The outlook for the economy appears positive but Ireland remains an expensive location, according to the latest "Cost of Doing Business in Ireland" report by the National Competitiveness Council. The report is one of a number of reports produced by the NCC to advise Government on where Ireland is in terms of competitiveness.
The Chairman of the National Competitiveness Council, Professor Peter Clinch said competitiveness really matters because the ability of Irish firms abroad determines the wages we can pay ourselves but also our ability to finance social services such as health, education and social protection.
"It's very good news on the economy considering where we have come from, but we class Ireland as a high cost economy for doing business, and we're seeing particular price pressures emerging in key areas," Professor Clinch stated.
Those areas are in labour costs, house prices, business services, transport costs, childcare, insurance, and capacity constraints in infrastructure which sees commuters having to endure some of the worst congestion times in the European Union.
Professor Clinch said the key issue with housing prices is how it affects the cost of living so when housing costs increases the cost of living also goes up. People then naturally have a demand for wage increases and those wage increases in particular affect small Irish companies, more so than the larger ones, who maybe work off very small margins.
The Professor said that Irish SMEs are facing a serious and an imminent threat from Brexit as many of them trade into the UK market. The effect of higher wage rates - because of house prices pushing them up - can force those companies out of business.
The NCC chairman said the only thing you can do to mitigate the effects of Brexit is to use the competitiveness levers that the Irish Government and business have. "A big concern for the Council is that our exceptional improvement in competitiveness since the economic crash is what has driven our export boom and allowed the recovery," he said.
"The view of the Council is that this came from the economic crash forcing prices down. It came from the over-capacity on infrastructure and labour that allowed us to develop very quickly without having price increases, and it also resulted from external forces beyond our control such as the low value of the euro which made our exports competitive," Professor Clinch said.
He said the largest threat is that Ireland's smaller companies are relatively average in terms of their productivity levels, and "Ireland is flying on one large engine of a number of very small companies exporting a very small amount of goods and services to a very small number of markets".
He said the focus should be on small companies improving their productivity. These companies are the least likely to be able to invest in technology, least likely to attract the right managerial talent and also the most affected by these sort of costs.
"There is a lot of work going on between Enterprise Ireland and other agencies to try to improve productivity levels in those firms, but it will be those firms themselves will have to invest in new measures in order to address these competitiveness concerns," he said.
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