The National Competitiveness Council
(NCC) today published a report on the 'Costs of Doing Business in Ireland in
2010'. The NCC said most of the costs used were from 2009.
The report analyses Ireland’s
relative cost competitiveness performance across four key business inputs –
labour, property, utilities and business services – and looks at the broader
cost environment that indirectly impacts on the cost of doing business here. The
report shows that there have been tangible improvements in the cost of doing
business, however some costs continue to increase or remain relatively high,
particularly in sectors that are not exposed to international competition and
are sheltered from the full rigours of domestic competition.
competitiveness has improved considerably for a range of key business inputs
such as energy, property and a number of business services. This is good news
for our exporters and for attracting investment but we must sustain our focus on
driving down the cost of doing business here. Much of the improvement is due to
the sharpness of the recession so it is critical that we act now to put in place
the structural changes needed to ensure that costs do not rise again and erode
competitiveness when the economy starts to grow” said
NCC Chair Dr Don Thornhill.
“Comparing prices and costs across countries is a valuable exercise but it is
important to remember that cost competitiveness is only one aspect of overall
competitiveness. The availability of skilled labour, productivity and innovation
performance, quality infrastructure, together with a variety of other factors
ultimately determine the ability of a country to compete in world markets and to
deliver well paid employment and prosperity for its people. Ireland’s national
competitiveness performance is assessed in detail in the NCC’s forthcoming
report, Benchmarking Ireland’s Performance” he continued.
“The cost of doing business in Ireland is falling and this is to be welcomed.
Businesses entering into new contracts in particular are receiving good value.
We need to continually monitor the cost base and push for further reductions in
areas that have not yet adjusted. The lowering cost base will open up new
opportunities for Ireland in attracting mobile investment and growing exports.”
commented Martin Shanahan, Chief Executive of Forfás.
However, the question that is not
addressed is if the decline just reflects the severe recession or is there
potential for permanent improved competitiveness, even at a time of a robust
There has been no reform worth
talking about and the sheltered areas of the private sector even during the
recession have shown no change from the culture of bubble prices where they can
pass on the prices without impacting business.
The report says the Central Bank recently highlighted a number
of caveats to be aware of when using compensation levels to review international
labour cost comparisons (compensation levels are not adjusted for differences
across countries in age, educational attainment and sectoral composition) and
advised that such comparisons should be viewed as crude and treated with caution22.
The Central Bank found compensation across the economy on a per hourly basis was
12.8 per cent higher in Ireland than the euro area average in 2008. Looking
specifically at the industrial sector, however, labour costs on a per hourly
basis were 13.4 per cent below the euro area average in 2008. The NCC says
this indicates that compensation levels in the more sheltered sectors of the
Irish economy are likely to be significantly higher than those in our main
Finfacts article, July
2010: Ireland's business-as-usual professional fee 'cartels'
Summary of Key Findings
Although prices are moderating, the NCC cautions that further
action is required to regain our cost competitiveness. The key findings are:
Ireland experienced a
significant loss in cost competitiveness as measured by the real harmonised
competitiveness indicator over the past decade reflecting a combination of
an appreciation of the euro against the currencies of many of our trading
partners and higher price inflation in Ireland. owever, since January 2008,
Ireland has regained some of its lost cost competitiveness as domestic
inflation remains below that of our main trading partners and as the euro
Although prices in
Ireland have moderated in the past year, a range of key business inputs in
Ireland remain relatively expensive including property, broadband and legal
fees. Improving our relative cost competitiveness requires the cost of doing
business in Ireland to fall relative to that of our trading partners.
Therefore, falling prices in Ireland do not automatically equate to
improvements in cost competitiveness. For example, while the costs of
renting a prime industrial unit fell by 18 per cent in Ireland between 2008
and 2009, Ireland’s ranking improved by just one place to third most
expensive, as rents fell in 12 of the 16 other countries benchmarked.
While the costs of many goods
and services have fallen significantly in Ireland in the past two years,
there are notable exceptions – particularly in locally trading sectors of
the economy. For example, the costs of waste water services increased by
18.8 per cent in Ireland during 2009. The cost of legal services has
declined very slowly, and in Q4 2009 they remained 18.4 per cent above the
The drivers of falling prices
are also important to consider. For example, the cost of industrial
electricity in Ireland decreased by 24 per cent - more than any other
benchmarked location in 2009. The gap between the price of industrial
electricity for large energy users in Ireland and the euro area average has
narrowed significantly (from 37 per cent in the second half of 2008 to five
per cent in the second half of 2009). However, recent price falls may not be
sustainable as they appear to be largely due to falling international fossil
fuel prices and a temporary reduction in electricity prices for large energy
users. While these improvements in cost competitiveness are very welcome,
continuing progress on longer term structural changes are essential if
improvements in cost competitiveness are to be sustained.
The costs of a range of public
and administered services continue to negatively affect Irish cost
competitiveness. The cost of health and education services continues to
rise rapidly, further increasing the gap between these components and the
other goods and services included in the consumer price index. Transport
costs, such as urban public transport and taxies, are relatively expensive
in Ireland compared with our main trading partners.
Exchange rates have a
significant impact on the relative costs of doing business in Ireland. As
they are volatile and outside of our control, it is critical that we
concentrate on those cost factors that are, at least to some degree,
influenced by government policy.
Costs of Doing Business in Ireland 2010 Volume 1 (PDF, 62 pages,
The NCC says while the report uses
the most up to date statistics available, these are generally for 2009, and so
do not reflect the full positive impact of changes in cost structures. Anecdotal
evidence would suggest that Ireland’s competitiveness continued to improve
through the first half of 2010. The NCC expects these improvements to show up in
the data over the rest of the year.