High cost of business hurts Irish industry, says Forfas

29 Apr 2004

Competition for investment projects from Asian and central and eastern European locations, as well as the rising cost of doing business in Ireland, are causing a decline in employment levels in Irish manufacturing industries, Forfas has acknowledged in its annual report for 2003 out today.

Ireland’s economy performed well last year in the context of a difficult global economy, with the public sector, private services and construction industry leading the growth over traditional export-oriented industrial sectors.

Employment levels in the Irish economy during 2003 grew by 44,000 and unemployment fell to 4.6pc in the final quarter.

Employment in companies supported by public agencies like IDA and Enterprise Ireland fell by 7,200 in 2003. However, with employment in these companies standing at 297,500, employment in agency-supported companies is one-third higher than it was a decade ago.

The decline in Ireland’s agency-supported manufacturing sector caused the biggest worry. Forfas chief executive Martiin Cronin said the decline reflected weak demand for goods manufactured in Ireland, increasing competition for investment projects from Asian and central and eastern European locations and the rising cost of doing business in Ireland relative to our competitors for trade and foreign direct investment (FDI).

Cronin warned that Ireland needs to ensure that it can provide a business environment that allows internationally-trading enterprises to prosper and be leaders in the development, production and marketing of innovative products.

“The past 10 years have brought an unprecedented rate of change in both the domestic and global economic environments. Our economy is now fundamentally different and the competitive advantages which have brought us to this point will not be sufficient to provide us with sustained development and success,” Cronin said.

“Ireland has built strong foundations and now we must act strategically to promote enhanced competitiveness to take advantage of the global upturn. We must plan for an Irish business environment that is more attractive to increasingly complex and skilled activities, which will support better jobs throughout the country and that are less vulnerable to overseas competition.

“The Enterprise Strategy Group (ESG) is reviewing Ireland’s enterprise strategy in the context of the opportunities and challenges likely to arise over the next decade. The report of the Group will be key in providing Ireland with the direction to enable us to be at the forefront of the world’s leading knowledge-based economies,” he added.

Possible key factors that could put pressure on Ireland’s competitiveness, he said, included the reduction of costs and increasing availability of broadband and telecoms services in regional areas, the introduction of R&D tax credits as well as the development of a code of practice for the management of intellectual property in 100pc publicly-funded research.

According to the annual report, State expenditure on scientific activities increased 11.3pc in 2003 to €1.9bn. Business expenditure on R&D in 2001 [the latest figures available] is understood to be €916.8m, up 134pc since 1993.

Five sectors of the economy accounted for 85pc of business expenditure on R&D in 2001. These were electrical and electronic equipment (37.5pc), software and computer related activities (27.5pc), pharmaceuticals (7.7pc), instruments (6.5pc) and food, drink and tobacco (5.5pc).

R&D in the higher education sector reached €238m in 2000 [latest figures available], up from €204m in 1998. Universities accounted for 80pc of higher education-based R&D, with the Institutes of Technology increasing their relative share of R&D at higher level to 10pc in 2000.

By John Kennedy