Ireland at economic crossroads, warns Forfás

29 Jul 2003

Industrial and technology advisory agency Forfás has warned that Ireland is at a difficult economic crossroads and that globalisation has led to the emergence of lower cost locations such as India and China that may threaten many of the activities that Ireland depends on for success.

While Ireland has succeeded in growing employment 40pc since the early 1990s when the country was in the economic doldrums through identifying opportunities in software, electronics, internationally traded services and manufacturing, a rapidly changing economic environment threatens this, said Forfás chief executive Martin Cronin.

Declaring that Ireland must respond from its present position of strength he said: “Increasing globalisation and the growth of traded services and of e-business mean that more of the global economy is becoming accessible to us. This is good news for an open, export-oriented economy with low tax rates and a flexible operating environment.

“At the same time, globalisation is accelerating the emergence of lower cost locations as serious competitors for many of the activities on which we currently depend for success. We must face this challenge by building competitiveness in areas where we have, or can achieve the necessary critical mass.”

Cronin said that this will require a more complex form of competitiveness, based on a blend of not only low taxes, high skills and moderate costs but also on the availability of specialist suppliers, service providers, better infrastructure, an appropriate regulatory environment, strong R&D and a deep understanding of served markets. “Each of these must be tailored to support the kinds of business for which we can make Ireland a super-competitive location with distinctive competencies,” Cronin said.

He referred to yesterday’s establishment of an Enterprise Strategy Group, headed by former Lucent managing director Eoin O’Driscoll, which is charged with formulating an economic strategy for Ireland for the next 10 years.

Other factors that will come to bear, Cronin said, would be the National Spatial Strategy and the development of a “National System for Innovation”, based on efforts by Science Foundation Ireland and the Programme for Research in Third Level Institutes.

Employment at companies supported by Enterprise Ireland, IDA Ireland, Shannon Development and Udarás na Gaeltachta was 304,00 people, a decrease of around 9,500 people. This is the second year that there has been a net decrease in employment in agency-supported companies, but 40pc higher than the situation in the early 1990s.

According to the Forfás annual report, gross expenditure on R&D increased by 22pc or €242m to €1.3bn. Business sector R&D accounted for €133m of this increase, reaching €916.8m. R&D in the higher education sector increased €45m to reach €294.3m. According to Forfás, R&D represents approximately a quarter of public science and technology expenditure, with €342m allocated in 2001, an increase of €98m over the 2000 level.

Direct expenditure by State agency-supported companies totalled €34bn in 2001, a 10.2pc increase on the previous year. This comprised payroll costs of €10.4bn, raw material costs of €14.8bn and spend on services of €8.8bn. Irish-owned companies accounted for 46pc or €15.5bn of this direct expenditure.

By John Kennedy