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Introduction

A CSO Frontier Series Output- What is this?

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In this report we present a Value Chain analysis of the Information Communications and Technology (ICT) sector in Ireland. It follows the same basic approach as the Agriculture and Food Value Chain report published by CSO in April 2021 but it also differs because the value chain is dominated by services and intangibles rather than physical products.  

Throughout the publication the System of National Accounts is used as the integrating framework to ensure a coherent and consistent analysis emerges from this work. In fact, this Frontier Series leverages a combination of new and existing methodologies and uses data from the Supply and Use Tables, the Institutional Sector Accounts and Productivity analysis, along with a variety of other sources to produce more detailed estimates of production, consumption, trade and investment in both ICT products and activities across the Irish economy. 

The ICT sector is broken down into three subsectors by economic activity for this report: Software and Other Media (NACE 58-60), Telecommunications (61), IT and Other Information Services (62-63). For much of the analysis, the sector is also divided into firms that are owned and controlled within Ireland and firms that are foreign. A foreign enterprise is one where foreign control exceeds 50% and a domestic enterprise as one where foreign control is less than 50%.

The highly globalised nature of ICT activities in Ireland is already widely understood. Moreover, the analysis presented here illustrates the significance of this knowledge-economy-based value chain. A key feature of this value chain are the reserves of human capital in use by both foreign-owned and domestic companies. Indeed, in the analysis presented here, the levels of education associated with employees in the ICT sector are shown to be among the highest in the Irish economy. Chapter two looks at Labour inputs in detail. 

ICT activities in Ireland can be traced back to large foreign multinational enterprises (MNEs) that established foreign direct investment (FDI) operations here in the latter part of the twentieth century. However, the present-day value chain is considerably more diverse with a thriving domestic sector that employs nearly 41,000 people along with the 50,000 employed by the foreign-owned corporations. The production of the foreign-owned firms dominates the economic activity of the sector and is largely leveraged off intellectual property (IP) products developed abroad and imported into Ireland. In addition, some of these foreign-owned firms make large royalty payments to affiliates for the use of IP located abroad. Ultimately the software and web-enabled services produced by these entities are then almost entirely exported.  

Domestic firms on the other hand create their own ICT products and are not so dependent on cross-border transactions in intangibles or the related royalty services. In this publication we provide information on the large number of small and medium- sized domestic firms operating in this value chain in contrast to the smaller number of extremely large MNEs that are foreign-owned. 

The impact of spill-overs in knowledge and know-how from foreign to domestic companies is a feature of this sector where many embryonic firms exist on the domestic side. The publication highlights the highly mobile workforce and the movement between both foreign and domestic ICT companies. The Irish-owned companies operating in the ICT industries invest significantly in research and development (R&D) activities as part of their product development. This investment by domestic producers in innovation amounted €186m in 2019. In the third chapter we examine the use of capital assets and the capital funding of ICT corporations. Then in chapter 4 we examine the productivity performance from the use of these labour and capital inputs. 

Moving down the value chain, in chapters 5 and 6 we look at producers and consumers. We find that the bulk of ICT exports are explained by software and online services. These online services mainly consist of advertising by the various social media platforms and search engines. The production in this sector is being enabled by cloud services from the many data centres across Ireland and abroad. Ultimately these platforms are also producing IT services in addition to the advertising services being transacted over the platforms.  

Throughout the publication we also discuss the domestic facing Communications sector which largely serves the needs of domestic and commercial customers in Ireland. These companies supply telecommunications, broadband and similar services. Streaming services are also considered as part of communications services and they are generally imported. 

A coherent picture emerges from this value chain however some of the precision needed to really understand the digital economy requires new classifications that are currently being developed by the International Organisations. Consequently, it is sometimes difficult to accurately describe the detail of products that are part of the digital economy. This occurs despite these products being already part of our lived experience as consumers of ICT services that have proved critical during the COVID-19 period. 

The publication concludes by reviewing the whole sequence of accounts for the ICT sector, from their outputs, through their costs, saving and investment. As well as providing to Irish households a link to the outside world, from an economic perspective the ICT sector pays €8.5bn in wages and €3.9bn in tax. The range of data drawn together over these chapters provides a detailed analysis of this important part of Ireland’s economy.