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Business - Small Business
Dr Dan Thornhill, NCC
Ireland’s competitiveness has improved in certain areas over the last couple of years, but the country remains an expensive one in which to do business, according to a new report from the National Competitiveness Council (NCC), which has outlined seven priority areas where progress is required.
Ireland’s Competitive Scorecard 2011 assesses the country’s performance using 127 statistical indicators - drawn from a range of data sources, including Forfás, OECD, Eurostat and CSO - that provide insights into its ability to compete on world markets.
The report indicates mixed competitiveness performance for Ireland in 2011. It finds that export focused enterprise sectors are performing strongly and that growth in exports has been helped by reductions in the cost base for firms, as well as improvements in productivity. Due to lower costs and higher productivity, unit labour costs fell in 2010.
However, high public debt, falling investment, and shortages of credit all weaken the competitive position and Ireland remains an expensive country in which to do business, says the report.
“Ireland’s Competitive Scorecard provides us with a clear view of our competitive strengths and weaknesses,” said Dr Don Thornhill, chairman, NCC. “The country faces undisputable challenges and there are seven priority competitiveness areas of concern.
“While significant progress has been made, Ireland has much further to go if we are to deliver long lasting competitiveness and sustainable growth. We need to continue the emphasis on expanding exports through increasing productivity in all sectors of the economy and through developing new exports businesses and sectors. ”
Martin Shanahan, chief Executive, Forfás, said the “unsustainable nature of the domestically driven growth” during the second half of the 2000s had brought home the role of exports in delivering sustainable economic growth and has reiterated the central importance of competitiveness.
“Exports are currently the only source of economic growth, and improving our competitiveness is essential to growing our exports,” he said. “It is an opportune time, therefore, to identify and agree a set of ambitious, key competitiveness targets for Ireland that are within domestic policy control, and to put in place a plan to deliver on these targets. It is critical that we provide Ireland’s businesses with every possible competitive advantage.”
Seven priority areas
The seven priority competitiveness areas named by the report are: cost of doing business; productivity and innovation; access to credit; labour activation; taxation policy; education; and infrastructure.
Cost of doing business - the report says that while though prices in Ireland have fallen since 2008, the cost of a range of business inputs remain relatively expensive compared to those in other countries with which we are competing. High cost areas include property costs, calls from landlines and legal fees.
Productivity and innovation - "Ireland needs to complement the reduction in costs which is currently underway with a renewed focus on enhancing productivity. Irish productivity levels remain below OECD average. However, there has been a reversal of the negative productivity growth experienced between 2005 and 2009."
Access to credit - the annual rate of change in lending to the non-financial corporate sector has been negative since late 2009 and the contraction in lending to this sector has continued in recent months, says the report, adding that the difficulties in the banking sector are likely to lead to continued difficulties for the SME sector in accessing credit supply.
Labour activation - unemployment, youth unemployment and long term unemployment have all increased substantially since 2007. Age and education attainment are strong determinants of unemployment, according to the report.
Taxation policy - "Average and marginal income tax rates on labour have been increasing. High marginal income tax rates reduce the incentive to work and to invest in education, training and business expansion. Maintaining a pro-enterprise taxation system while broadening the tax base is central to repairing the public finances."
Education - while average educational attainment has improved significantly in the last two decades, challenges persist at primary school level, with 9-11 year students receiving fewer hours of tuition in maths and science than most other OECD countries; at second level there is a persistence of early school leavers and Ireland performs poorly in the OECD PISA studies; and at third level there are significant funding challenges.
Infrastructure - the report notes that Ireland’s perceived performance across several infrastructure areas ranks below the OECD and euro averages. Ireland’s distribution infrastructure is perceived poorly and, while the score in air and water transport has improved, it remains below the performance of comparator countries. The quality of Ireland’s energy infrastructure is also perceived to be weak. "World class telecommunications are vital to our ability to do business and Ireland ranks poorly in this regard and lags behind leading countries in terms of upgrading the local broadband access network to fibre and on offering very fast broadband speeds over fibre."
The NCC will be publishing Ireland’s Competitiveness Challenge report later in the year, which will outline detailed recommendations on addressing Ireland’s competitiveness issues.