Inside the world of business

Falling bond yields offer rare respite

SO CHASTENED are we after the post-Celtic Tiger economic carnage of the last few years, it seems almost irrationally optimistic to take some cheer from the news yesterday that yields on 10-year Irish Government debt have fallen below the levels that triggered last November’s EU-IMF bailout.

Yields touched 7.875 per cent at one point yesterday before closing at 7.883. That is almost 6.2 percentage points below the high of 14.079 hit just ahead of the July 21st emergency summit.

There is no consensus on what exactly is driving down yields to such an extent. Minister for Finance Michael Noonan attributes the trend to market endorsement of Government policies, and certainly there is a view in the market that, to some extent, Ireland stands alone in Europe as an example of a country where the combination of bailout and stringent austerity measures has worked.

The surprisingly strong growth figures for the second three months of the year served only to confirm this view.

However, the intervention of the European Central Bank over the past month is also likely to have played a part, even in Mr Noonan seems keen to play down the impact of moves in Frankfurt.

Regardless, we are some way yet from a comfort zone. The ongoing turmoil surrounding a further Greek bailout could easily destabilise recovery efforts here and cause yields to spike once again.

Junior minister Brian Hayes posited yesterday that Ireland could expect to pay a yield of around 6 per cent when it re-enters markets sometime next year. Latest indications are that the NTMA will test the market towards mid-year.

For all the recent recovery in yields, we still have some way to go to get to that point, never mind convincing the market we can sustain it.

Delicate balance in Africa dealings  

THE AVERAGE Irish person spends 42 cent a year on goods imported from our six “partner countries” in Africa – Tanzania, Uganda, Ethiopia, Mozambique, Lesotho and Zambia. But each of us also gives €70 a year to these countries in aid, according to Value-Added in Africa, an NGO funded by Irish Aid that tries to build relationships between African producers and Irish distributors.

Not surprisingly, the rebalancing of this relationship is a high priority for the Government and the country’s themselves. How best to go about it is a vexed question.

All of the significant trade barriers between these countries and the EU have been abolished under the Anything But Arms initiative. But what seems to be lacking in many of these countries, according to Traidlinks, another NGO trying to boost trade, is the wherewithal to actually service export markets. Small and medium sized business don’t yet have the skills or standards to cut it in the export arena, it argues.

Exponents of the free market, in this case the Irish Exporters Association, would advocate a dose of tough love. The solution, they argue is – in part at at least – for these countries to open themselves up to more foreign trade by removing barriers.

The presence of international firms in their markets will results in relationships and skills transfers which will allow indigenous companies export. Indeed, the exporters’ lobby believes Ireland should go so far as to engage in the sort of “aid for trade” deals which many of our peers negotiate. The exporters association deserves a hearing. It’s clear Irish business’s rediscovered enthusiasm for export markets extends to Africa. Sales to sub-Saharan Africa will be up 50 per cent this year to €1.2 billion, although some 75 per cent of this is accounted for my multinationals based here.

Such free market solutions must be tempered with the knowledge that we are dealing with the six poorest countries in Africa. As with most things, balance is needed.

Today

Employers’ group Ibec publishes its pre-Budget submission with details of measures it suggests would kickstart the Irish economy.

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