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News : Irish Economy Last Updated: Aug 23, 2010 - 8:24:15 PM

IBEC report says Ireland more attractive for FDI post-crisis - - a mix of reality and spin
By Michael Hennigan, Founder and Editor of Finfacts
Jul 19, 2010 - 6:55:33 AM

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German unit labour costs rose in 2009 because it supported employment via the publicly subsidised Kurzarbeit short-time working scheme; Ireland's unit labour costs fell, partly because of the jump in unemployment. Besides, the pharmaceutical/medical devices sector, which accounts for more than 50% of merchandise exports, has seen exports rising by 26% in the five years to 2009 but no increase in employment - - reflected in a rise in productivity.

IBEC, the business group, today published a new report, 'Ireland as a place to do business', which sets out the major adjustments that have taken place in the Irish economy over the past two years.

IBEC says the adjustments confirm that Ireland once again is becoming a favoured location for foreign direct investment (FDI), a fact it claims is borne out by the IDA's recent mid-year review. The business lobby group stressed the need for measures to boost the domestic economy, to avoid the risk of a two-speed recovery, with a thriving export sector but sluggish domestic demand.

What is termed a report, is more a marketing brochure listing positives and could have been produced by a public enterprise agency where focus is generally more on spin than facts. There is of course no issue with presenting positive news but it's foolish to take the audience for fools.

Much has been made by the Taoiseach Brian Cowen and his spinmeisters about Ireland having been the only economy in the Eurozone to have experienced a fall in unit labour costs in 2009. 

The report says that according to European Commission estimates, Ireland’s unit labour costs fell by nearly 3% in 2009. Given that in the EU-27 labour costs increased in the same period, this represents an improvement of nearly 7% relative to the EU average. The Commission forecasts that the cumulative fall in Irish unit labour costs will be 9% in the period 2008-2011. Relative to the EU average, this is an improvement of 13 percentage points, achieved through a combination of productivity improvements delivered by innovative workplace change and some reductions in wage costs.

In Germany, unit labour costs rose in 2009, not because of a spike in wages but because it choose to support employment through the Kurzarbeit short-time working scheme which had 1.5m workers availing of the publicly subidised scheme. So wages were maintained but hours worked fell.

Part of the Irish gain in 2009, results from the jump in unemployment!

The European Commission has said that productivity growth was positive only in Spain and Ireland. In Spain, productivity growth was particularly strong, due to an increase in unemployment that was far greater than the contraction in GDP. The rebound in Spain's labour productivity has therefore significant cyclical components and it may not be extrapolated to the future. By contrast, muted reaction of unemployment to the GDP fall in Germany, Italy, Luxembourg, the Netherlands, Slovenia and Finland led to sharp decreases in productivity. In Ireland, recovery in productivity combined with the decline in compensation per employee pushed unit labour costs down.

According to the European Central Bank, unit labour costs in Ireland rose 11.3% from 1999 to Q1 2010 and fell 13.7% in Germany in the same period.

The Irish labour force is among the best educated in the world. Maybe?

This is a subjective view and next December, the 2009 results of the OECD's Programme for International Student Assessment (PISA) for 2009 will be published. It is an international assessment of the skills and knowledge of 15-year-olds in reading ability, science and mathematics. Rather than assessing school-based curricula, PISA assesses students’ performance on ‘real-life’ tasks that are considered relevant for effective participation in adult society and for life-long learning.

Finland’s students obtained very high mean scores in each category in 2006.

There have been improvements in costs but the sheltered sectors of the economy remain unreformed.

The European Commission said last month that food costs were among the highest in Europe and Ireland got a mid-range ranking as a digital economy from the Economist Intelligence Unit.

In the 2010 IMD World Competitiveness Yearbook, Ireland slipped to 21st behind Malaysia at 10th rank, of the world's most competitive economies.

Apart from reform of regulation at the Central Bank, it has been business as usual with much else. The ongoing shenanigans about waste policy and the planned Dublin incinerator, illustrates the durability of the culture of gombeenism.

Bubble era costs remain entrenched in several sectors.

SEE: Finfacts articles:

Ireland's business-as-usual professional fee 'cartels'

Irish Economy Post-Crisis: Significant change? Glacial change? More of the same?

Conservative Ireland rules despite the economic crash and its terrible human toll

IBEC says key points made in the report include:

  • The Irish labour force is among the best educated in the world

  • Ireland is ranked third in Europe by the World Bank in terms of ease of doing business

  • In the 2010 IMD World Competitiveness Yearbook, Ireland was ranked fourth in the world in terms of availability of skilled labour and openness to new idea

  • The European Commission forecasts that the cumulative fall in Irish unit labour costs will be 9% in the period 2008-2011

  • Ireland’s decisive and credible action in curbing its deficit and the flexible reaction of the labour market have been recognised by international markets

The report includes recent international commentary on positive developments in the economy and highlights how competitiveness has significantly improved in key areas - - given the misplaced/plainly stupid international commentary during the bubble, should we be cautious about the plaudits today?

IBEC's Director of International Affairs Brendan Butler said:
"The adjustments, while painful, were absolutely essential to protect the Irish economy. The focus over the past two years on increasing productivity and cutting costs has helped companies restore some of the competitiveness lost in the preceding years. Although there is still some way to go, we have made significant strides. We need to build on this success.

Speaking about the need to boost activity in the domestic economy, Mr Butler said: "Improving international demand and the weakening of the euro in recent months have provided positive environment for Ireland’s export sector. The domestic economy, however, remains weak and this must become a priority for Government.

"Government needs to put in place a well-targeted public capital investment programme and ensure that any changes to the tax system promote consumer confidence and encourage a return to more normal spending and saving patterns. Business is concerned that Government will not meet its targets for public capital investment this year. While current government expenditure is running marginally ahead of budget, capital investment is a substantial 25% behind target. It is vital that Government remains committed to its own capital investment targets."

Download report (pdf)

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