Having climbed back into the top 10 on IMD's world competitiveness rankings in 2017, Ireland has now fallen back to 12th. The last time Ireland slipped down this highly prestigious chart it was a reflection of an overheating domestic economy and many see it as a direct precursor of the looming fiscal crash.
But should we be alarmed on this occasion? Is this just a temporary blip or a sign of a deeper malaise?
Dublin Chamber chief executive Mary Rose Burke sees it is a timely warning bell. "Ireland's slip down the rankings is a reminder that we cannot afford to stand still. It's a reminder that every other country is improving their offering," she says.
“The key barometers for the Irish economy are generally healthy,” she adds on a more positive note. “Great progress has been made over recent years and the Government deserves credit for helping to facilitate the recovery. As we look ahead to Budget 2019, Dublin Chamber accepts the need for prudence and caution as the Government seeks to prevent the economy from overheating.
“That said, the inadequacy of economic infrastructure and the productivity gap between Irish and multinational firms are two major concerns within the business community. That’s why, in the forthcoming budget, the Government must look to strengthen the three fundamentals of the economy, namely our infrastructure, our indigenous businesses and our labour force. Issues such as congestion, an unattractive tax regime for SMEs and entrepreneurs and labour market barriers need to be addressed.”
KPMG managing partner Shaun Murphy shares these sentiments. "The slippage in the rankings is disappointing and a lot of hard work needs to be done to improve our position," he says. "Notwithstanding the fact that we are still placed third in the eurozone and fifth overall in the EU, there is no room for complacency. Importantly, indicators for scientific and technology infrastructure will play an increasingly important role in Ireland's future rankings."
He also points out that Government and business efficiency is a major factor in competitiveness studies and there is a clear role for technology in the delivery of State services. “Ireland’s ability to adopt digital technologies to transform Government practices and access to State services for society and for business are essential factors in continued success.”
PwC partner Joe Tynan is another who believes it is not yet time to push the panic button. "It is helpful to stand back and put these things in context," he says. "We have dropped to 12th from sixth place. Two years ago, we were at 16th position. These things move about and you've got to expect changes like this. Also, if you look at our competitors, Switzerland is in fifth place, Finland is 16th, the UK is 20th, New Zealand is 23rd, and France is 28th. We are doing okay in that context."
Not just about costs
He explains the rankings are not just about costs or measures of efficiency. “It’s not just about prices. Countries are ranked against 258 different indicators. When you look at the reasons for Ireland going down the rankings, concerns about Brexit and the impact on the trading environment of President Trump’s policies both figured strongly. Both of these could have negative implications for Ireland, as could continuing exchange-rate volatility.”
Another factor which weighs against Ireland is ECB monetary policy. With the bond-buying programme coming to an end, this could see a tightening of credit.
But these are all issues over which Ireland has little or no control or even influence. “A big deficit we do have is infrastructure,” says Tynan. “We need to focus on the things we can affect and take the attention away from the those we cannot. We can’t change Brexit, we can’t change the American president, but we can change what we do about infrastructure. Infrastructural deficits feed into things like rental prices. Infrastructure and housing are absolutely critical but there are many other things we are doing well on. FDI is clearly doing well, for example.”
Infrastructure is also high up the agenda for Shaun Murphy. “We need to be more demanding of ourselves in thinking about the medium term,” he contends. “What will our demographics be like? Where will there be demands on infrastructure? How will we house people? What role will technology play in education, in business and in society? What are the likely impacts of artificial intelligence in how society interacts and how our towns and cities work or don’t work? Are we fully up to date about the issues and implications of sustainability and environmental degradation? Our competitors are not just thinking about these issues but are actively implementing policies that will help future-proof their countries and maintain competitiveness.”
He is fully in agreement with Tynan as to where effort should be focused. “Competitiveness is a function of many variables and we have to work harder at those which we have some influence over. Currency volatility, for example, is not something we can influence – but we do have control over matters such as infrastructure. Ensuring high-quality digital connectivity to every home and business in the State isn’t just an aspiration – it’s a vital piece of 21st-century infrastructure. Meanwhile, bottlenecks and supply shortages in areas such as housing have an economic price and the demographic and supply issues causing these challenges should not come as a surprise.”
Transport is another area of opportunity, he adds. “The ability to move people and goods quickly around the island is vital. Yet our history in developing major infrastructure projects hasn’t always been as efficient as it needs to be. There is an obvious need for a more balanced approach to regional development – so projects such as the M20 Cork-Limerick motorway will enhance the business appeal of Munster and can play a role in taking the pressure off the Dublin region.
“There are other transport examples to consider that would make a difference. Rail journey times between Dublin and Belfast are relatively unattractive versus going by road and don’t stand comparison with other European cities. Meanwhile, road and rail connectivity to the border regions of the north west from Dublin and Belfast remain poor and add to costs and inefficiencies both in human and business terms whilst reducing competitiveness.”
Mary Rose Burke echoes these sentiments. “We’re at a crunch point now for the Irish economy and for our main cities, with the population expected to grow significantly over the coming years,” she says. “We need a step-change in ambition for the country when it comes to infrastructure. We’ve shied away from pulling the pin on big projects for far too long. We need to stop stalling on projects that the usual naysayers continually talk down. Experience tells us that when we do bite the bullet and invest ambitiously, our success rate is very high. Look at the Port Tunnel, Terminal 2, Convention Centre Dublin and the Luas for evidence of that.”
Infrastructure
Infrastructure ranks as the most important policy issue for businesses in the Dublin region and is identified as the greatest challenge facing the competitiveness of the region. “We recently asked 400 businesses in Dublin for their view on what the priority should be in Budget 2019 and almost half (48 per cent) chose investment in infrastructure,” says Burke. “The Government must use Budget 2019 to fund the vitally-needed projects that it acknowledged are required in the Ireland 2040 plan, including MetroLink, Bus Connects and a new water source for the Eastern & Midlands Region – projects we’ve had plans for and been talking about for far too long. But plans on a piece of paper won’t improve people’s lives or make Dublin and Ireland a more competitive and attractive place in which to live and work do business.”
The continuing importance of the Dublin region has to be acknowledged, she adds. “Huge opportunities exist for Dublin to continue to win new jobs, both from firms already based here and from overseas companies looking to expand. However, we need to make sure that Dublin is equipped to capitalise on those opportunities, with enough office space in the right areas for businesses, a plentiful supply of accommodation for staff, a world-class transport network to allow people to move around and also a certainty of supply in our utilities, including water and electricity. Failure to improve the Dublin offering will result in investment and jobs being lost, not just to Dublin but to Ireland as a whole, as companies switch attention to competitor cities abroad.”
While personal taxation is often the subject of heated debate, Tynan doesn’t believe it is a drag on our competitiveness. “Anyone on up to about twice the average industrial wage is on fairly low tax compared to competitor countries,” he says. “People don’t understand or believe that because of the relatively low level at which the top marginal rates click in. The problem is that people focus on incremental earnings. If they do overtime they see all of it being taxed at the top rate and this gives the perception of high taxes. But property taxes are very low here, particularly when compared to the UK or US. Also, in those countries you pay for water and have quite high university fees.”
Tynan sums up the consensus by saying we should not be overly concerned by a fall in the rankings per se and that it’s how we perform in relation to our competitors that really counts. “If there is a material deterioration vis-à-vis France, the UK or Switzerland that would be a cause for concern, not just for our ability to attract FDI but for the domestic economy as well. We don’t want to be a low-cost economy. It’s a question of delivering value. And as long as we are doing that and maintain our position in relation to those other countries, we will be doing okay.”