Reducing costs, growing productivity and encouraging innovation in business are the central planks of the National Competitiveness Council’s (NCC) annual report, released yesterday.
The report, Ireland’s Competitiveness Challenge, identified the key challenges facing enterprise in the country and proposed policy actions to overcome these.
The report is underpinned by the benchmarking report, Benchmarking Ireland’s Performance, also released yesterday which assesses Ireland’s performance in over 140 competitiveness indicators.
The report shows that while Ireland has made remarkable economic progress over the past 15 years, our competitiveness has weakened in recent years.
“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,” said Dr Don Thornhill, chairman of the NCC.
“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.”
The NCC report focused on three broad challenges where significant issues remain: supporting cost-competitiveness, enhancing productivity growth and building innovative enterprises.
The continuing appreciation of the euro and relatively high inflation in pay and non-pay costs in Ireland are affecting our cost competitiveness, the report said, with Irish consumer price levels almost 20pc higher than the EU15 average. It added that our inflation, influenced by a number of domestic factors, has also been growing at a faster rate than the EU15 average.
The NCC believes it is appropriate to develop a national programme to restore cost competitiveness that should include setting a national inflation target close to the 2pc target set by the European Central Bank.
While productivity levels in Ireland remain strong, productivity growth rates have weakened in recent years. In 2006, Irish productivity growth was below the OECD average. Reinvigorating productivity growth will require policies that enhance competition and reduce barriers to market entry, 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, the report found.
State investment in research and development has grown substantially and investment and innovation activity are also increasing at company level. Nevertheless, further incentives to promote an innovation agenda should be developed, especially around facilitating lifelong learning and developing high-performing higher-level institutions, the report concluded.
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, it said. Also, greater use should be made of public procurement to promote demand for innovative products and services, the NCC maintained, citing the example of the Government’s ambitious environmental targets around things such as renewable energy that have the potential to drive innovation.
“This is not a time for pessimism about the outlook for the Irish economy,” added Thornhill. “The last thing any one 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 NCC believes that implementation of the policy directions in our report will enable us to successfully meet these challenges.”
By Niall Byrne