The quality of work produced by the National Competitiveness and Productivity Council, including research, analysis, and diverse perspectives, has always impressed me during my time as a member. However, it has been rather apparent that successive governments have been less swift and comprehensive in their actions based on the council’s discussions.
The council’s latest report, “Ireland’s Competitiveness Challenge”, illuminates the key difficulties that Ireland faces in terms of competitiveness and productivity. Among the interesting data and sensible advice within the 130-page report, certain issues are particularly noteworthy. These include the risk to foreign direct investment (FDI) due to global trends, the slow advancement of infrastructure, the skills dilemma in Ireland, and the high costs of conducting business in the country. These challenges not only concern international investors but are also problematic for local small and medium-sized enterprises.
With a difficult investment environment, Ireland finds itself in a predicament. The industrial strategy of attracting FDI and utilising its economic spill-over benefits, which has driven the country’s economy for many years, is now confronting substantial obstacles both locally and globally. On the global stage, several issues such as inflation, high interest rates, and geopolitical issues have dampened economic growth. Compared to pre-COVID 2019, global FDI flows in terms of project volume remain low, causing Ireland and the Industrial Development Authority to cast their investment nets into a smaller pond.
The sectors of technology and pharmaceuticals, where Ireland previously enjoyed significant success in attracting investment and saw speedy growth during COVID, have been hugely impacted worldwide in the post-COVID era. Meanwhile, global competition for FDI has continued to intensify, with rival nations stepping up their incentive games.
Internally, Ireland is dealing with a plethora of challenges that complicate its attempts to attract investments. Multinational corporations are frustrated with Ireland’s sluggish progress in rectifying infrastructure deficiencies, particularly in housing, energy, water, and transportation sectors. If these issues are not promptly addressed, attracting investment may prove increasingly difficult. Reasonably priced utilities and infrastructure are fundamental requirements for investors. Thus, Ireland must address the factors within its purview, of which domestic infrastructure is a significant one.
Those dependent on extensive energy resources are dissatisfied with the sluggish progression in the field of offshore wind, an environmentally-friendly, sustainable answer to both Ireland’s and investors’ necessities.
The council also recognises the predicament faced by the Government in attempting to enhance infrastructure while the economy is fully operational, employment is at its peak, and without worsening existing problems.
The report underscores the downside of Ireland’s costly business environment. Government-induced initiatives to better the working ecosystem have imposed additional financial burden on employers. This impacts all sectors, however, it is particularly felt in industries with a considerable workforce handling tight profit margins, such as those in the hospitality and retail sectors. Above and beyond, the expenses involved in energy, transport and shipping continue to be high. This reflects Grant Thornton’s Business Optimism Report in July, where it was voiced that energy expenditures are a notable concern of Irish businesses, with nearly half citing utility bills as a barrier to growth.
The council emphasises the imperative to align our education system’s output more closely with the rapidly evolving needs of business enterprises, something Ireland has been fairly successful at in the past twenty years. The report focusses specifically on broad, digital, environmentally friendly and construction related skills and rightly alludes to the changing business milieu owing to advancements in artificial intelligence. Education will be a crucial factor in future economic prosperity. Nonetheless, the council does not broach the subject of higher education funding in its recommendations, which is a noticeably absent topic.
Even though the first half of 2024’s investment and job statistics from the IDA suggests that the charm of Ireland persists for investors, results have reached a standstill. The continual influx of investments should not be presumed as a certainty. Currently, political and economic steadiness is Ireland’s fortitude, however, owing to worldwide and internal obstructions it is improbable that foreign direct investment (FDI) will continue to expand at its rate noted in the past ten years. However, maintaining the existing high level of FDI investment and employment would be beneficial for us.
Is there a chance that the allure of Ireland as a favourable destination for foreign direct investments (FDI) will abruptedly dim? That’s unlikely. Instead, the change will most likely be a more understated one. The hurdles that have risen in terms of infrastructure and expertise haven’t gone unnoticed by investors, causing Ireland to be sidestepped for certain types of investments. The power to tackle these challenges lies chiefly within Ireland. Given the weighty dependence on FDIs for our yearly corporate and personal tax revenues, this should be a priority. The advice of The Competitiveness and Productivity Council should be taken seriously.