The National Competitiveness Council (NCC) today (20 July 2017) published its annual benchmarking report, Ireland’s Competitiveness Scorecard. The 2017 Scorecard provides a statistical assessment of Ireland’s competitiveness performance relative to a range of countries with which we compete for trade and investment.

Speaking at the launch of the report, Professor Peter Clinch, Chair of the Council commented ” While Ireland’s overall economic performance is strong, the economy faces significant downside threats. We are at a critical juncture in terms of ensuring the foundations for future competitiveness are in place. We face major competitiveness challenges in developing the resilience of the enterprise base, particularly in light of Brexit, and ensuring the environment in which to do business is competitive. Cost competitiveness, boosting productivity and innovation, skills availability, and developing our infrastructure capacity are key issues we must address. Only a renewed focus on competitiveness will enable us to achieve sustainable improvements in living standards and help us withstand external shocks and factors beyond our control.”

Key Findings

  • Ireland’s improving competiveness performance over the period 2011-2017 has been central to the recovery in employment and economic growth. The report concludes that the drivers of growth are becoming more balanced. While exports remain the key contributor, export growth and the composition of goods exported from Ireland has become increasingly concentrated
  • Since 2011, Ireland’s relative international competitiveness as measured by a range of international indices has improved. Ireland moved from 7th to 6th in 2017 in the IMD’s World Competitiveness Yearbook, and from 24th to 23rd in the WEF Global Competitiveness Report. In addition, the World Bank’s most recent “Doing Business” report shows Ireland is now ranked 18th out of 190 countries.
  •  The Council considers the sustainability of growth and improvements in living standards is under serious and imminent threat if we do not redouble our efforts at national level to improve our competitive position relative to other countries.
  • Careful management of the public finances within the EU budgetary guidelines will remain a challenge, particularly in light of the need to address growing infrastructure and funding deficits, and to ensure that the economy does not overheat. Ireland’s exposure related to the concentration of corporation tax receipts among a very small cohort of firms remains a risk and it is essential that the tax base is broadened in line with the OECD tax hierarchy for growth. This contends that taxes on immobile bases, such as property, and consumption are less distortive than those on personal and corporate income. Any loosening of fiscal discipline (i.e. unsustainable current expenditure increases, or narrowing the tax base for example) at this stage would undo much of the progress achieved to date, and would have potentially significant negative implications for future competitiveness.
  • In terms of the business environment, Irish income and corporate tax rates remain competitive but international competition is increasing. Conditions for enterprise have improved – evidenced in Ireland’s improved performance across a range of metrics, such as business efficiency, economic performance and government efficiency.
  • While access to and affordability of credit has improved, Irish firms continue to face higher interest rates and greater volatility in those rates than their competitors abroad. Irish interest rates on business loans have been consistently higher than equivalent Euro area rates.
  • Ireland’s labour productivity performance is strong in an international context. However, Ireland’s performance has been greatly influenced by shifts in the composition of employment and the influence of a number of high value added sectors on output. The effects of corporate restructuring, including the relocation of firms with significant IP assets and aircraft leasing, led to noteworthy increases in total output and hence labour productivity, particularly in 2015
  • In terms of physical and knowledge infrastructure, Gross Fixed Capital Expenditure continues to recover. However, current levels of investment will be insufficient to meet emerging needs. Public investment (2.4% of GDP) remains below the Euro area average (2.7%) and inadequate capital investment, left unaddressed, will damage competitiveness and adversely impact future economic growth. Delivering the level of investment required over the medium to long term, while complying with the EU’s fiscal rules, is a fundamental challenge to enhancing competitiveness.
  • Ireland’s knowledge base represents important competitiveness strength. The output from formal education of third level and STEM graduates is among the highest in the OECD. Of concern, however, are the GDP spend per capita on tertiary education, the high proportion of the labour force Not in Employment, Education or Training (NEET) and the low levels of lifelong learning. In addition, levels of investment in R&D as a percentage of GNP remain low.
  • While there have been some positive developments in terms of cost competiveness, Ireland remains an expensive location to do business – its price profile is described as ‘High cost, rising slowly’. The return to robust economic growth has resulted in a range of price pressures emerging with regard to labour, property, insurance and business services costs.
  • Employment growth is strong and total employment is still below pre-crisis employment levels. Long term unemployment and youth unemployment levels are declining, they remain high. Ensuring skills and labour market mismatches do not grow and aligning labour market needs with education and training output remains critical to competitiveness.
  • Based on the analysis herein, the Council finds that while Ireland’s competitive performance continued to improve into the first half of 2017, a number of downside risks persist. In terms of the positive messages emerging, overall economic growth is being sustained, resulting in employment growth and a more favourable fiscal balance. Ireland performs relatively well in objective measures of well-being (income, education attainment, air and water quality) and health. Conversely, factors weakening our competitiveness include Ireland’s continued high cost base, our dependence on a narrow range of exporting sectors, a series of labour market challenges (i.e. relating to long term and youth unemployment), infrastructural bottlenecks and relatively weak productivity performance in many sectors of the economy.

Source: National Competitiveness Council