Manufacturing & Supply Chain

The National Competitiveness Council has published its annual benchmarking report, Ireland’s Competitiveness Scorecard 2017. The Scorecard provides a statistical assessment of Ireland’s competitiveness performance with regard to a range of countries with which we compete for trade and investment.

Based on the analysis herein, the Council finds that many facets of Ireland’s competitive performance continued to improve over the last year. Economic growth, improved public finances, trade performance and a strong labour market performance have all contributed to Ireland’s improved international competitiveness. The exporting sectors of the economy continue to perform strongly and many of Ireland’s traditional strengths (such as our competitive taxation regime, highly educated, young, labour force, and supportive environment in which to do business) remain. Reflecting this strong economic performance, Ireland moved from 7th to 6th in the IMD’s annual World Competitiveness Yearbook 2017.

The Council however is concerned that our strong performance from a macroeconomic perspective is overstating our overall competitiveness position and masking weakness in the underlying drivers of future competitiveness performance and sector specific challenges, particularly related to costs and productivity. Furthermore, the Council warns that while the overall economic outlook for Ireland is positive, the economy faces significant downside threats, including Brexit, a potential shift in trade and taxation policy in the US, and the uncertain nature of global growth, particularly, the potential for slower than projected growth in the UK and US. This makes it crucial that we address those factors within our control.

Speaking at the launch of the report, Professor Peter Clinch, Chair of the Council commented, “The competitiveness and consistency of our tax offering, legal, regulatory and administrative environment, cost base, the availability of talent, technology and property solutions will remain vital to our ability to withstand the ebb and flow of global economic developments and external economic shocks. While Ireland’s overall economic performance is strong, the economy faces significant downside threats, including Brexit, a potential shift in trade and taxation policy in the US, and the uncertain nature of global growth. We are at a critical juncture in terms of ensuring the foundations for future competitiveness are in place. We face major competiveness challenges in developing the resilience of the enterprise base particularly in light of Brexit, and ensuring the environment in which to do business remains competitive, particularly in terms of costs, skills availability, infrastructure capacity and productivity”.

To ensure sustainable growth, the Council considers we must ensure our fiscal position remains sustainable. While we must continue to compete from a taxation perspective, we should avoid any narrowing of the tax base and ensure the tax system supports and rewards employment, enterprise, investment and innovation. Developing our infrastructure base, while complying with the EU’s fiscal rules, is a fundamental challenge to enhancing competitiveness. Measures to reduce infrastructure bottlenecks including by improving and prioritising public investment, particularly our capacity to deliver regionally connected projects in line with the National Planning Framework are essential.

Related to infrastructure prioritisation, meeting Ireland’s climate change commitments and transitioning to a low emissions economy presents significant challenges and opportunities at sectoral level and will be central to the direction of long term economic growth prospects. In an international context Ireland ranks strongly when it comes to developing, attracting and retaining talent. However, a rapidly improving labour market and positive inflation is likely to pose challenges for competitiveness in terms of sector skill shortages and costs. The return to sustained levels of growth has resulted in upward cost pressures at sectoral level (e.g. labour) and property costs. Ireland’s labour productivity performance is strong in an international context. However, Ireland’s performance has been greatly affected by shifts in the composition of employment and the influence of a number of high value added sectors on output. As a small open economy, any deterioration in our cost competitiveness will have a major negative impact upon growth, employment and our standard of living.

Brexit has underlined the importance of generating uplift in enterprise competitiveness to secure future jobs and growth. A more diverse export base can reduce exposure to external demand shocks, exchange rate fluctuations and instability in export earnings, upgrade value-added, and enhance growth and jobs. Policies to facilitate enterprise evolve into new products, markets and sectors, whilst maintaining the competitive advantages we enjoy in existing ones, are critical at this time. Bridging the productivity gap that exists between the most productive firms and lagging firms is a major challenge to sustainable growth prospects. Facilitating workplace innovation and delivering uplift in management skills and labour force quality at all levels is particularly vital. Ensuring Irish enterprise stays at the forefront of technology and innovative activity, is able to access competitively-priced finance from a variety of sources remains an important challenge. From a competitiveness perspective, the returns from innovation are a vital component in securing productivity growth, diversifying and broadening the enterprise and exports base, growing FDI, and creating competitive advantage in intellectual property and commercial products and services.

Professor Clinch continued “The scale of the challenges which confront us have magnified over the past year since the Brexit referendum result. It brings into sharp focus the need for Ireland to maintain and improve our competitiveness performance across a range of areas such as infrastructure, ease of starting a business, talent, tax and innovation. Only a renewed focus on competitiveness will enable us to achieve sustainable improvements in living standards help us withstand external shocks and factors beyond our control”.