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News : Irish Economy Last Updated: Feb 23, 2015 - 4:22 PM

Ireland 2016: "Best small country in the world" for business? - a FAIL
By Michael Hennigan, Finfacts founder and editor
Feb 15, 2015 - 10:26 AM

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Enda Kenny, taoiseach, speaking at the launch of the Action Plan for Jobs - Regional, at Croke Park, Dublin, Feb 11 2015. He was flanked by Joan Burton, tánaiste, and Richard Bruton, jobs and enterprise minister.

Ireland: Enda Kenny, taoiseach, during the general election campaign in early 2011 expressed an aspiration that by 2016 Ireland would be "the best small country in the world in which to do business." He added some social indicators that neither he nor anyone else could credibly measure as not one criterion was specified.

“I will seek the trust of the Irish people to implement Fine Gael’s plan to get Ireland working again,” Kenny said on Jan 27, 2011. “I firmly believe that by 2016, Ireland can become the best small country in the world in which to do business, the best country in which to raise a family and the best country in which to grow old with dignity and respect.”

"Since coming into office 7 months ago I have told nearly all audiences that by 2016 I intend to make Ireland the best small country in the world in which to do business," Kenny said on October 28, 2011. An integral part of this vision is to transform Ireland into the Digital Capital of Europe."

"Those of you from Ireland will have heard me say many times that my ambition is for Ireland to become the best small country in the world for business by 2016," Kenny said on February 28, 2013. "It is an ambition I believe we will achieve. The scale of reform and action across Government to improve our competitiveness is unyielding until we reach our goals."

The Verdict

With the next general election due to be held in about 12 months, the verdict on becoming "the best small country in the world in which to do business" by 2016 is going to be a FAIL.

We use internationally recognised benchmarking reports on business indicators and competitiveness, which cover a wide number of factors and the World Bank's Doing Business is the key one.

In 2007, in an effort to counter Rwanda's country ranks in the two previous Doing Business reports (158 and 150), President Paul Kagame authorised the establishment of a national Doing Business Unit, to identify and drive implementation of reforms to improve Rwanda's business climate.

The Sub-Saharan African country which suffered a devastating genocide in 1994 gets a 46 rank in the Doing Business 2015 report compared with Italy's 56 and China's 90.

  • For Ireland a broad range of indicators is very important because of distortions caused by the large foreign-owned sector including tax-avoidance strategies — The idiot/ eejit's guide to distorted Irish national economic data
  • The Department of Finance (DoF) for example claims that a forecast for 2008-2015 shows Irish unit labour costs have fallen 20% compared with the Eurozone average. According to the CSO average hourly earnings were at €21.53 in Q1 2008 and €21.07 in Q3 2014, and the productivity jump rises from the likes of Google booking 40% of its Global revenues in Ireland  — see DoF report here (Page 14)
  • The European Commission's top Irish companies for R&D are in reality US companies that have become Irish for tax purposes — EU Industrial R&D Scoreboard: Tax-inverted brass-plate companies dominate in Ireland
  • IBM's Global Locations reports says "Ireland continues to be the top performer in the world, resulting from the country’s success in attracting research and development (R&D) activities in life sciences and ICT coupled with high-value investment in financial services." However about half the jobs in the ICT sector are in administration while the big US firms do not engage in significant research — Irish resident patenting not suggestive of 'world class knowledge economy'
  • In 2013 Forbes magazine selected Ireland as the best country for business based on seven information sources measuring 11 metrics including innovation, taxes, property rights, technology and stock market performance in 146 nations. It fell to fourth in 2014. This again is not a comprehensive benchmarking — Forbes: US business thrives in Ireland: Why not Irish business?

Kenny did not inherit a basket case

It's not that Enda Kenny had a challenge remotely similar to crisis-time prime ministers of Greece and we recently detailed here the very poor inward investment record of that country despite having infrastructure much more superior than in neighbours such as Romania and Bulgaria.

Successive Irish governments since the 1960s have ensured that Ireland is an attractive location for investment by US firms in particular and that included providing the continued use of offshore shell companies from the late 1990s when there was a decision to generally restrict their use.

The focus of foreign investment came at a cost as the indigenous international trading sector has not realised its full potential to the present day.

There was also a cost in the political decision to maintain a voluntary pensions system in the private sector and in 2013 the Organisation for Economic Cooperation and Development (OECD) reported that at the end of 2009, only 41.3% of private sector workers aged 20 to 69 were enrolled in a funded pension plan, either occupational or personal while among the mainly developed country membership of the OECD, Ireland and New Zealand are the only countries which do not have a mandatory earnings-related pillar to complement the state pension at basic level — which is higher in New Zealand compared with Ireland.

In 2014 Enda Kenny and Michael Noonan, finance minister, provided striking examples of the favouritism shown towards foreign-owned companies compared with local Irish business.

In Washington DC in March Kenny 2014 told a business audience: “If you got a problem, you have an issue or anxiety or concern or a proposition or a proposal I want to hear it. My number is a public number you can call me anytime.” Then in Budget 2015 last October, Noonan increased the tax discrimination against self employed people while removing the salary + benefits annual ceiling of €500,000 on a tax break for individuals hired from overseas — this break is mainly used by foreign-owned companies and now provides a 30% discount on all taxable earnings +share benefits above €75,000 per annum coupled with tax free benefits such as school fees and travel.

Noonan announced that self-employed people who earn in excess of €100,000 would be subject to a special Universal Social Charge rate of 11%. He also maintained the tax discrimination against the self employed on income tax, which is a relic from the anti-evasion campaigns of the late 1970s.

There is a myth from those days that the typical self employed person is a high roller but consider this: In 2011 the CSO published a pensions module as part of its Quarterly National Household Survey — pension coverage among self-employed workers fell considerably from 47% in Quarter 1 2008 to 36% in Quarter 4 2009 — and likely lower again in subsequent years.

The Commercial Court was set up in January 2004 as a division of the High Court to try cases where the claim has a value of at least €1m.

It has been a very significant development for business while Kenny's declaration: "The scale of reform and action across Government to improve our competitiveness is unyielding until we reach our goals" is very hollow in the context of the lack of resolve in passing legal services reform — Key Irish legal services reform parked in Limbo

In February 2012 Enda Kenny and Richard Bruton, enterprise minister, launched what was called an Action Plan for Jobs (APJ) programme with quarterly targets to add jobs incentive schemes or tweak existing ones.

A superficial commentator recently declared that the programme "has been one of the outstanding success stories of the Coalition’s term" — using the superlative "outstanding" suggests that there would be no recovery in jobs without this programme while only a fool would claim that it is a strategy.

In fact what has been missing from both Kenny and Bruton is a focus on strategic long-term planning to meet future challenges: Why has Ireland so few exporters? When Bruton points to a rise in goods exports to China, is that because the likes of Intel Ireland has increased shipments to its sister company there or does it reflect a growth in the indigenous sector's share of 5%? Is a science policy with the goal "in which Ireland in 2020 is the best country in the world for scientific research excellence and impact" both serious and relevant? See links here:

Irish Boom & Bust: Could conventional wisdom be fooled again?

What's missing is evidence-based policy making in place of propaganda announcements.

Some of the ACJ steps likely do help but there are so many schemes, incentives and so on, that it's just guesswork on what works while the Enterprise Department does not commission longitudinal studies whic track the successes and failures among client firms overtime.

Rather than relying on evidence, the Government itself uses bogus recession job losses to fit a revised full employment target — Government explains how it understates recession job losses

In its last biennial Economic Survey of Ireland that was published in 2013, the OECD recommended empirically-proven policies and sunset clauses in enterprise and innovation supports but there is no experience of this in the Irish system. It said the number of programmes and agencies multiplied during the period of booming growth. "There are now over 170 separate budget lines, sometimes for very small amounts of money, and 11 major funding agencies involved in disbursing the Science Budget, although it is small by international standards."

This is boring to ministers but nobody else is in charge and for example enterprise agency heads say nothing of substance in public and possibly also in private.

Focus limited fiscal resources on policies empirically-proven to improve employability; this will require systematic evaluation of labour-market programmes through consistent tracking and randomised trials, followed by decisions to close down ineffective schemes while strengthening successful ones.

Reflecting significant uncertainties about the effectiveness of various innovation policy tools, independently and regularly evaluate all actions in this area, strengthen programmes with proven higher returns, and wind down the others. To promote effective evaluation, ensure all innovation and enterprise supports have sunset clauses."

Who is driving the strategy?

Almost 18 months later, it appears nothing has been done — astounding indeed.

Doing Business 2015

Top 6 are Singapore, New Zealand, Hong Kong China, Denmark, South Korea and Norway.

The World Bank's Doing Business ease of doing business report "measures business regulations that affect domestic small and medium-size firms in 11 areas across 189 economies. Ten of these areas — starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency — are included in the distance to frontier score and ease of doing business ranking. Doing Business also measures labour market regulation, which is not included in these 2 measures."

Greece was at 100 in 2008 and at 61 in 2015.

Ireland's ranking for getting electricity was at 67 and dealing with construction permits (planning permissions) at 128 of 189 countries.

Ireland at 13 in 2015 — due to a change in methodology using a 'distance to frontier' measure, Ireland was boosted by 4 points compared with 2014. It would have been a 2 point rise using the old system.

Ireland at 8 in 2008

The top 6 in 2008 were Singapore, New Zealand, US, Hong Kong, Denmark and UK.

Global Competitiveness Report 2014-2015

Top 6 are Switzerland, Singapore, US, Finland, Germany and Japan.

The Global Competitiveness Index is produced by the Swiss-based World Economic Forum and is based on a wide range of indicators across 12 pillars. It covers 144 countries.

France is at 23 and Saudi Arabia at 24.

Ireland 25 in 2014/2015

Ireland 22 in 2008/2009

Global Information Technology Report 2014

Top 6 are Finland, Singapore, Sweden, Netherlands, Norway and Switzerland.

The Global Information Technology Report 2014 produced by the World Economic Forum in partnership with INSEAD, the French business school, features the latest results of the NRI (Net Readiness Index), offering an overview of the current state of ICT (information, communication and technology) readiness in the world. It covers 148 economies, accounting for over 98% of global GDP.

Qatar is at 23, United Arab Emirates at 24 and France at 25.

Ireland 26 in 2014

Ireland 23 in 2008/2009

World Competitiveness Scoreboard

Top 6 are US, Switzerland, Singapore, Hong Kong, Sweden and Germany.

The World Competitiveness Scoreboard is produced by IMD, the Swiss business school, and the 2014 rankings are for 60 economies covered by the WCY ( IMD World Competitiveness Yearbook). The economies are ranked from the most to the least competitive and the results from the previous year’s scoreboard (2013) are shown in brackets.

United Arab Emirates has an 8 ranking and Malaysia is at 12.

Ireland 15 in 2014

Ireland 12 in 2008

Methodology based on hard data (2/3) and a business executives' opinion survey (1/3).

The Global Financial Centres Index (GFCI)

Top 6 are New York, London, Hong Kong, Singapore, San Francisco and Tokyo

The Global Financial Centres Index (GFCI) was first published by the London-based Z/Yen Group in March 2007. The aim of the GFCI is to examine the major financial centres globally in terms of competitiveness.

The index provides profiles, ratings and rankings for 83 financial centres, drawing on two separate sources of data – instrumental factors and responses to an online survey.

Casablanca at 51, Cayman Islands at 55 and Mauritius at 69.

Dublin at 70 in 2014

Dublin at 13 in 2008

Digital Capital of Europe

As for Enda Kenny and the "vision [ ] to transform Ireland into the Digital Capital of Europe" as part of the 2016 target — in plain English this is bullshit and it's in similar vein to the 2010 Innovation Taskforce report when foolish people fantasised about Ireland becoming a European Silicon Valley with up to 215,000 science and technology jobs being added by 2020 while overtaking the original in Northern California!!

US firms such as Google, Facebook, Twitter, Dropbox and so on, mainly employing foreign administration staff because of language skills needs, cannot be the genesis of  what Kenny called "the Digital Capital of Europe."

We have covered this issue comprehensively elsewhere and the World Economic Forum above puts it in context with a 26 rank.

Israel's Startup Nation not a jobs engine; Nor is Irish high tech — see chart of top 20 tech hubs in world

Dublin's Silicon Docks: Separating hype and reality

Dublin Web Summit 2014: Separating hype and reality Paddy Cosgrave, co-founder of the Web Summit commented in a tweet: "Phenomenal level of research + info in this post about Irish tech policy & startups in general"

Europe's top ICT Hubs: Munich, London, Paris in lead; Dublin with rank of 16

Ireland's exporting record remains poor despite the headline data:

Benchmarking Irish food & drinks industry in 2015 - Part 1

Ireland has 4,000 exporters; Denmark has 30,000

Scotch whisky exports at £3.9bn; Irish whiskey exports at €365m

Chinese investment into Europe at record high; UK on top, Ireland hopes

Irish overseas 'contract manufacturing' mainly tax avoidance

Forty American firms account for two-thirds of Irish exports

Ireland: Jobs in foreign-owned exporting sector in 2014 below 2000 level

Ireland: Government explains how it understates recession job losses

Irish Boom & Bust: Could conventional wisdom be fooled again?

Key Irish legal services reform parked in LimboFour years in power and the current Irish government has been afraid to upset the wealthy lawyers.

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