Major tech sector reversal could wipe €34bn off value of Irish economy

Up to €34 billion could be wiped off the value of the Irish economy in the event of a major shock to the tech sector, the Economic and Social Research Institute (ESRI) has estimated.

With high-profile firms such as Twitter, Meta and Stripe announcing cutbacks to their operations here, the institute attempted to calculate the importance of the sector to the local economy.

It found that ICT (information and communications technology) firms operating in the Republic were typically five times more productive than their EU counterparts and added approximately €46.8 billion in value to the Irish economy in 2019.

The ESRI attempted to model the impact of a reversal in the sector by looking at what would happen if ICT firms here performed at Belgian productivity rates – Belgium has the second most productive tech sector in Europe behind Ireland.

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In this scenario, the “value add” to the economy would decline to €12.9 billion, a loss of just over 70 per cent, or €34 billion. The calculation does not take account of the potential fall-off in employment or tax receipts that would also occur.

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The ESRI’s analysis, contained in its latest quarterly assessment of the economy, noted that productivity rates among tech sector workers here had, compared to their EU counterparts, diverged significantly since 2015 as more firms on-shored their IP (intellectual property) assets here.

“The productivity rates are likely to be higher here as firms have relocated intangible assets to the Irish market, which boosts the capital per worker and output per worker rates substantially,” it said.

“The risk, therefore, is that if these assets are moved to another jurisdiction, then domestic productivity rates will drop sharply with a commensurate drop in output,” it said.

“These effects do not take into consideration any declines in employment that may occur due to the layoffs being announced in the sector which would further impact output,” the think tank said.

While highlighting the concentration risk, the ESRI said its calculation reinforced the importance of the ICT sector to the Irish growth story, noting that public policy must continue to be supportive towards inward foreign direct investment.

In its report, the institute noted that the number of people listed as employed in the ICT sector here fell by 11,000 – or 6.6 per cent – to 158,800 in the third quarter of 2022. However, the sector still employed nearly 12,000 more workers in the third quarter than it did in the same period in 2019.

High-profile tech companies such as Meta, Twitter and Stripe have announced layoffs or a scaling back of their operations here in recent weeks on the back of plummeting advertising revenue and general retrenchment across the sector globally.