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Council Highlights Areas Vital to Enhancing Ireland‘s Competitiveness

Date: 29 November 2007 

National Competitiveness Council Launches its Annual Reports

We need to stimulate vigorous productivity growth, develop greater innovation across the economy and restore cost competitiveness in major markets. These are the key requirements for maintaining and promoting Ireland’s competitiveness according to the National Competitiveness Council (NCC).

Today the Council launched its annual competitiveness reports - Ireland’s Competitiveness Challenge and Benchmarking Ireland’s Performance. Ireland’s Competitiveness Challenge identifies the key competitiveness challenges facing enterprise in Ireland and proposes policy actions for continued success. This report is underpinned by the benchmarking report which assesses Ireland’s performance in over 140 competitiveness indicators.

Launching the report, Minister for Enterprise, Trade and Employment Micheál Martin, TD, commented “Economic growth and social progress are inextricably linked and Ireland’s economic successes have yielded many benefits. These reports reinforce that our economy is continuing to perform strongly. We have achieved significant increases in employment and improvements in living standards. Ireland’s competitiveness remains a key priority for Government and there is no doubt that we have more work to do. We have entered a period of more challenging economic conditions. I am confident, however, that building on our current position and with the implementation of the NDP and the significant investment that is being made through the Strategy for Science, Technology and Innovation that we will be able to meet these challenges, that our economy will continue to perform well, and that we will be able to continue to improve living standards for everybody in Ireland.”

“I would like to thank the members of the National Competitiveness Council for their work and for the Council’s invaluable advice to Government on competitiveness issues,” he continued.

The reports from the National Competitiveness Council show that while Ireland has made remarkable economic progress over the past 15 years, our competitiveness has weakened in recent years. Presenting the findings of the Council, Dr Don Thornhill, Chairman, said, “the slowdown in domestic sectors of the economy, which have driven economic growth in more recent years, underlines the importance of focusing on our exporting sectors as key drivers of growth and living standards. The NCC believes that Ireland is well placed to face the challenge of ensuring sustainable growth through our exporting sectors. We have significant resources available to us - a skilled workforce and a strong enterprise base. We also have a healthy fiscal position and a range of important strategies in place to drive future growth.”

In this report, the NCC focus on three broad challenges where significant issues remain. These are:

  1. Supporting Cost Competitiveness
    Cost competitiveness is vital to the success of our exporting sectors. The continuing appreciation of the euro and relatively high inflation in pay and non-pay costs in Ireland are affecting our cost competitiveness. Irish consumer price levels are almost 20 percent higher than the EU-15 average and inflation, influenced by a number of domestic factors, has been growing at a faster rate than the EU-15 average. For enterprise, high property, utility (e.g. energy, waste and water) and domestic services costs are of particular concern.
    The NCC believes it is appropriate to develop a national programme to restore cost competitiveness. This should include setting a national inflation target close to the ECB two percent target. In the up-coming social partnership wage talks, it will be critical that we manage our labour costs to enhance productivity, to support employment creation and to safeguard competitiveness. This will require coordination to manage both consumer and pay inflation. Specific actions to manage the costs of property, utilities and non-internationally traded services are also critical.
  2. Enhancing Productivity Growth
    Productivity levels in Ireland remain strong but our productivity growth rates have weakened in recent years. In 2006, Irish productivity growth was below the OECD average. The NCC welcomes the Ministers of Finance’s recent comments on the importance of bringing productivity growth to the centre of the Government’s economic policy.
    Re-invigorating productivity growth requires a number of actions across a broad range of areas. In particular, policies that enhance competition and reduce barriers to market entry should be pursued vigorously, particularly in locally traded sectors of the economy where inflationary pressures are greatest. Ireland’s productivity growth has been strongest in a small number of high-tech manufacturing and services sectors. It is important that we have a business environment that supports the development of the existing firms, that encourages the development and attraction of new firms, and promotes the emergence of new sectors. In terms of improving public sector productivity, the NCC makes a number of recommendations with respect to public sector management, existing organisational structures and the system of local government.
  3. Building Innovative Enterprises
    Developing an innovation driven economy will enable Ireland to be at the forefront of international competitiveness. Ireland has made significant progress in recent years, as state investment in research and development has grown substantially. At a company level, investment and innovation activity is also increasing.
    Promoting an innovation agenda is multi-faceted and there are a number of factors which can influence its development. In particular, equipping people with the skills to succeed in an innovative economy through life long learning and developing high performing higher level educational institutions are critical. Increasing participation in life long learning may require additional policy initiatives (e.g. individual learning accounts and brokerage services). Adequate funding is essential to enabling Irish higher education institutions to achieve excellence. The NCC would support an ‘investment needs’ analysis to determine the funding required to meet the goal of building up a “best in class” higher education and research system which meets Ireland’s current and future economic and social development needs.
    Government investment in research and development is critical. Building on the base of research in place, it is important that research priorities for publicly funded R&D are sufficiently aligned with the needs of enterprises and developing clusters. A major challenge to be addressed is the transformational change needed in businesses to enhance their ability to innovate, to respond to market needs and to absorb knowledge and ideas from all sources, including publicly and privately funded research in Ireland and abroad. Finally, potential exists to make greater use of public procurement to promote demand for innovative products and services. For example, the Government’s ambitious environmental targets (e.g. renewable energy) have the potential to drive innovation.

This is not a time to be pessimistic
Dr Thornhill added “This is not a time for pessimism about the outlook for the Irish economy. The last thing anyone of us should do now is talk down the strength of the economy and damage economic and public confidence. Our economy continues to perform well. Living standards and quality of life are improving and we have built up considerable economic strengths. We have experienced a prolonged period of exuberant economic growth. We now face a more challenging and uncertain external environment. The Council believes that implementation of the policy directions in our report will enable us to successfully meet these challenges.”

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