I thank the Chairman and members for inviting us to come before the committee to discuss Forfás's work on trade and investment policy and its relationship with the Departments responsible for trade policy and promotion. The Chairman has alluded to the fact that I am joined by my colleagues, Mr. Declan Hughes, Mr. Adrian Devitt and Dr. Michelle Kearney. Ms Laura Watts is also present.
As members will be aware, Forfás is Ireland's policy advisory board for enterprise, trade, science, technology and innovation. We undertake evidence-based research and analysis and provide policy advice, from an enterprise perspective, to the Minister for and Department of Jobs, Enterprise and Innovation and the Government in a range of areas. Forfás also manages the work of and provides research and analytical support to the National Competitiveness Council, the Advisory Council for Science, Technology and Innovation and the expert group on future skills needs. The Irish National Accreditation Board is a division of Forfás and we also host the Office of the Chief Scientific Adviser to the Government. I am aware that the current interest of the committee is primarily in trade promotion, especially in the context of the role of the Department of Foreign Affairs and Trade in that regard.
There is and should be a link between enterprise policy and trade policy and also a link between these and trade promotion activity. It is from a policy perspective that Forfás can best have an input into the committee's deliberations. Forfás works across a range of economic ministries and agencies and with private sector stakeholders that can influence the competitiveness of the environment for business and that can have a direct or indirect impact on enterprise development. We work very closely with our sister agencies, Enterprise Ireland and IDA Ireland - from which the committee has heard this afternoon - and Science Foundation Ireland to ensure the coherence of policies to support enterprise growth and job creation.
It is important to point out our remit differs from those of our sister agencies because it is primarily at a national policy level rather than an operational level. At home or in overseas markets, our advice principally comes from an enterprise perspective. Forfás also works very closely with the Department of Jobs, Enterprise and Innovation, which has responsibility for national trade policy and, working through the EU, international trade policy, and with the Department of Foreign Affairs and Trade, which has responsibility for trade promotion, the Export Trade Council and joint economic commissions.
During the years Forfás has examined a wide range of issues relating to international trade and Ireland's enterprise policy, including analyses of Ireland's trade performance and priorities and advising on international policy negotiations; the preparation of reports on Ireland's trade and foreign direct investment performance; analyses of the dependency of Irish exports on particular markets and the consequent vulnerability to exchange rate changes; assessments of changes in international trade policy and trading regimes; and reviews of requirements for improved trade facilitation and export controls. Forfás has also provided policy advice on multilateral and bilateral trade negotiations, including at the World Trade Organisation and Mercosur; progress on the development of the European Single Market; the services directive; trade facilitation measures, including an assessment of a single window and trade finance; and assessments of the impact of currency fluctuations on Irish trade.
A number of projects are being progressed in 2012 in the context of the Government's trade, tourism and investment strategy and the action plan for jobs, including the development of economic partnerships, with particular emphasis on China in the first six months of the year, on which we are liaising with the Department of Jobs, Enterprise and Innovation, the Department of Foreign Affairs and Trade, other Departments and agencies and Chinese counterparts. Other projects include an assessment of the costs associated with exporting for Irish firms and identifying actions to reduce them. We will also conduct a revision of high growth and emerging markets strategies, including for Asia and Latin America, to identify the opportunity areas and countries where Ireland and Irish enterprises can succeed in growing trade and investment. This will include assessing economic growth, imports and exports and key sectors of opportunity and advantage for Irish enterprises and identifying the skills capability of enterprises to enable them to successfully compete in key markets and realise sectoral opportunities. This work will be undertaken with the expert group on future skills needs to be launched by the Minister for Jobs, Enterprise and Innovation on Friday, 22 June. I note the committee's interest in skills for trade. As part of these reviews a range of horizontal policy issues are being considered, including those relating to access, visa reform, air connectivity, fiscal and finance measures and brand and reputation building.
As well as being a member of the Export Trade Council, Forfás also participates in a number of national and international trade fora. With regard to the joint economic commissions between Ireland and a number of countries in high growth and emerging markets, Forfás provides research and analysis as requested on high level objectives and areas of interest from an enterprise perspective. This builds on our collaboration for a number of years with the Department of Foreign Affairs and Trade in the provision of data based on our research and slide packs that can be used internationally in presentations on Ireland's competitiveness and enterprise performance. The provision of this enterprise data assists in reputation building efforts. I will refer to our role in the development and subsequent implementation of the Government's trade, tourism and investment strategy.
I emphasise the centrality of trade and investment policy and trade promotion to Irish economic recovery and development. Ireland is one of the most open economies in the world, with exports and imports together accounting for 190% of GDP. At present exports are the only contributor to GNP and GDP growth as consumption, investment and Government spending remain depressed. Notwithstanding the prevailing international economic uncertainty, Ireland's trade, investment and tourism performance has continued to improve, with exports relatively resilient during the global recession. Ireland's share of world services exports increased in 2011. However, while its exports continue to grow, its share of world goods exports has declined, leading to an overall decline in our global market share from 1.13% in 2010 to 1.05% in 2011 owing to the export growth of other countries.
Much of our trade performance is linked with our foreign direct investment performance, and the many advanced international companies located in Ireland are based here primarily to export to the rest of the European Union and also the Middle East and north Africa. While many Irish-owned companies which export are still mainly focused on the UK market, this sector also shows an increasing focus on the wider European Single Market, as well as on North America, the Middle East, north Africa and the emerging economies of the BRICS group, comprising Brazil, Russia, India, China, and South Africa. Growing indigenous exports remains a challenge. Ireland's goods and services already involve a high degree of technological sophistication. This is because the emphasis on innovation in Government policy has increased over a number of years and also because of the role enterprises in Ireland play as key links in global production chains, as evidenced by the high share of exports as intermediate goods rather than final production goods.
Building on what has been stated, to illustrate the importance of internationally trading businesses to the economy in 2011, collectively the client enterprises of the development agencies, namely, Enterprise Ireland, IDA Ireland, Shannon Development and Údarás na Gaeltachta, employed more than 323,000 people directly in manufacturing and internationally traded services activities in 2011. There was a similar number in indirect employment. They also accounted for more than 78% of exports in 2010 and an estimated 71% of tax payments to the Exchequer in 2011. In order for these enterprises to continue to be successful, Ireland needs to become more competitive.
Securing export growth and productive investment in the period to 2015 is the key focus of the trade, tourism and investment strategy. These objectives and that of securing a competitive business environment are also reflected in the 2012 action plan for jobs which has as its main focus supporting enterprise to create jobs. The Government's trade, tourism and investment strategy is an important pillar of enterprise policy. It recognises the intrinsic links between trade, investment and tourism. Forfás carried out analysis of a wide range of issues in the formulation of the strategy and assisted in drafting the document. The strategysets ambitious targets for indigenous exports, foreign investment and tourism market development to 2015, including at a high level to increase the number of new jobs directly associated with exporting enterprises by more than 150,000 and the creation of a similar number of new indirect jobs. It also aims to increase the value of exports by agency assisted indigenous companies by 33%, diversify the destination of indigenous exports, increase overseas visitor numbers to 8 million and secure an additional 780 inward investment projects through IDA Ireland, with 20% of these being greenfield investments from new and high growth markets.
The strategy contains detailed objectives for each of the high level targets. Trade promotion activity should be aligned with these targets and objectives. Obviously, each agency, including the Department of Foreign Affairs and Trade, has its own specific objectives, but collectively these are the overall national trade and investment objectives and they can best be achieved through close co-operation between the Department of Foreign Affairs and Trade and the agencies involved in overseas markets. This is even more important, given Ireland's relative size and the resource constraints within overseas markets. Importantly, the strategy sets out specific institutional actions to increase the co-ordination of policy and strategy in Ireland and our target markets to ensure a coherent national approach. These include the establishment of the Export Trade Council, with increased engagement between the relevant Departments, agencies and the business community at a senior level to oversee the implementation of the strategy and provide views on additional policy measures required.
The strategy also sets out the requirement for increased co-ordination of diplomatic and State agency resources overseas in the field through the establishment of local market teams to be led, where relevant, by the ambassador or consulate in-market and the preparation of annual co-ordinated country market plans. Commitments have also been made to ensure integrated trade missions, where practical, to maximise the potential and impact of State-led missions. This is not always practical with different priorities within geographic areas. The strategy also recognises the importance of Ireland's diaspora as a global network to draw upon and that this resource is effectively linked with a broader trade and investment promotion strategy.
The Export Trade Council operates under the auspices of the Department of Foreign Affairs and Trade and is chaired by the Tánaiste. Forfás is a member of the council and also supports and has an input into the work of its secretariat in the Department of Foreign Affairs and Trade. As part of the work of the Export Trade Council, Forfás has a role in monitoring the progress of the strategy and targets. In early 2012, Forfás prepared a trade, tourism and investment performance report for 2011, based on the best available data, which tracked performance during the first year of the strategy.
The council also considered an overview of the co-ordinated market plans for 2012 and outputs and activities for 2011 and, in the autumn, will consider mid-year reviews of progress. These market plans, developed on a co-ordinated basis by the ambassadors and consulates on the ground have real potential to secure a more strategic approach to our efforts in the field and need increasingly to focus on key priorities and outcomes for Ireland in each territory linked to the overall plan.
As I mentioned earlier, Forfás is engaged in the collation and analysis of trade data from a variety of data sources. I would like to highlight some of the key elements in terms of Ireland's recent performance. Overall, exports of goods and services are now above pre-crisis levels, reaching €172 billion in 2011, an increase of 5.5% on 2010. Imports were at €131 billion, resulting in a net export surplus of €41 billion, an increase of 14% on 2010. As I mentioned already, net exports were the key driver of positive GDP growth in 2011 and the main contributor to GNP growth in 2011. However, merchandise goods exports, while growing in volume terms, have not increased in price terms over the past decade. We need to achieve an increase in volumes and, more critically, the value of our exports. Ireland needs to look to higher value-added exports and to secure new investment in manufacturing to increase the price levels of our exports, as well as increasing volume. Implementation of the competitiveness and sectoral enterprise recommendations in the Action Plan for Jobs 2012 are key to achieving progress in this regard.
Our key export markets, the US and the UK, continue to account for one third of our exports, resulting in a high exposure to currency fluctuations and highlighting the need for continued focus on growing eurozone exports and diversification to other markets. Agency-assisted firms' exports continued to grow reaching €127 billion in 2010. Diversification of export markets for indigenous companies has increased through moving away from the UK and increasing to other European markets, the US and Asia. The opening up of new markets through trade promotion is a key part of this effort. As already alluded to by the Enterprise Ireland representatives, indigenous firms continued to shift from dependence on the domestic market to international markets, with exports as a percentage of sales of indigenous firms increasing from 34% to 43% between 2008 to 2010.
Ireland's exports are relatively concentrated, with the three top export sectors, namely, chemicals, business and financial services, accounting for 70% of all exports. While on the one hand these sectors are responsible for Ireland's export resilience this on the other hand highlights vulnerability if these sectors experience further structural change or downturn in demand, again highlighting the importance of developing new sectors. The pharmaceutical sector was referred to earlier, which again is one of the areas where we are vulnerable given the patent situation.
Ireland is continuing to perform well in terms of attracting greenfield FDI projects relative to its size. The stock of FDI in Ireland as a share of GNP at over 100% remains among the highest in the OECD. However, as stated already by the IDA representatives, the competition for mobile investment is intensifying and a range of risks remain, highlighting the need to retain a focus on restoring our international competitiveness. Attracting investment from new and high growth markets has proved challenging and broadening our promotion effort to attract projects from these new sources of investment and markets will be critical for the future.
While tourism numbers increased by 5% in 2011 to 6.2 million, they still remain at approximately 80% of the 2008 peak. Similarly, total tourism spend was at 60% of peak in 2011, with spend per visitor at 80% of peak also.
I have outlined in my written submission, which has been circulated, a summary of the economic outlook for some of our key trade, tourism and investment markets. Given time constraints, I do not propose to go through the detail. However, I am happy to answer any questions subsequently.
It is worth taking a moment to consider what businesses believe leads to export success. In the context of our work with the expert group on future skills needs, we recently asked 42 significant companies, most of which were already exporting, what they believed led to export success. While the answers varied across the sectors the main factors included: innovation in products and product design - this included having high technical and engineering capability in some sectors; a focus on and detailed understanding of customers and markets; building alliances and the support of the enterprise agencies and other bodies; having a strong reference site and-or partnership on the ground in market; and, the availability of skilled sales staff with appropriate language capability. The 42 companies surveyed for this study, which employ a total 16,000 people collectively, indicate a positive employment outlook, with their employment levels expected to increase by between 15% and 20% over the next three years. The ICT sector and international services sector reported the most positive outlook.
The principal challenges as we see them from a trade promotion perspective will be servicing of existing markets for trade, tourism and investment while at the same time targeting new high growth markets and to do this within constrained resources. There is also a challenge to identify those markets which hold the greatest potential and that may differ between trade, investment and tourism. Linked to the overall trade, tourism and investment strategy , we need to be extremely clear about our objectives and targets at the level of the individual markets and all State bodies’ activities should be aligned to those objectives. Where multiple agencies and the Department of Foreign Affairs and Trade are present in certain markets we should, in so far as is possible and practical, ensure that they work in concert on the collective objectives. As already stated, that is the case.
I thank the Chairman and joint committee for inviting us. Given the shortage of time, I have provided only a tree top overview of Forfás. However, we have a great deal of data and analysis at our disposal and would be delighted to be of assistance to the joint committee in development of its report.