow its fledgling trade links with fast-growing emerging economies, such as China and India. These rankings will be further strengthened, with the IDA currently broadening its global focus to support high-growth companies, emerging from these economies. They have indicated 20pc of all Greenfield investments will come from these regions by 2014,” McKerr said.
Ireland is highly dependent on foreign direct investment. Despite being a small open economy, it has managed to attract a disproportionate amount of high-value FDI in the last decade.
However, Ireland’s goods export performance is heavily dependent on the export of medical and pharmaceutical products.
This sector is dominated by mainly foreign-owned multinationals and with patents on several major drugs manufactured here due to expire, this could potentially take a toll on Ireland’s export pharmaceutical market, Ernst & Young warns.
The existence of the International Financial Services Centre has been a positive factor for Ireland’s consistently strong performance in openness to movement of capital and finance. This is largely driven from the rise in FDI flows (ranking fourth globally) and portfolio capital flows (ranking first globally).
McKerr continued: “Ireland faces a highly competitive landscape, with notable strong competition arising from the UK, the Netherlands and Switzerland. We can’t afford to rely on our previous success. We need to think of more innovative ways to differentiate ourselves from our international competitors, through a combination of cost-competitiveness, enhancing our tax offering and addressing any perceived skills shortage.”
However, there are real concerns from the survey respondents that continuing weak growth combined with increased global competition could spark more protectionism in the next 12 months. The respondents also specifically pointed to the increasing challenges of operating in some BRIC economies, as well as slowing growth in some BRIC markets.
As a result, nearly half of the survey’s respondents expect an increase in protectionism in the BRIC countries, as well as an increase in developed markets. In contrast, respondents see a decline in protectionism as more likely in other smaller rapid-growth markets.
“Despite the highly volatile economic backdrop, the trend for greater integration and closer co-operation continues to outweigh the threat of protectionism for the majority of the world’s markets,” McKerr explained.