Transcript Ireland`s Competitiveness Challenge

Ireland’s Competitiveness
Challenge
Adrian Devitt
Competitiveness Department, Forfás
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Annual Competitiveness Reports
► Volume 1: Benchmarking
Ireland’s Performance
► Volume 2:
Ireland’s Competitiveness
Challenge
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How are we performing?
Contribution of Net Exports to Irish Economic Growth
5%
0%
-5%
-10%
Net Exports
Investment
Government
Consumption
-15%
2001
2002
2003
2004
2005
Source: Forfás Calculations; Central Statistics Office, Annual National Accounts
2006
2007
2008
2009 H1
How are we performing?
Average Annual Growth in Exports of Goods and Services
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Source: OECD, IMF, ESRI 2009
Our Manufacturing Base has
Changed Dramatically
Percentage of Manufactured Exports
2000
Total manufactured exports
€65,353 million
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Source: CSO, External Trade
2008
Total manufactured exports
€86,218 million
Services Exports have Grown
Exponentially
Percentage of Services Exports
2000
2008
Total services exports
€12,939 million
Total services exports
€67,589 million
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Source: CSO, Balance of Payments
Ireland’s Competitiveness Challenge
Macro Issues:
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Restoring stability of public finances
Ensuring the banks are channelling credit to viable businesses
Increasing Productivity
Growth
Improving Cost
Competitiveness
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Incomes and prices
Property
Energy
Waste
Local authority charges
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Restructuring the economy
Skills
R&D and innovation
Capital and technology deepening
Infrastructure
Competition and regulation
State supports
Workplace development
1. A Stable Macro-Economic
Environment is a Perquisite
1. Restore stability of public finances
► Raising revenue: Broadening the tax
base is central to repairing the public
finances and maintaining relatively low
direct taxes. Introduce a value based
property tax and user charges, and
remove remaining tax exemptions.
► Reducing expenditure – while painful,
targeted cuts must be central to
restoring the public finances.
► Reforming the public sector if service
levels are to be maintained with fewer
resources.
► We must improve the fiscal planning
framework.
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Macro Issues
Improving Cost
Competitiveness
Increasing
Productivity Growth
2. Ensure the banks are
channelling credit to viable
businesses
► Monitor measures put in place to
ensure they are meeting their
objectives.
► We must decide what type of
banking system we want after the
current crises. Fewer banks and
potentially weaker competition
must not restrict credit or result
in higher credit costs.
► Take steps to limit the risks of
future property bubbles – we
need strong banking supervision
and further changes to the
taxation of property.
2. Improving Cost
Competitiveness
Macro Issues
Improving Cost
Competitiveness
Increasing
Productivity Growth
Harmonised Competitiveness Indicator
► A high cost base is a
damaging legacy of the
boom, particularly for many
indigenous exporters who
are focused on the UK
market (€/Stg.)
► Prices are now moderating,
but we believe that this is
largely a result of the
current recession (cyclical
factors) rather than a
response to structural issues
in the economy.
► A quick adjustment is
essential to achieving a
swift improvement in
competitiveness.
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Source: Central Bank, October, 2009
2. Improving Cost Competitiveness
Annual Changes in Average Hourly Earnings
Q2 2008 – Q2 2009
► Key cost category for
many firms.
► Annual average hourly
earning increased 1.8%
in the year to Q2
2009.
► Between Q1 and Q2
2009 average hourly
earnings decreased by
1.8 %
► Overall employment
down 8.8% or 184,700
jobs in the year to Q3
2009.
► Unit labor costs
improving relative to
Eurozone and US.
Source: CSO 2009
2. Improving Cost Competitiveness
► Reduce property costs
Significant improvements in property cost competitiveness to date
 Vital that the price of land, offices, housing is left to adjust.
 Implement changes in land use policy to increase availability of competitively
priced properties.
► Tackle Non-Traded Services Prices
Costs continue to increase across a range of locally traded sectors.
 These higher costs and the factors that drive them must be addressed in a
systematic fashion – start with the implementation of key Competition Authority
recommendations.
 The State should use its purchasing power to exert downward pressure on
professional fees.
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2. Improving Cost Competitiveness
► Reduce high cost of utilities and local authority charges
Energy:
 Ensure that we are driving efficiencies across energy markets.
 Renewables price supports should be transitional and decrease over time as the
technologies mature and deployment grows.
Waste:
 Planned increases in landfill levy should be postponed until alternative waste
options are in place.
 Provide clarity on the future regulatory structure of waste market.
Local Authority Charges:
 Freeze and where possible reduce local authority charges.
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Macro Issues
3. Increasing
Productivity Growth
Increasing
Productivity Growth
Improving Cost
Competitiveness
Average Annual Growth in Output per Hour Worked
Productivity Levels
Per Hour Output, 2008
OECD-28 Ranking:
GDP: 9 (↑4)
GNP: 18 (-)
Productivity Growth
Average Annual Growth in
Output per Hour Worked, 20002008
OECD-28 Ranking:
GDP: 13 (↓7)
GNP: 26 (↓17)
5%
2004-2008
2000-2004
4%
3%
2%
3. INCREASING PRODUCTIVITY
GROWTH
Italy
Ireland GNP
Denmark
France
Spain
Netherlands
New Zealand
Germany
Ireland GDP
OECD
Switzerland
Sweden
US
Japan
UK
Finland
Poland
-1%
Hungary
13
0%
South Korea
(change since 2000)
1%
Source: Groningen Growth & Development Centre, Total Economy Database, Jan. 2009
3.1 We must continue to focus on the
skills needs of those in employment
Enhancing the skills of those in employment is critical to improving the
competitiveness of existing firms and driving productivity growth.
► Retain funding for training those in employment, particularly those with low
skills in low productivity or vulnerable sectors. Recent funding cuts are
disappointing.
► Our exporters still have skills deficits: Target education and training funding to
meet the skills needs of our growth sectors.
► Monitor and reform labour market interventions. While emergency subsidy
schemes (e.g., employment subsidy) can play an important role in supporting
firms facing short term difficulties, interventions should be linked to improving
productivity through skills development or technology deepening.
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3.2 Funding and reforming the delivery
of training to the unemployed
Unemployment (%) by Age Cohort Q3, 2009
► Unemployment is
forecast to reach
13.8% in 2010.
► While the unemployed
are a diverse group,
the young and lower
skilled are particularly
exposed.
► Resources dedicated to
labour market
activation in Ireland
are relatively low.
► At the same time, we
have experienced the
second sharpest
increase in
unemployment in the
OECD.
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Source: CSO, QNHS, Q3 2009
3.2 Funding and reforming the delivery
of training to the unemployed
Recent increases in resources are welcome.
► Given the changed and diverse needs of the unemployed, programmes should be
reviewed to ensure that they are effectively improving the employability of those
who have lost their jobs.
► The Community Employment Scheme should be reformed to support labour
market activation.
► Consideration should also be given to streamlining the number of agencies that
assist the unemployed.
► Our third level education system needs to play a more central role in upgrading
the skills of the unemployed.
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3.3 Prioritise Infrastructure
Investment to Support Enterprise
Cuts in NDP investment in infrastructure need not result in delays to
improvements in our competitiveness
► Prioritise projects likely to have greatest impact in making Irish exporters more
competitive:
 Particular focus on Dublin and other major cities.
 Next generation broadband services where Ireland is 3 to 5 years behind leading
countries. In Ireland 5 percent of broadband connections are above 10 MB/s – a
much lower proportion than leading EU countries such as Portugal (47 percent),
Belgium (45 percent) or Sweden (34.5 percent).
► Consider the potential to enhance the coordination of infrastructure rollout (e.g.
broadband, water, electricity and gas). For example, civil costs account for 80% of
the costs of rolling out advanced broadband services.
► Significant scope for Government to improve infrastructure capacity and services
without the need for Exchequer investment by addressing policy and regulatory
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barriers
in energy, transport, waste and water.
3.4 Promoting Investment in Technology
Deepening, R&D and Innovation
Investment in technology can play a key role in reducing costs and
improving productivity.
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Review tax incentives to promote investment in productive sectors (and away from
property).
Develop an environment to support the effective use of ICT – including access to
advanced broadband services.
The result of investments in R&D is one important driver of innovation. In light
of cuts to public R&D spend:
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Prioritise public R&D spending on programmes with strong industry relevance and
participation - but not at the cost of damaging our capacity in high quality, world
class knowledge frontier research.
Develop a funding stream which encompasses a statutorily guaranteed, multiannual funding packing cover all State funded research.
Review the R&D tax credit.
Develop the skills to manage and exploit intellectual property.
Conclusions
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Irish exporters are weathering the international recession relatively well, but the
international outlook remains difficult.
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While Ireland’s competitiveness has improved, this is largely due to the sharpness
of the domestic recession rather than competitive advantages arising from
structural change.
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Continued action is required to develop an enduring competitive operating
environment for business and enable exporters to trade successfully in difficult
international markets. In addition to stabilising the macro environment (public
finances and credit), greater focus is required to:
► Reduce the continuing high cost of doing business in Ireland.
► Enhance the skills needs of both the employed and unemployed.
► Ensure that our investments in infrastructure and R&D are addressing
competitiveness challenges and are efficiently delivered.
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Thank you
[email protected]
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