Competitiveness: Should we

be concerned?

Tourism Policy Workshop, 22nd November 2014

Dr Don Thornhill, Chairman, National

Competitiveness Council

Conor Hand, Economist, Strategic Policy Division,

DJEI

Costs of Doing Business / Ireland’s Competitiveness Scorecard

About the National Competitiveness Council

► Established by Government in 1997

• Provide a clear, authoritative, thorough, accurate and focused up-to-date

assessment of Ireland’s competitive performance

• Provide clear evidence-based recommendations to enhance competitiveness

► Reports to the Taoiseach and the Government, through the Minister for

Jobs, Enterprise and Innovation

► Membership includes people with relevant expertise in competitiveness,

business people, employer and trade union representatives, and a

representative from the Department of Jobs, Enterprise and Innovation

► NCC is also advised by senior officials from 9 Government Departments

including Taoiseach, Finance, Public Expenditure and Reform, Energy &

Communications, Education, Justice, and Environment.

► Supported (research/ admin) by DJEI

► NCC provides an independent voice

What is National Competitiveness? How do we Measure it?

►Broad concept encompassing diverse range of factors and

policy inputs

• Education and training, entrepreneurship and innovation, Ireland’s

economic and technological infrastructure and the taxation and

regulatory framework

►Ability of Irish firms to compete successfully in

international markets

►Not an end in itself

• Goal of national competitiveness is to provide Ireland’s people

with the opportunity to improve their living standards and quality

of life

How is National Competitiveness Measured?

International Rankings…

…or a range of national indicators

► Costs of doing business

► Harmonised competitiveness

indicators

► Export and market share data

(the ultimate measure of

success?)

► Productivity

► NCC approach – assessment of a

range of indicators but no single

metric

► Not a review of macro economic

performance

15

25

13

1

6

11

16

21

26

31

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Less

com

peti

tive

M

ore

com

peti

tive

IMD WEF World Bank

But current rankings are not always a great

predictor of future success

Not tailored to measure those factors that

matter to Ireland

NCC approach to competitiveness benchmarking

Distinguish between the ‘inputs’ to

national competitiveness – over which

policymakers have greatest control – and

‘essential conditions’

120 metrics, appropriate to changing

economic & societal circumstances

Internationally comparable data – EU, UN,

WTO, OECD for majority of indicators

Indicators from specialist competitiveness

bodies (e.g. World Bank Doing Business,

WEF Global Competitiveness Report and

IMD World Competitiveness Yearbook)

Where of benefit, national sources such as

Central Bank, CSO, and ESRI

Subject to data availability, benchmark

performance against 19 other countries

(trading partners and competitors)

Ireland also compared to a relevant peer

group average (e.g. OECD or the euro area)

What does competitiveness mean for tourism?

National Competitiveness

Tourism: The Destination!

Cost competitiveness

Productivity growth

Cost

Quality of service

Natural resources

Overseas market

Domestic market

If we focus on costs, which costs matter?

54.1%

12.5% 16.3% 13.3%

24.9%

76.2% 71.0% 69.8%

6.4% 11.6% 6.4%

7.3% 4.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Manufacturing Digital Services R&D

Perc

enta

ge o

f C

ost

s

Location Insensitive Costs Labour Property (Facility lease)Transportation Utilities Interest & DepreciationTaxes & Grants

54.2

87.1 84.9 80.5

4.4

5.1 7.7 13.4

13.9

15.9

8.0 5.9 5.5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Manufacturing Digital Services R&D

Labour Property (Facility lease) Transportation

Utilities Interest & Depreciation Taxes & Grants

Maintaining cost competitiveness

Harmonised competitiveness indicator for Ireland (HCI), 1997-2014

75

80

85

90

95

100

105

110

Jan-9

7Jul-

97

Jan-9

8Jul-

98

Jan-9

9Jul-

99

Jan-0

0Jul-

00

Jan-0

1Jul-

01

Jan-0

2Jul-

02

Jan-0

3Jul-

03

Jan-0

4Jul-

04

Jan-0

5Jul-

05

Jan-0

6Jul-

06

Jan-0

7Jul-

07

Jan-0

8Jul-

08

Jan-0

9Jul-

09

Jan-1

0Jul-

10

Jan-1

1Jul-

11

Jan-1

2Jul-

12

Jan-1

3Jul-

13

Jan-1

4Jul-

14Im

pro

vem

ent

January

2005=100 D

isim

pro

vem

ent

Nominal HCI Real HCI

Labour costs Property Costs

Gross and net wages Annual rental costs - office

€0

€10,000

€20,000

€30,000

€40,000

€50,000

€60,000

€70,000

€80,000

Pola

nd

Hungary

Spain

Italy

Irela

nd

EU

27

euro

are

a-1

7

Fra

nce

US

Fin

land

UK

Sw

eden

Germ

any

Neth

erl

ands

Japan

Denm

ark

Sw

itze

rland

Annual earn

ings

(€)

Gross annual earnings (€) Net annual earnings (€)

€0

€1,000

€2,000

€3,000

€4,000

€5,000

€6,000

€7,000

€8,000

€9,000

€10,000

Pola

nd

Port

ugal

Hungary

Sw

eden

Belg

ium

Fin

land

Denm

ark

Irela

nd

euro

are

a

Neth

erl

ands

Sin

gapore

Spain

Chin

a

Germ

any

Aust

ria

South

Kore

a

Italy UK

Euro

s per

metr

e s

quare

d

2013 2012

Energy Costs Service Costs

Electricity costs – small user Services producer price index

96

98

100

102

104

106

108

110

Q1 2

006

Q3 2

006

Q1 2

007

Q3 2

007

Q1 2

008

Q3 2

008

Q1 2

009

Q3 2

009

Q1 2

010

Q3 2

010

Q1 2

011

Q3 2

011

Q1 2

012

Q3 2

012

Q1 2

013

Q3 2

013

Q1 2

014

SPPI 2010 =

100

€0.00

€0.05

€0.10

€0.15

€0.20

€0.25

Sw

eden

Fin

land

Hungary

Denm

ark

Fra

nce

Pola

nd

Neth

erl

ands

UK

euro

are

a

Spain

Irela

nd

Germ

any

Italy

€s

per

Kilow

att

hour

2013 2008

Broader Cost Environment

12

EU-28

euro area-17 Denmark

Germany

Ireland

Spain

France

Italy

Hungary

Netherlands

Poland

Finland

Sweden

UK

Luxembourg

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

40 60 80 100 120 140 160

Annual in

flati

on (

Avera

ge a

nnual change i

n H

ICP

2008-2

012)

Price level 2012, EU28=100

High Cost, Rising Quickly

High Cost, Rising Slowly

Less Expensive More Expensive

Low Cost, Rising Quickly

Low Cost, Rising Slowly

Maintaining cost competitiveness

► Against backdrop of modest recovery, cost pressures emerging

► Particular pressures evident in the energy, legal and health sectors

► Significant concern about rapid (residential) property price increases

Enhancing labour cost competitiveness through:

Reform of income taxes

Changes to the social insurance structure for lower paid workers

Addressing replacement rates for those who face high rates

Lowering energy costs over time by:

Tackling controllable costs

Taking measures to enhance energy efficiency and manage peak demand

Managing property costs by:

Replacing commercial rates with a site value tax

Reforms to other local authority charges

Supporting the long-term development of the property sector (e.g. planning)

Continued steady fiscal consolidation

General government gross debt (% GDP),

2013(f)

Required improvement in underlying primary

fiscal balance to achieve debt targets, 2012-

2030

122.3

149.8

0

20

40

60

80

100

120

140

160

Sw

eden

Denm

ark

Fin

land

Pola

nd

Neth

erl

ands

Hungary

Germ

any

EU

-27

UK

Fra

nce

Spain

euro

are

a-1

8

Irela

nd (

GD

P)

Italy

Irela

nd (

GN

P)

Perc

enta

ge o

f G

DP

2013(F) 2008

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

South

Kore

a

Sw

itze

rland

Denm

ark

New

Zeala

nd

Germ

any

Italy

Sw

eden

Neth

erl

ands

Pola

nd

Hungary

euro

are

a-1

7

OECD

-30

Fin

land

Fra

nce

Spain

Irela

nd

US

UK

Japan

Perc

enta

ge o

f nom

inal G

DP

Consolidation from 2014 to achieve debt target

Consolidation 2012-2014

Continued steady fiscal consolidation

► Fiscal deficit & public debt elevated for foreseeable future

► Further consolidation needed in coming years

► Stable, sustainable public finances prerequisite for competitiveness

The tax base – distribution of taxes, expanded role for property taxes

Availability of competitively priced world-class infrastructure

Energy; telecoms; transport (road, public transport, airport,

seaports); waste; water; and related services - critical to support

competitiveness

Reverse some of the cuts to the capital expenditure budget in recent

years

Focus on a range of infrastructure projects that support

competitiveness

Supplying essential skills to enterprise and

reducing unemployment

Youth unemployment and long term youth

unemployment rate, 2013

Public expenditure on active and passive

labour market programmes (% GDP), 2011

0

10

20

30

40

50

60

Germ

any

Japan

Neth

erl

ands

Denm

ark US

Fin

land

UK

Sw

eden

EU

-28

euro

are

a-1

8

Fra

nce

Irela

nd

Hungary

Pola

nd

Italy

Spain

Perc

enta

ge o

f under-

25s

Youth Unemployment 2013

Long term youth unemployment Q4 2013

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Irela

nd

Denm

ark

Spain

Neth

erl

ands

Fin

land

Fra

nce

Germ

any

Italy

Sw

eden

OECD

-28

Sw

itze

rland

Hungary

Pola

nd

US

New

Zeala

nd

South

Kore

a

Japan

Expendit

ure

on labour

mark

et

pro

gra

mm

es

(% G

DP)

Other passive programmes Income maintainanceOther active programmes TrainingPublic employment services

Supplying essential skills to enterprise and reducing unemployment

► Primary driver of productivity and long term competitiveness

► High levels of unemployment, long term unemployment and youth

unemployment, allied to high replacement rates for specific cohorts

► Large spend on (passive) labour market activation programmes

► Indications of skills mismatch

Continuing need to invest in all areas of the education system from pre-primary

right through to fourth level education

Languages, sales and marketing

Implement the new Further Education and Training strategy

Deliver structures to provide better high quality, flexible and responsive

education and training programmes

Focus on increasing employer engagement, enhancing the reputation/value of

further education and training, & activating the unemployed

Modernise the apprenticeship system

Greater focus on on-the-job learning, engagement with employers

Development of a wider range of relevant apprenticeships

Developing a more sustainable enterprise base

Exports % GDP, 2013 Exports to emerging markets (% GDP), 2012

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

Fin

land

Germ

any

Hungary

Neth

erl

ands

euro

are

a-1

4

Pola

nd

Sw

eden

Italy

Denm

ark

Irela

nd

Fra

nce

UK

Spain

Perc

enta

ge o

f G

DP

2012 1997

107.8

45.9

44.9

0

20

40

60

80

100

120

Irela

nd

Hungary

Malt

a

Neth

erl

ands

Denm

ark

Sw

itzerl

and

Germ

any

Pola

nd

euro

are

a-1

8

EU

-28

Fin

land

Spain UK

Italy

Fra

nce

Japan

US

Export

s %

GD

P

2013 2008

Developing a more sustainable enterprise base

Promoting investment

Address tax competitiveness (e.g. income taxes, capital taxes, etc.)

Promoting trade development and diversification

Trade policy - focus on agreed priority markets & advance Transatlantic Trade and

Investment Partnership

Key skills - foreign languages and marketing skills, logistical skills

Cluster development - enhanced linkages between indigenous & foreign firms

Enhancing productivity, innovation and R&D

• Competition policy - legal

• Sustained investment in research, development and innovation

Supporting entrepreneurship & using public procurement

► Very open economy & an attractive investment location

► Strong productivity performance but concentrated by sector

► In export terms, narrow range of products and markets

• Reliance on US, EU and UK - weaker linkages with emerging economies

Enhancing access to finance

► Notwithstanding sluggish demand, a shortage of finance is significant

limiting factor on growth and competitiveness

► Key issues are limited credit availability and the relatively high cost

of credit where it is available

► Addressing mortgage arrears and completing bank repairs

Enhance bank funding

Monitoring and encouraging bank lending – particularly to the SME and

manufacturing sectors

Developing the range of products and services provided by the banks

Developing/ attracting new entrants to the banking market

Pro-actively dealing with legacy debt)

Support other non-banking funding sources

• Encourage equity investment

• State support for other funding mechanisms such as peer-to-peer lending

Actions addressing trust (social capital, data protection and corporate governance)

► As a knowledge economy, trust in institutions and corporations is

becoming ever more central to Ireland’s ability to compete

► While trust is intangible, it is an important international currency

► A reputation as a secure and responsible location in which to do

business is central to competitiveness

Supporting corporate social responsibility

Implementation of the National Plan on Corporate Social Responsibility

Improving corporate governance

Completion of the white paper on crime – focus on actions designed to tackle

white-collar crime

Developing Ireland’s data protection infrastructure

Engagement on the proposed European “data reform package”

Enhancements of the resources of the Office of the Data Protection

Commission

Focus on Tourism Sector

► Ambitious employment & growth targets set out for the sector but

to achieve (and surpass these)…

► Are there issues NCC have not considered

• Commercial rates, insurance, JLC reform?

►What policy shortcomings need to be addressed?

• What can central Government do? Role for Local Authorities?

• Short term – through the Action Plan for Jobs, marketing, better regulation,

visas, maintain VAT rate

• Medium Term – capital investment & planning, aviation policy to support

access & connectivity, training (ETBs, SOLAS)

►What can firms do?

• Selling in mature markets

• Investment in human capital (EGFSN), management development, and ICT

• Maintaining price competitiveness

Questions and Answers

www.competitiveness.ie