COVID-19 meant that the past year was the most challenging year in living memory for households, for business and the country more generally.
While some sectors, such as Tech and BioPharma saw continued export success during the lockdown, it was a different story for many of our members in the “experience economy” which predominate rural employment.
Hospitality, non-essential retail, other direct consumer-facing business, and those in the supply chains have had only a few weeks of normal trading since last March.
Hospitality hit hardest
This is reflected in total industry turnover in the accommodation and food sector being down over 60% in the period from April to December 2020, compared with 2019.
Within this, some sub-sectors are down between 80% and 90% in turnover and will continue to be throughout the first quarter of 2021.
In non-essential retail companies, turnover is down by between one-quarter and one-third over the same period.
As a result, the future of many pubs, shops, restaurants, hotels and other crucial businesses in both rural and urban areas remains in jeopardy.
We all know the problems, but what about the good news? Holding on to optimism as we live through this isn’t easy but, as we get further into 2021 there are reasons for rural communities generally to be optimistic about the future after COVID-19. This is because, despite COVID-19, the Irish business model is still working.
Irish business model
After the last recession, we saw how the Irish business model, based on openness to the rest of the world, helped us recover from a crisis quickly.
At a basic level, the model works like this: step one is that Irish-based companies export goods and services, and foreign consumers pay Irish companies for those exports.
Step two is that those companies then use that money to pay their staff, suppliers and the taxman in Ireland.
The final step, is that those staff, suppliers and the Government spend that money in local economies all over the country creating jobs in our consumer-facing sectors.
How do we know this model still works? There is no doubt that we face some increasingly challenging economic circumstances.
As we speak, there are close to half a million people unemployed and the impact of COVID-19 on associated health restrictions was evidenced by the 9% fall in consumer spending in 2020.
However, despite all of this, and the testing international conditions, Irish exports grew by 6.2% last year. Step one is still working. People abroad are buying what we are selling.
Exports are continuing
Those growing exports meant that in many sectors incomes continued to grow all through last year.
It also drove Government confidence in our ability to afford to spend huge amounts of money supporting the incomes of people in the worst-hit sectors.
As a result, data from the Revenue Commissioners suggests private sector incomes in Ireland were flat in 2020, despite the economic backdrop. Step two is still working – even if the source of money for people in some sectors is very different to normal times.
But public health restrictions mean that step three is, for the moment, in a state of stasis.
Household incomes have been supported robustly but people have had fewer opportunities to spend due to lockdowns. As a result, recent data from the Central Bank shows that household savings have skyrocketed by over €15bn in 2020.
What does this all mean for rural Ireland’s recovery?
The food and drink industry, which is crucial to step one and two for rural communities, has held up better than most.
Last year no doubt provided challenges for some areas of the food industry due to the closure of restaurants, cafes and offices.
But, overall, data from the World Trade Organisation shows that global trade in food and drink fell only marginally during the worst of COVID-19, compared with falls of well over 20% for trade generally. Quite simply, the industry is a necessity. People need to eat and drink.
While the food service market had struggled, retail sales grew significantly as people purchased their food and drink for home consumption.
During the recovery from our last recession, we saw how important this resilience in the Irish food and drink industry was to rural areas.
Between 2010 and 2019, the sector grew its exports by €5bn or almost 6% a year. This was more than twice the growth rate of the sector’s exports between 2000 and 2008. It was six times the growth rate achieved since joining the EU in 1973.
Given the sector spends almost two-thirds of its turnover in the Irish economy – through wages, taxes, purchases from primary producers and local services – the majority of these growing export sales flowed directly to (mostly rural) households and suppliers.
To put this in context, the food and drink sector spent over €120bn in payroll and purchases in the Irish economy over the past decade. This amounts to 45% of the total domestic spending of all manufacturers – indigenous or multinational – or €25,000 for every man, woman and child in the country. This, in turn, gets spent in local economies and gave rural Ireland a platform for recovery.
There are reasons to believe that, with help, the sector can repeat the trick after COVID-19. Firstly, we will see renewed demand globally in the coming years.
Secondly, the recent suspension of 25% trade tariffs on some key dairy and drink products by the Biden administration gives hope for a more productive trading relationship with the US soon.
Finally, despite the serious issues created by the new realities of our relationship with the UK, the worst-case scenario of tariffs is now off the table.
We had good reason to fear a far worse Brexit outcome up until December.
Over 37% of Irish food and drink exports go to the UK market and Irish food products accounted for seven of the 10 most Brexit-exposed food and drink product categories in the EU.
Over 37% of Irish food and drink exports go to the UK market
While competitiveness challenges remain for the producers who are so key to getting the product off the island, there is scope to help them with key policy supports through the Brexit Adjustment Fund.
Ibec has set out the key areas where it believes the €1bn of EU funding can be deployed to best support Irish business. This can be done immediately through stabilisation supports.
Wage subsidies, tax warehousing and direct investment funds are already in place for COVID-19 and need to be extended to Brexit-impacted firms.
Firms will also require long-term supports to build new markets, such as export credit insurance, direct grants for productivity linked investment, marketing and trade promotion and an expansion of existing loan schemes.
All of this would help to maintain and grow the means by which we get food and drink off the island and bring the cash infusion which will help rural Ireland recover from COVID-19.
Finally, where is the rural economy when it comes to step three – getting money spent in the local economies across the country? Outside of the food and drink sector, an efficient vaccine rollout might see some semblance of recovery in the second half of 2021. It won’t be like before but there is potential for life to become more normal. As a result of vaccine rollout, people will have more opportunities to spend time in local towns and villages, shopping, eating, drinking and generally enjoying life again.
Households will stop saving so much and money earned from our open trading business model will start to flow again bringing local economies back to life. That is before we get to the question of where the €15bn already saved goes to.
Based on our previous experience of SSIAs in the 2000s, a fair amount will be saved. Some will be spent on things we had long put off like the house, garden or car.
Finally, a portion will be spent making up for lost time – meeting friends and family, breaks away, going out and generally enjoying life. Rural towns and villages need to start thinking about ways to capture some of that activity over the coming years.
To achieve this optimistic outcome – continued and enhanced support from Government for the worst-impacted sectors will be needed through much of 2021.
The Brexit Adjustment Fund will also need to be used judiciously to boost our long-term ability to sell abroad.
Finally, vaccine rollout will need to run smoothly and give us a chance at relaxing some restrictions over the summer.
The Brexit Adjustment Fund will also need to be used judiciously to boost our long-term ability to sell abroad
For rural Ireland, there is now real hope for the second half of 2021 that as vaccine rollout takes place, and the robust export performance of our key sectors continues. This will help release record household savings, bring down unemployment, and give the economic recovery a much needed shot in the arm.
It won’t solve every problem rural Ireland faces but it would be a good start.