The National Competitiveness Council (NCC) today launched its Costs of Doing Business in Ireland 2017 report. This report benchmarks the main business costs across over 70 indicators and focuses on areas where Irish enterprise costs are out of line in those in key competitor countries.
The report concentrates on costs that are largely domestically determined such as labour, property, energy, water, waste, communications and business services and considers both price levels, and changes in those levels (i.e. price inflation).
The report indicates that Ireland is particularly vulnerable to negative economic shocks which are outside the influence of domestic policymakers. Over the past 12 months, for instance, challenges have been created for Irish firms exporting to the UK as a result of Brexit, resulting from the weakness of sterling on international currency markets.
Furthermore, the international price of oil has almost doubled over the past 12 months and the favourable tailwind of low international energy prices, which to date have countered increases in other domestic costs, is now dissipating. Such external developments reinforce the need to pursue policies to enhance Irish cost competitiveness, according to the report.
Domestically, a number of short and medium term downside risks for Ireland have already emerged says the report and these could potentially undermine national competitiveness, growth and ultimately living standards. These pressures include emerging infrastructure bottlenecks, skills shortages and increasing levels of industrial unrest. Maintaining fiscal sustainability and a broad tax base, supporting structural reform, innovation, and productivity, and growing Ireland's enterprise and export base will remain significant immediate challenges, warns the report.
Specifically in terms of costs, the cost base for enterprise has improved across a range of metrics since 2010, (e.g. the cost of starting a business, communications costs and average income taxes). Ireland, however, remains a relatively high cost location and already the return to sustained levels of growth has resulted in a series of upward cost pressures.
The rise in both commercial and residential property costs - the availability and cost of property is again a significant threat to sustained cost competitiveness, according to the Council. In particular the dramatic increase in residential rents (back to, and in some locations exceeding pre-recession levels) is a major cause for concern with potentially significant adverse consequences for the entire economy. Rising rents and increasing house prices will inevitably impact upon wage demands, increase the cost of living and will damage competitiveness.
Likewise, the low vacancy rates in some urban areas coupled with concerns about the availability of prime commercial space is causing a rapid increase in commercial rents – especially office rents. Ireland's previous property boom was at the epicentre of so many of its recent economic problems. Ireland must try to avoid this sector undermining the current economic recovery and threatening its sustainability in the future, says the report.
The report also highlights the high costs associated with a range of business services including postal and courier, legal services and market research. Services associated with the construction sector, namely architecture and engineering have also been significant drivers of the service price increases overt the past 12 months. The upward trend across these business services also serves as a warning signal that cost pressures are emerging in a myriad of sectors.
In terms of business costs, as a small open economy, dependent on exports and foreign investment as major drivers of growth, Ireland's relative cost competitiveness is a significant determinant of its overall competitiveness and ultimately of its economic prosperity, employment and standard of living.
The improved competitiveness of Ireland’s exporting sector has been one of Ireland’s greatest strengths in recent years and has been key to economic growth and job creation, says the report. It has been critical to the success of Irish based exporters, allowing them to maximise the opportunities arising from increases in global demand. Despite improvements in Irish cost competitiveness since the global economic and financial crisis, threats to continued economic success abound.
While the Irish economy is experiencing rapid growth, the global economy is not proving as robust, with growth prospects curtailed by lower consumption, investment, trade and productivity levels. To protect the gains achieved to date, to further embed and sustain the recovery, and to ultimately spread the benefits of economic growth to all, Ireland must continue to enhance all aspects of competitiveness warns, the Council.
Speaking at the launch of the report, Chairman of the NCC, Prof Peter Clinch commented, "Over the course of the recession, the Irish economy underwent a sharp correction in terms of our cost competitiveness. The recent appreciation of the euro vis-à-vis sterling and the higher international price of oil provides a timely warning about just how vulnerable Irish firms are to external international shocks."
He added, "The appreciation of the euro has placed Irish exporters under increased cost competitiveness pressure. Higher international oil prices exert a significant influence on energy and transport prices. This reinforces the importance of prioritising policies and actions that are within Ireland’s control to enhance cost competitiveness."
Source: www.businessworld.ie
