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Ireland’s Competitiveness Scorecard 2017 July 2017

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Page 1: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

Ireland’s Competitiveness Scorecard 2017 July 2017

Page 2: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

1 July 2017

Introduction to the National Competitiveness Council

The National Competitiveness Council reports to the Taoiseach and the Government, through the Tánaiste

and Minister for Enterprise and Innovation on key competitiveness issues facing the Irish economy and policy

actions to enhance Ireland’s competitive position.

National competitiveness is a broad concept that encompasses the diverse range of factors which result in

firms in Ireland achieving success in international markets. For the Council, the goal of national

competitiveness is to provide Ireland’s people with the opportunity to improve their living standards and

quality of life. The Council uses a “competitiveness pyramid” framework to illustrate the various factors

(essential conditions, policy inputs and outputs), which combine to determine overall competitiveness and

sustainable growth. This framework is elaborated on further in Annex 1.

In line with its Terms of Reference, each year the Council publishes two annual reports:

Ireland’s Competitiveness Scorecard provides a comprehensive statistical assessment of Ireland's

competitiveness performance; and

Ireland’s Competitiveness Challenge uses this information along with the latest research to outline the

main challenges to Ireland’s competitiveness and the policy responses required to meet them.

As part of its work, the Council also:

Publishes the Costs of Doing Business where key business costs in Ireland are benchmarked against costs

in competitor countries; and

Provides an annual Submission to the Action Plan for Jobs and other papers on specific competitiveness

issues.

In addition, the Council publishes a range of other papers, submissions and reports on a variety of issues of

importance to Ireland’s competitiveness.

In April 2017, the Council published a report Benchmarking Competiveness: Ireland and the UK, 2017

which provides a statistical snapshot assessment of Ireland's current competitiveness performance

across areas which are crucial to improving our international competitiveness position. Ireland’s

competitiveness performance is considered with specific reference to the UK, to establish areas

where policy attention could enhance Ireland’s competitiveness.

In February 2017, the Council published a report benchmarking Ireland’s recent productivity

performance. Ireland’s labour productivity performance is strong in an international context.

Increasing productivity across all sectors remains a significant challenge. Productivity growth is a key

driver of national competitiveness, as it enables firms based in Ireland to compete successfully in

international markets by facilitating output to be produced in a more efficient and effective manner.

Ireland can take advantage of a sizeable competitiveness opportunity if we can avoid the ‘productivity

trap’ being experienced by many developed economies. Facilitating enterprise and start-ups, trade,

access to finance, skills and infrastructure are critical to productivity and competitiveness gains.

In 2016 the Council undertook a review of our Competitiveness Framework and a study to assess the

affordability of residential property in Ireland in an international context.

NCC Competitiveness Bulletins focus on individual topics and highlight issues of concern to the

Council, setting out briefly why a particular issue is of concern, and providing a summary of actions

designed to enhance Ireland's competitiveness.

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2 July 2017

National Competitiveness Council Members

Professor Peter Clinch Chair, National Competitiveness Council

Pat Beirne Chief Executive Officer, Mergon Group

Kevin Callinan Deputy General Secretary, IMPACT Trade Union

Micheál Collins Assistant Professor of Social Policy, University College Dublin

Isolde Goggin Chair, Competition and Consumer Protection Commission

Cathríona Hallahan CEO/Managing Director (Ireland), Microsoft

Declan Hughes Assistant Secretary, Department of Jobs, Enterprise and Innovation

Jane Magnier Joint Managing Director, Abbey Tours

Danny McCoy Chief Executive Officer, Ibec

Seán O'Driscoll President, Glen Dimplex Group

Margot Slattery Country President, Sodexo Ireland

Martin Shanahan Chief Executive, IDA Ireland

Julie Sinnamon Chief Executive, Enterprise Ireland

Ian Talbot Chief Executive, Chambers Ireland

Patrick Walsh Managing Director, Dogpatch Labs

Jim Woulfe Chief Executive, Dairygold Co-Operative Society Limited

Council Advisers

Patricia Cronin Department of Communications, Climate Action and Environment

Kathleen Gavin Department of Education and Skills

John McCarthy Department of Finance

Conan McKenna Department of Justice and Equality

David Moloney Department of Public Expenditure and Reform

Ray O’Leary Department of Transport, Tourism, and Sport

John Shaw Department of the Taoiseach

Kevin Smyth Department of Agriculture, Food and the Marine

David Walsh Department of Housing, Planning, Community and Local Government

Research, Analysis and Secretariat

Marie Bourke Department of Jobs, Enterprise and Innovation

Teodora Corcoran 23 Kildare Street, Dublin 2, D02 TD30

Eoin Cuddihy Tel: +353-1-631-2121

John Maher Email: [email protected]

Web: www.competitiveness.ie

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3 July 2017

Taoiseach’s Foreword

As a small open economy, competitiveness is central to our future prosperity.

Improved competitiveness has helped Ireland increase employment, exports and

investment in recent years. Over two million people are now working, and the

Action Plan for Jobs target of 45,000 extra jobs this year is on course to be

exceeded.

A failure to maintain competitiveness in the run-up to the economic crisis left

the Irish economy vulnerable and ultimately resulted in the loss of jobs and fall in

living standards suffered by the Irish people. We need to ensure that we don’t

repeat the mistakes of the past, and that is why the Government, the Oireachtas

and the Irish public need to pay attention to the analysis of the National

Competitiveness Council.

Whilst our competitiveness performance in recent years has been positive, it is essential to remain vigilant as

we approach full employment and the economy begins to face capacity constraints. Increasingly the focus

must be on growing participation in the workforce, and increasing skill levels, innovation and productivity

across the economy, in both private and public sectors.

In addition, Brexit creates large uncertainties and risks for the Irish economy, and in particular for those

sectors most dependent on trade with the United Kingdom. In many cases, these sectors are employment

intensive, operate in low-margin industries, and have a large regional footprint. Now, more than ever, Ireland

needs to respond creatively to challenges such as infrastructure bottlenecks, skills deficits, and increasing

costs. We need to help Irish companies become more resilient to Brexit by improving their levels of

productivity and innovation.

Ireland’s Competitiveness Scorecard 2017 is a very detailed analysis of Ireland’s competitiveness performance

across many different variables, based on a sophisticated understanding of what determines a country’s

competitiveness. It provides an objective evidence base for those making policy and resource-allocation

decisions in a time of considerable uncertainty.

I would like to thank the National Competitiveness Council for this comprehensive report and encourage

everyone involved in policy-making to consider its analysis carefully so that we can enable Irish companies to

compete successfully in international markets and provide Ireland’s people with the opportunity to further

improve their living standards in the years ahead.

Leo Varadkar TD

Taoiseach

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4 July 2017

Tánaiste’s Foreword The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across sectors and regions. The strong performance of clients supported by the enterprise agencies in winning exports, market share and job creation in the face of intense global competition is to be commended and reflects the competitiveness of the environment in which to do business in Ireland.

At the same time, as set out in this report, a number of critical competitiveness issues are evident and my objective is to ensure the economy is resilient at sectoral and firm level to deal with imminent competitiveness challenges and to build further on the progress we have made.

Global uncertainty and Brexit in particular, has underlined the importance of building competitive advantage and generating uplift in enterprise export competitiveness to secure sustainable jobs and growth. A more diverse export base can reduce exposure to external demand shocks, exchange rate volatility and enhance growth and jobs. Supporting start-ups and facilitating enterprise evolve into new products, markets and sectors, while sustaining the advantages we enjoy in existing ones is a key priority for my Department.

Ensuring enterprise stays at the forefront of innovative activity is vital to deepening the resilience of our enterprise base and necessary for success in global markets, which for a small open economy like Ireland, is necessary for creating sustainable growth. The returns from innovation are a particularly vital component in securing productivity growth, consolidating and broadening our FDI base, and creating competitive advantage in intellectual property and commercial products and services. At firm level, the returns from innovation are associated with lower costs, increased turnover, productivity and job creation.

In the context of intense competition internationally for exports, mobile investment and talent, enhancing national competitiveness is vital to secure increases in incomes and future prosperity. Building the foundations of future growth means we must further enhance the competitiveness of our business environment. We must continue to invest in our infrastructure and talent base and talent, and harness the benefits from trade and the Single Market.

As Minister for Enterprise and Innovation, I will ensure policies which enhance national competitiveness and create the best possible environment for enterprise, innovation and investment across all regions are prioritised and implemented.

Frances Fitzgerald TD

Tánaiste and Minister for Enterprise and Innovation

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5 July 2017

Chairman’s Preface

Ireland’s ability to provide well-paid jobs and good-quality public services like

health, education and social protection relies upon us being able to sell our

goods and services abroad. That requires a competitive economy and it also

requires the enhancement of productivity by investing in people and capital,

thereby equipping individuals with the skills and tools to work smarter.

MAINTAINING OUR SUCCESS: Ireland’s relative macroeconomic performance

continued to improve over the last year. Improved public finances, productivity

growth, export growth and the labour market have all contributed to Ireland’s

improved competitiveness performance in international rankings. The

exporting sectors of the economy continue to perform strongly and many of Ireland’s traditional strengths

(such as our competitive taxation regime, highly skilled young workforce, and supportive environment in

which to do business and invest) remain. This has led to an improvement in Ireland’s competitiveness rankings

(we are ranked 6th in the latest IMD World Competitiveness Yearbook). This improvement is welcome and the

achievement should be acknowledged. The key concern of the NCC is that Ireland maintains these rankings.

This is a difficult challenge in a rapidly growing economy that is closing in on full employment. However, it is

particularly crucial to address the significant downside threats to the Irish economy which include Brexit, a

potential shift in trade and taxation policy in the US, and the uncertain nature of global growth, particularly,

the potential for slower than projected growth in the UK and US.

CAUTION: To protect its economy, Ireland must address those competitiveness factors that are within its

control. Moreover, as one of the world’s most globalised economies, we must take care when evaluating our

economic success through national income statistics. Our strong improvements in macroeconomic metrics

have driven the improvement in Ireland’s relative competitiveness score. Metrics derived with respect to

national income, such as export values, expenditure ratios-to-GDP, measures of potential output, the

structural deficit, debt and the expenditure benchmark, must be interpreted with caution. While the headline

measures of success are positive, beneath the surface, a number of significant challenges are evident.

COSTS: A rapidly improving labour market and positive inflation are likely to pose challenges for

competitiveness in terms of skill shortages, increasing consumer prices and business costs. Cost pressures are

evident in key areas, in particular, in residential property, the shift in the value of Sterling and rising prices.

Ireland has a relatively high share of trade outside the Euro area – meaning that Ireland is more exposed to the

impact of exchange rate fluctuations. The value of the Euro against Sterling is critical for Irish exporters,

particularly those in employment intensive sectors such as the agri-food sector which remain very dependent

on strong trading activity with the UK. The euro’s appreciation relative to sterling poses significant concerns

for parts of the exporting sector reliant on trade with the UK, especially the food sector and areas of the

economy sensitive to cross-border trade. While overall labour-cost growth remains competitive, sector

specific pressures exist. On an annual basis, there has been strong labour-cost growth in construction,

professional services and accommodation and food.

EXPORT BASE: Despite our strong trade performance, our export base remains narrow. Brexit has underlined

the importance of generating uplift in enterprise export competitiveness to secure future jobs and growth. A

more diverse export base can reduce exposure to external demand shocks, exchange rate fluctuations and

instability in export earnings, upgrade value-added, and enhance growth and jobs. Policies to facilitate

enterprise to move into new products, markets and sectors, whilst maintaining the competitive advantages it

enjoys in existing ones, are now critical.

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PRODUCTIVITY GAP: Such policies referred to above will help to bridge the productivity gap that exists

between the most productive firms in Ireland and the rest of the enterprise base that is lagging. While Ireland’s

productivity growth is relatively strong, it is skewed by a small cohort of firms in the manufacturing and ICT

sectors. There is a need to increase productivity across many sectors and occupations, particularly in the

indigenous and locally-trading sectors of the economy. This is perhaps the foremost medium-term domestic

challenge to sustainable growth prospects.

INNOVATION: Ensuring Irish enterprise stays at the forefront of technology and innovative activity, and can

support that through access to competitively-priced finance from a variety of sources, is critical for boosting

productivity growth. While Ireland has a higher proportion of innovative enterprises than the Euro area-19

average in product, process and marketing, its performance is relatively weak in terms of organisational

innovation. Business R&D expenditures as a percentage of GDP have been relatively flat over the period 2010-

2015. At the same time, while public investment in R&D is increasing, meeting our intensity target of 2.5% of

GNP by 2020 is a significant challenge and that figure still places Ireland as an ‘innovation follower’ according

to this indicator. Competitive economies require sufficient and effective investment in R&D, especially by the

private sector; the presence of high-quality scientific research institutions; extensive collaboration in research

between universities and industry; and sophisticated business practices and effective clusters. A challenge for

the private sector, and for policymakers, is how to enhance the diffusion of knowledge and knowhow from the

leading firms, including the multinational enterprises, to the rest of the Irish enterprise base. The productivity

of the leading firms will be enhanced through higher rates of productivity across the board which will result in

better products and services, a larger pool of skilled workers, and a lower cost base.

PUBLIC FINANCES: Careful management of the public finances within the EU budgetary guidelines will

remain a challenge, particularly considering the need to address growing infrastructure and funding deficits,

and to ensure that the economy does not overheat. Ireland’s exposure related to the concentration of

corporation tax receipts among a very small cohort of firms remains a risk and it is essential that the tax base is

broadened consistent with the OECD tax hierarchy for growth, which contends that taxes on immobile bases,

such as property, and consumption are less distortive than those on personal and corporate income. Any

loosening of fiscal discipline (by which we mean, for example, unsustainable current expenditure increases or

shrinking tax ratios) at this stage would undo much of the progress achieved to date, and would have

potentially significant negative implications for future competitiveness.

Sustainable growth and improved living standards for all is the primary goal of national competitiveness. To

ensure Ireland has the capacity to absorb and respond to economic shocks, it is important to ensure our fiscal

position remains sustainable. While we must continue to compete from a taxation perspective, we should

avoid any narrowing of the tax base and ensure the tax system supports and rewards employment, enterprise,

investment and innovation. Developing our infrastructure base, while complying with the EU’s fiscal rules, is a

fundamental challenge to enhancing competitiveness. Improving and prioritising public investment,

particularly our capacity to deliver regionally connected projects in line with the National Planning Framework

are essential. However, any investment of valuable public funds must be done on a sound evidence base.

This report provides part of the evidential base to assist policymakers to identify the key challenges

confronting Irish enterprise. The Council will further consider these challenges in its annual policy document,

Ireland’s Competitiveness Challenge, which will be published later this year.

Professor Peter Clinch

Chairman, National Competitiveness Council

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Table of Contents

Executive Summary 8

Chapter 1: Ireland’s Competitiveness Performance and Outlook 17

Chapter 2: Sustainable Growth: Quality of Life, Income, Environmental Sustainability 24

Chapter 3: Competitiveness Outputs: Business Performance, Costs, Productivity, Employment 37

Chapter 4: Competitiveness Inputs: Business Environment, Infrastructure,Clusters and Firm Sophistication,

Knowledge and Talent 69

Chapter 5: Essential Conditions: Institutions, Macroeconomic Sustainability, Endowments 100

Annex 1: Methodology 119

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Executive Summary

Competitiveness is a multidimensional concept incorporating many of interlinked and interdependent factors;

reflecting this complexity, Ireland’s Competitiveness Scorecard analyses over 140 measures each of which

articulates an aspect of Ireland’s competitiveness performance.

Given the disparate nature of these indicators, the National Competitiveness Council does not attempt to

create a single quantifiable measure of competitiveness – rather, each indicator is examined individually.

Thereafter, taking a birds-eye view of all the data collected, the Council can draw the various strands of

analysis together to present a comprehensive picture of Ireland’s international competitiveness performance.

The 2017 Scorecard is divided into four main sections - sustainable growth (Chapter 2), competitiveness

outputs (Chapter 3), competitiveness inputs (Chapter 4) and essential conditions for competitiveness (Chapter

5) - which correspond to the segments of the NCC’s competitiveness pyramid. Key findings are summarised

below.

Ireland’s economic prosperity is inextricably linked to how competitive we are internationally.

Competitiveness performance reflects the interaction of a wide range of factors that, combined, determine

the ability of firms to compete successfully in international markets. Ireland’s performance across the main

international competiveness indices has improved in recent years. The World Bank’s Ease of Doing Business

report currently ranks Ireland 18th out of 190 economies. The Wold Economic Forum Global Competitiveness

Report ranks Ireland 23rd out of 138 countries. The Institute for Management Development measure of

competitiveness ranks Ireland 6th most competitive out of 63 countries. Both the nominal and real Harmonised

Competitiveness Indicator are currently at relatively low levels by historic standards and recent data points to

continued HCI competitiveness in Ireland.

As a small peripheral EU economy, with limited resources, factors outside of our control such as exchange

rates exert a significant influence on national competitiveness and the cost base for enterprise based in

Ireland. Over the past year there has been a pronounced fall in the value of Sterling against the Euro.

Following the UK referendum result in June 2016, the value of Sterling against the Euro fell sharply and in

October and November 2016 was trading at times at £0.90. In the first half of 2017, Sterling has remained

weak in relation to the Euro averaging around £0.85, but has fluctuated higher at times, averaging £0.87 in

early June 2017. In contrast to continued weakness in Sterling, the Dollar has strengthened in relation to the

Euro. As of May 2017, the Euro/Dollar exchange rate was $1.10 compared with $1.13 in May 2016.

Quality of Life

Ireland performs relatively well in objective measures of well-being (income, education attainment, air and

water quality) and health. According to the OECD’s Better Life Index Ireland ranks above the OECD average in

subjective measures relating to housing, personal security, health status, education and skills, social

connections, subjective well-being, work-life balance, and environmental quality, but below average in income

and wealth, and civic engagement.

As a result of exceptionally strong economic growth in recent years, Ireland's GDP per capita is the second

highest in the Euro area in 2016. Disposable gross income fell during the recession but has increased since

2013. However, the annual adjusted disposable income per capita in PPPs was 20,181, 13 per cent below the

Euro area figure 23,295. The Irish Gini coefficient score in 2015 was 29.8 compared with 31.1 in 2010 and is

below the Euro area average (30.8) indicating that income distribution in Ireland is more equal than in the Euro

area. The risk-of-poverty rate (16.3%) is below the Euro area average (17.2%). The risk of in-work poverty for

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working households is below the Euro area average and was 4.8 per cent down from 5.5 per cent in 2010. The

proportion of the population considered materially deprived was 0.6% above the Euro area average in 2015.

Climate change presents very significant challenges for Ireland, both in terms of mitigating our emissions and

achieving national and international binding targets, as well as adapting to the effects of a changing climate.

Ireland's 2020 target is to achieve a 20 per cent reduction of non-ETS sector emissions on 2005 levels, with

annual binding limits set for each year over the period 2013 to 2020. EPA projections indicate that by 2020,

Ireland’s emissions are likely to be in the range of 4-6 per cent below 2005 levels, well short of the target

reduction level. While declining, fossil fuels account for 90 per cent of Irish gross inland fuel consumption in

2015. Ireland still has a much higher reliance on imported oil (48%) than the EU average to meet its energy

consumption needs. Between 1990 and 2015, total emissions increased by 6.7 per cent to 59,878kt of CO2

equivalent. The agriculture (33%), transport (20%), energy (20%), and residential (10%) sectors account for the

majority of emissions. The share of renewable energy production in Ireland continues to grow (albeit from a

low base) with 9.6 per cent of gross final consumption derived from renewables in 2015.

Business Performance

Ireland is one of the most open economies in the EU. Exports in Ireland increased from 103 per cent of GDP in

2010 to 124 per cent in 2015. Ireland’s share of total global export markets is 1.3 per cent, as of 2015. Ireland

has expanded its share of the world’s services market up 0.2 per cent to 3 per cent in 2016. Over the same

period, Ireland’s share of global merchandise exports grew from 0.7 per cent in 2015 to 0.8 per cent in 2016.

Enterprise Ireland client exports grew by 6 per cent in 2016 reaching a record high of €21.6bn. Export growth

to the UK, however, which accounts for €7.5bn of exports, slowed from 12 per cent in 2015 to 2 per cent in

2016. From a sectorial perspective, the Food sector reported the largest decline, with the value of Food

exports to the UK falling by 2.8 per cent while non-food sectors saw exports increase by 6.4 per cent.

While exports have been the primary engine of economic growth in Ireland in recent years, the composition

and range of goods exported from Ireland has become increasingly concentrated. Chemicals and related

products account for 56 per cent of merchandise exports. Exports in computer services represent 47.2 per cent

of the total export in services. In terms of markets, the US accounted for 26% of merchandise exports up from

23% in 2011. Other key markets include Belgium (12.5%), UK (11.4%), Germany (6.7%) and Switzerland (5%).

Computer services account for the largest share of exported services to the EU (including the UK), US and the

rest of the major export destinations, apart from Luxembourg. Building on strong growth in 2015, the activity

level of FDI and indigenous enterprise in 2016 was exceptionably strong in terms of export growth, jobs

created and new investment. Export and employment performance by client companies of the enterprise

agencies continues to be strong. Analysis by the World Bank shows that Ireland has a relatively supportive

environment for entrepreneurship compared with many of our Euro area competitors.

Costs

The Council published its Costs of Doing Business in Ireland report in June 2017 and concluded that despite the

low inflation environment, Ireland remains a relatively expensive location in which to do business. Ireland’s

price profile is described as “high cost, rising slowly”. Ireland regained cost competitiveness as a result of falls

in relative prices, low inflation and favourable exchange rate movements. This made Irish firms more

competitive internationally and made Ireland a more attractive location in which to base a business. The

openness of the Irish economy means the competitiveness of the enterprise sector is particularly vulnerable to

negative price and cost shocks which are outside the influence of domestic policymakers. These include

unfavourable exchange rate movements, higher international energy prices or imported inflation from our

major trading partners. Specifically in terms of business costs, the cost base for enterprise has improved

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across a range of metrics since 2010, (e.g. the cost of starting a business, communications costs and average

income taxes). Ireland, however, remains a relatively high cost location and already the return to sustained

levels of growth has resulted in upward cost pressures at sectoral level (e.g. labour) and property costs.

Productivity

In the long-run, Ireland’s productivity is the primary determinant of living standards relative to other countries

and the engine of economic growth. Ireland’s labour productivity performance is strong in an international

context. Irish labour productivity growth has been above that in competitor countries since 2013 and was 2.3

per cent in 2016. However, Ireland’s performance has been greatly affected by shifts in the composition of

employment and the influence of a number of high value added sectors on output. The narrow base of

enterprises in high value added sectors (particularly in High tech manufacturing and ICT) disguises, to a

degree, underperforming sectors and skews Ireland’s productivity level and growth rate.

Employment

While employment has not yet returned to peak pre-recession levels, over 2.05 million were in employment in

Q1 2017, an annual increase of 3.5 per cent. Employment growth in the year to Q1 2017 was spread relatively

equally across the different sectors of the economy with employment growing in 11 of 14 economic sectors.

Consistent with the increase in employment levels, unemployment and long term unemployment are on a

steady downward trajectory. The number of unemployed and long term unemployed persons in Q1 2017 was

146,200 and 78,655 respectively. Unemployment decreased on a year on year basis and fell from 15.1 to 6.8

per cent, on a seasonally adjusted basis, between Q1 2012 and Q1 2017. On a monthly basis unemployment

was 6.3 per cent in June 2017 compared to 8.3 per cent a year earlier. Long term unemployment and youth

unemployment levels are also declining, yet they remain high. Eurostat data shows youth unemployment

declined further in 2016 and is now below both the EU28 and the Euro area averages (17.2%). Ireland has a

high proportion of youth neither in employment, education or training (NEET). Out of the total age cohort 15-

24, 7.4 per cent were classified as NEET in 2016, compared with the EU28 and Euro area 19 averages of 3.8 per

cent and 3.7 per cent respectively.

There is evidence of higher than average job vacancy rates in a number of sectors. Recent research by the

Expert Group on Future Skills Needs (EGFSN) anticipates job opportunities arising from both expansion and

replacement demand for a range of occupational roles including in ICT, data analytics, manufacturing, medical

devices, pharmaceuticals, food and beverages, international sales and marketing, project management,

freight transport, hospitality, distribution and logistics.

Business Environment

Maintaining a growth-friendly taxation system while simultaneously broadening the tax base, is critical to

maintaining existing levels of employment and creating new jobs in Ireland. The Department of Finance report

that Exchequer tax revenues the first half of 2017 are on-profile. Year on year tax receipts to end June 2017

were up €842 million (4%) underpinned by an improving economy. Year on year increases are evident in

corporation tax (+10.7%), income tax (+3.1%) and VAT (+11%). Excise duties recorded shortfalls against profile

and are down 12.1 per cent year on year. The Irish income tax system is progressive particularly at low and

middle incomes. Ireland remains competitive in terms of the levels of income tax and social security

contributions as a proportion of total labour costs. However, Ireland’s marginal tax rate is high at higher

incomes with the highest rate applying at just below the average industrial wage, compared to the UK’s rate

applying at 4.2 times the average industrial wage. Ireland’s corporation tax rate remains internationally

competitive at 12.5 per cent. In 2016 Ireland had the 5th highest rate of capital gains tax in the OECD at 33 per

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cent. The Irish VAT rate (23%) is higher than the OECD average (19.2%), however, there are a number of lower

VAT rates and exemptions for certain activities.

While access to and affordability of credit has improved, Irish firms continue to face higher interest rates and

greater volatility in those rates than their competitors abroad. In April 2017, the interest rate in Ireland on

loans of up to €1 million was more than 74 per cent higher than the Euro area average rate for new business;

the rate on loans of up to €1 million was more than 79 per cent more expensive in Ireland. While bank

financing will continue to be crucial for enterprise, broadening the finance options available and increasing

levels of private equity, crowdfunding and venture capital funding remains a challenge. Figure 4.1.4 shows the

intensity of total venture capital investment is marginally below the OECD average with the greater portion of

venture capital in Ireland attributed to early stage investments. Private equity accounts for 0.16 per cent of

GDP in Ireland (down from 0.28 per cent in 2007). This is well below the levels in the best performing Euro area

countries and significantly below the level seen in the UK (0.72). Non-performing loans at the end of 2016

made up 9 per cent of gross loans, down from 16.1 per cent in 2011. This compares to an OECD High Income

average of 3.85 per cent.

Physical Infrastructure

Although absolute levels of Irish investment in infrastructure are recovering, inland capital investment as a

percentage of GDP (0.4%) is low relative to pre-crisis levels. Public investment as a proportion of gross fixed

capital formation (2.4%) is below both the UK and Euro average (2.7%). Perceptions regarding the quality of

Irish infrastructure are relatively low. The WEF ranks Ireland’s overall quality of infrastructure 38th,

significantly lower than both the UK (24th) and the US (11th) in terms of perceptions. The Capital Plan is now

being reviewed to ensure that capital spending is strictly aligned with national economic and social priorities,

consistent with Programme for Partnership Government objectives. The level of investment projected over

the medium term represents a significant challenge in light of demographic pressure, EU budgetary

commitments and deficits in telecommunications, innovation, and transport and water infrastructure.

Developing our infrastructure base, while complying with the EU’s fiscal rules, is a fundamental challenge to

enhancing competitiveness.

Clusters and Firm Sophistication

The European Commission’s Cluster Mapping tool indicates that Ireland has a relatively high degree of

specialisation and cluster presence in biopharma, digital, medical devices and business services sectors. The

EU Innovation Scoreboard classifies Ireland as behind the EU average in the finance and firm investments

dimensions of innovation. European Commission/Eurostat data shows Business R&D expenditures as a

percentage of GDP has been relatively flat in Ireland over the period 2010-2015. Firms in Ireland were more

likely to be innovative (61%) compared to the EU average (49%) with relative performance strong across all

firm sizes. Ireland has a higher proportion of innovative enterprises than the Euro area-19 average in product,

process and marketing but performance is relatively weak in terms of organisational innovation. The

proportion of sales of new to market and new to firm innovations as a percentage of turnover has fallen in

recent years and at 9.3 per cent is below the EU average of 12.4 per cent.

Knowledge and Talent

The EU Innovation Scoreboard provides a comparative assessment of the research and innovation

performance of EU Member States. The 2016 Scoreboard places Ireland 6th in the overall ranking of EU

Member States, classed as an innovation follower with an above average performance. Set in an international

context, the IMD’s 2016 Competitiveness Yearbook 2017 ranks Ireland 1st for attracting and retaining talent.

Ireland’s other strengths are in relation to the availability of skilled labour (5th), financial skills (6th) and the

ability to attract foreign talent (10th). Relative weaknesses include the pupil-teacher ratio in secondary

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education (43rd), language skills (44th) and the cost of living index (45th). GDP per capita expenditure on

education (primary to higher education) was amongst the lowest among OECD countries. In recent years

Ireland’s ranking has improved for this measure, most significantly for expenditure at second-level education.

However, Ireland’s overall ranking remains slightly below the OECD average and the gap is most pronounced

at tertiary level. Ireland performs better in terms of spend when measured per student, particularly at primary

and secondary levels. At all levels, average educational attainment in Ireland has improved. Ireland has made

significant progress in reducing early school leavers. Participation in life-long learning has fallen since 2011 and

stood at 11.9 per cent in 2016.

Institutions

The World Bank's Doing Business index assesses regulations affecting SMEs and measures regulations

applying to companies throughout their life cycle. In 2017 Ireland is ranked 18th overall and 5th in the Euro area,

a decline of 1 place from last year. Ireland has a comparatively good enterprise environment conductive to

doing business but lags behind the UK in a number of areas, such as dealing with construction permits, getting

electricity, trading across borders and enforcing contracts. Ireland is ranked in the top ten in terms of

perceptions of judicial independence, protection of minority shareholders, strength of investor protection and

property rights.

Macroeconomic sustainability

Following GDP growth of 8.5 per cent and 26.3 per cent in 2014 and 2015 respectively, Eurostat estimates that

in 2016 the Irish economy was the fastest growing EU economy for the third year in a row with growth of 5.2

per cent. Preliminary national accounts data indicates that the principle contribution to economic growth

came from domestic demand (investment and consumer spending). Exports in Ireland increased from 103 per

cent of GDP in 2010 to 124 per cent in 2015. Ireland has the second highest level of exports as a percentage of

GDP in the OECD after Luxembourg. While Ireland’s current account was in deficit in the fourth quarter of

2016 (largely due to an increase in research and development service imports), the annual current account is in

surplus, indicating that Ireland is paying its way in the world. Reflecting improved economic and fiscal

positions, Irish bond yield movements are continuing to trade in line with core European sovereign yields.

The focus of policy in reducing general government deficit has been effective and the general government

deficit continued to fall in 2016 to 0.6 per cent of GDP down from 2 per cent in 2015 and below the threshold of

3 per cent of GDP set out in the Stability and Growth Pact. The Department of Finance’s estimates indicate

that the structural balance in 2016 was -1.9 per cent of GDP, and that based on current trajectory and

assumptions within Budget 2017, Ireland is on track to reach the target of 0.5 per cent in 2018. Economic

growth has contributed to improvements in the debt to GDP ratio. While the debt to GDP ratio remains high,

it has decreased substantially from its peak of 119.5 per cent in 2012-2013 to 75.4 per cent in 2016. It is

important that this downward trajectory continues if Ireland is to achieve the Stability and Growth Pact target

of a 60 per cent debt-to GDP ratio. Recognising that metrics derived with respect to ratios-to-GDP may be

skewed due to on-shoring of intellectual property, and in order to ensure that public finances are in a position

to withstand Brexit related shocks, the Department of Finance has set an additional mid-term goal of

achieving debt-to-GDP ratio of 45 per cent of GDP. In 2016 Irish Government revenue represented 27.5 per

cent of GDP. Expenditure amounted to 28% of GDP. Figure 5.2.8 shows that across the EU, 'Social Protection'

accounts for the major share of Government spending, followed by 'Health', 'General Public Services', and

'Education'. In line with EU rules, future increases in public expenditure will be based on the potential growth

rate of the economy and safeguarded from dependence on cyclical revenues.

Moving beyond the public finances, households continued to reduce debt as a proportion of income in 2016.

Notwithstanding this positive trend, Ireland has the fourth most indebted households in the EU. The

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indebtedness of the business sector (non-financial corporations) remains evident with the Irish level the third

highest in the EU, although a proportion of the debt is associated with non-residential loans.

Endowments

In 2016 Ireland continued to have the youngest population in the EU (median age 36). The combined effect of

natural increase and positive net migration resulted in an overall increase in the population of 38,400 bringing

the population estimate to 4.67 million in April 2016. The evolution of the old age dependency ratio is a crucial

element in determining the sustainability of Ireland’s healthcare and pension systems. Ireland has the 7th

lowest old age dependency ratio in the OECD. Ireland’s rising dependency ratio increases the importance of

expanding labour force participation and productivity. Despite the substantial percentage increase in the

population (3.4%) between 2011 and 2016, the labour force growth (active population, 15 years and over) for

the same period is only 0.3 per cent, below the EU average of 2.1 per cent. Total emigration from Ireland

continues to decline. In 2016 62.7 per cent of the Irish population lived in urban areas, a marginal increase of

0.7 per cent compared to 2011. The rural population constitutes 37.3 per cent of the total population. That 44

per cent of the urban population lives in Dublin is an important consideration from a planning and

development perspective.

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Ireland’s competitiveness performance – the policy challenges

While the economy is in its strongest place since the onset of the recession, and growing at a strong rate,

Ireland’s competitiveness is at a critical juncture. Driven by domestic demand sources, economic growth is

forecast for 2017 and 2018 with continued strong employment growth and a further decline in unemployment.

Employment grew in 11 of the 14 economic sectors during 2016 with the largest annual increases recorded in

industry, construction and accommodation and food services. A rapidly improving labour market and positive

inflation may pose challenges for competitiveness in terms of skill shortages, increasing consumer prices and

business costs. While the overall economic outlook for Ireland is positive, the economy faces significant

threats from external factors, including the outcome of the Brexit negotiations, a potential shift in trade and

taxation policy in the US, a slowdown in UK and US growth and the uncertain nature of the political economy

of the EU.

As an exceptionally open economy, heavily dependent on international trade and investment, Ireland’s

economic outlook is highly dependent on growth and demand levels in our major trading partners, the EU, US

and UK. This makes it crucial that we address those factors within our control. The competitiveness and

consistency of our tax offering, legal, regulatory and administrative environment, cost base, the availability of

talent, technology and property solutions will remain vital to our ability to withstanding the ebb and flow of

global economic developments.

Brexit represents the foremost downside economic risk for Ireland. The immediate impact of Brexit has been

uncertainty, reduced growth prospects and a shift in exchange rates. The depreciation of Sterling relative to

the Euro and dealing with the permanency of the exchange rate shift is an important competiveness

consideration. The triggering of Article 50 and the imminent structural shift in the UK’s trading relations with

EU partners has far reaching implications for Irish competitiveness across a range of policy areas– including

trade, investment, skills, and sector specific competitiveness impacts – particularly, for indigenous Irish

enterprise in sectors such as Agri-food, Traditional Manufacturing and Tourism. In addition, recent analysis by

the ESRI suggests that a hard Brexit could have significant implications for the fiscal space. With growth in

taxation returns slower than expected to date in 2017, continued revenue growth cannot be taken for granted.

Careful management of the public finances within the EU budgetary guidelines will remain a challenge,

particularly in light of the need to address growing infrastructure and funding deficits.

While the exact cyclical position of the economy is difficult to precisely estimate, after three years of strong

economic and labour market growth, the Council considers it imperative that an appropriate fiscal and

budgetary position consistent with the EU budgetary framework is adopted to ensure Ireland is best

positioned to withstand shocks, and to ensure that the economy does not overheat.

As a highly globalised economy, Irish National Accounts data now include a very significant amount of activity

carried out elsewhere, but formally recorded as part of Irish GDP. The narrow base of sectors driving economic

growth, in particular, the activities of a small cohort of multinational firms, the influence of contract

manufacturing and the relocation of intellectual property assets, have limited impact on actual activity in the

Irish economy. Metrics derived with respect to national income, such as export values, expenditure ratios-to-

GDP, measures of potential output, the structural deficit, debt and the expenditure benchmark, have become

skewed and must be interpreted with caution. It remains to be seen whether the quarterly changes in national

income and related increases in Irish corporation tax revenue might be one-off adjustments or recurring.

However, it would be hazardous to rely on volatile and potentially transitory revenue sources, to fund

permanent levels of current public spending, or reductions in tax rates which can prove difficult to reverse. The

introduction by the CSO of the GNI* measure will help better inform domestic policymaking but

internationally measures relative to GDP will remain the benchmark against which many measures of Ireland’s

competitiveness performance will be assessed.

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It remains to be seen whether the quarterly changes in national income and related increases in Irish

corporation tax revenue might be one-off adjustments or recurring. However, it would be hazardous to rely on

volatile and potentially transitory revenue sources, to fund permanent levels of public spending, or reductions

in tax rates which can prove difficult to reverse. Ireland’s exposure related to the concentration of corporation

tax receipts among a very small cohort of firms remains a risk and it is essential that the tax base is broadened

in line with the OECD tax hierarchy for growth, which contends that taxes on immobile bases, such as

property, and consumption are less distortive than those on personal and corporate income. Any loosening of

fiscal discipline (i.e. unsustainable current expenditure increases, or shrinking tax ratios for example) at this

stage would undo much of the progress achieved to date, and would have potentially significant negative

implications for future competitiveness. However, the Council recognises the budgetary challenges of

reducing the deficit level while at the same time ensuring that fiscal policy supports sustainable economic and

employment growth, and facilitates sufficient public investment in productivity enhancing capital projects. It

is important to achieve appropriate balancing of the need to meet our obligations under the Stability and

Growth Pact and put in place a sustainable, counter-cyclical, medium-term fiscal planning process. We

encourage that the fiscal space remaining goes towards investing in the conditions of future competitiveness,

specifically building innovation capacity, economic infrastructure, particularly digital and energy related and

on enhancing our productivity and skills base.

Ireland’s move up the international rankings (we are ranked 6th in the latest IMD World Competitiveness

Yearbook) is welcome. However, our strong improvements in macroeconomic metrics have driven the

improvement in Ireland’s relative competitiveness score. This may suggest that our current performance,

which is relatively strong, is overstating our overall competitiveness position and masking weakness in the

underlying drivers of future competitiveness performance and sector specific challenges, particularly related

to costs and productivity.

The Council considers it more important than ever that we do not become complacent about the need for

continued reform and that policy continues to work to improve Ireland’s competitiveness performance in

areas that can be influenced by domestic policy action. The overarching themes emerging from the Scorecard

analysis, which will be considered in the Council’s 2017 Competitiveness Challenge Report are summarised

below.

Ensuring growth is sustainable: Sustainable growth and improved living standards for all is the

primary goal of national competitiveness. To ensure capacity to absorb and respond to economic

shocks it is important to ensure our fiscal position remains sustainable. While we must continue to

compete from a taxation perspective, we should avoid any narrowing of the tax base and ensure the

tax system supports and rewards employment, enterprise, investment and innovation.

Developing our infrastructure base, while complying with the EU’s fiscal rules, is a fundamental

challenge to enhancing competitiveness. Measures to reduce infrastructure bottlenecks including by

improving and prioritising public investment, particularly our capacity to deliver regionally connected

projects in line with the National Planning Framework will be vital to enhancing competitiveness.

Related to infrastructure prioritisation, meeting Ireland’s climate change commitments and

transitioning to a low emissions economy presents significant challenges and opportunities at

sectoral level and will be central to the direction of long term economic growth prospects. As a small

open economy, any deterioration in our cost competitiveness will have a major negative impact upon

economic growth, employment and our standard of living. Ireland’s current price profile could be

described as “high cost, rising slowly”. This must be supported by an administrative and regulatory

framework that ensures costs and supply-side conditions remain competitive.

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Generating an uplift in enterprise competitiveness with a particular emphasis on productivity:

As a small open economy, productivity and cost competitiveness remain fundamental to long term

growth prospects. Brexit has underlined the importance of generating uplift in enterprise export

competitiveness to secure future jobs and growth. A more diverse export base can reduce exposure

to external demand shocks, exchange rate fluctuations and instability in export earnings, upgrade

value-added, and enhance growth and jobs. Policies to facilitate enterprise evolve into new products,

markets and sectors, whilst maintaining the competitive advantages we enjoy in existing ones, are

critical at this time.

Current productivity growth is strong but overall performance in Ireland is heavily influenced by the

performance of the Manufacturing and ICT sectors and in particular the performance of FDI

enterprises in these sectors. Bridging the productivity gap that exists between the most productive

firms and laggard firms is a major challenge to sustainable growth prospects. Facilitating workplace

innovation and delivering uplift in management skills and labour force quality at all levels is

particularly vital. Ensuring Irish enterprise stays at the forefront of technology and innovative activity,

is able to access competitively-priced finance is also an important challenge. Business R&D

expenditures as a percentage of GDP have been relatively over the period 2010-2015. While public

investment in R&D is increasing, meeting our intensity target of 2.5% of GNP by 2020 is a significant

challenge. From a competitiveness perspective, the returns from innovation are a vital component in

securing productivity growth, diversifying and broadening the enterprise and exports base, growing

FDI, and creating competitive advantage in intellectual property and commercial products and

services.

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Chapter 1: Ireland’s Competitiveness Performance and Outlook

International competitiveness performance

Competitiveness is a complex concept incorporating a myriad of interlinked and interdependent factors;

reflecting this complexity, Ireland’s Competitiveness Scorecard analyses data over 140 charts each of which

tells a part of Ireland’s competitiveness story. These measure a range of inputs, outputs and outcomes. Given

the disparate nature of these indicators, the National Competitiveness Council does not attempt to create a

single quantifiable measure of competitiveness – rather, each indicator is examined individually. Thereafter,

taking a birds-eye view of all the data collected, the Council can draw the various strands of analysis together

to present a comprehensive picture of Ireland’s international competitiveness performance.

Figure 1.1 presents Ireland’s ranking from amongst 33 OECD member states across a range of international

indices. In this figure, a ranking of 1 (i.e. close to the centre of the chart) represents a strong performance (i.e.

a ranking of 1 would imply that Ireland is deemed to be the most competitive of 33 countries in the OECD).

Figure 1.1 Overview of Ireland’s international rankings amongst OECD countries 2016

These indices cover a

number of policy areas –

some based on directly

quantitative aspects of

policy (e.g. the World

Bank Doing Business

Index); others measure

qualitative, more

subjective issues such as

reputation, quality of

life, entrepreneurship

and FDI; indices such as

the IMD and WEF

competitiveness indices

capture a mixture of

both.

Source: Various International Organisations

Indices and rankings are useful, if imperfect, measures of competitiveness performances. In some instances,

Ireland’s ranking is not a question of absolute deterioration or improvement in these categories but rather a

matter of other countries improving their position relative to Ireland's. Advanced economies, such as Ireland,

at the upper end of the rankings, can find it harder to get high impact from their reforms due to their already

strong performance (i.e. as a country nears the frontier or limit of best practice, the harder marginal

improvements are to achieve). In addition, the methodology, surveys and data used in these benchmarking

reports differ significantly. Methodologies are frequently revised and this can have an impact on Ireland’s

ranking. While acknowledging that year on year fluctuations in data may be subject to ‘data noise’,

(particularly as regards perception based indicators) performance across these rankings indicates the dynamic

and global nature of competitiveness.

17

9

18

5

12

9

163

02468

101214161820

Transparency International,Corruption Perception Index

2016

Reputation Institute CountryIndex 2016

WEF Global CompetitivenessReport 2017

IMD World CompetitivenessYearbook 2017

World Bank Doing Business2017

Global Entrepreneurship Index2017

OECD FDI RegulatoryRestrictiveness Index 2016

Forbes Best Countries forBusiness 2016

Ireland's Rank in OECD

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Figure 1.2 examines how Ireland’s ranking has evolved in the last decade in three of the most high profile

enterprise competitiveness-related indices1. Our position in the World Economic Forum (WEF) and Institute

for Management Development (IMD) rankings deteriorated prior to and over the course of the recession but

has gradually started to recover in recent years. The 2017 WEF Global Competitiveness Report shows Ireland is

currently ranked 23rd most competitive economy, an improvement of 1 place in the year. Using the IMD

measure of competitiveness Ireland is currently ranked 6th, an improvement of 1 place from the previous year.

In terms of quantitative data, international indices of competitiveness such as the WEF and IMD reports

combine current economic performance metrics (e.g. economic growth, fiscal position, productivity levels,

employment, prices indicators) with measures of potential future success (e.g. investment in infrastructure,

education and innovation) as well as qualitative measures. Ireland’s performance has improved in the last

three years especially in relation to performance based on current economic metrics. This development

generally improves Ireland’s overall competitiveness score. This may suggest that our current performance,

which is relatively strong, is overstating our overall competitiveness position and masking weakness in the

underlying drivers of future competitiveness performance. The World Bank’s 2017 Ease of Doing Business

report places Ireland 18th out of 190 economies – a fall of 1 places from the previous year. While Ireland’s

performance and overall score has improved, other countries have also improved their performance and

improved at a faster rate. In addition, the World Bank has been incorporating changes in methodology which

affect Ireland’s ranking and can make comparison with previous years difficult. The report tracks changes in

regulations affecting businesses and sheds light on how easy or difficult it is to open and run a small to

medium-size business. Globally, Ireland is a top twenty performer with regard to measures of paying taxes

(5th), ease of starting a business (10th), protecting minority investors (13th) and resolving insolvency (18th). Our

ranking is less impressive in getting credit (32nd), getting electricity (33rd), dealing with construction permits

(38th), registering property (41st), trading across borders (47th) and enforcing contracts (90th).

Figure 1.2 Ireland’s global competitiveness rankings, 2007-2017

Since 2011, Ireland’s

international

competitiveness

ranking, as measured

by the IMD and WEF,

has improved. Ireland is

now 6th in the IMD’s

World Competitiveness

Yearbook 2017 and 23rd

in the WEF Global

Competitiveness

Report. Ireland is

ranked 18th by the

World Bank and

remains below peak.

Source: IMD, WEF, World Bank, 2017

1 The Council’s recent report Benchmarking Competitiveness: Ireland and the United Kingdom, 2017 assesses Ireland’s performance across these three global competitiveness benchmarks in greater detail

6

23

18

1

6

11

16

21

26

31

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

More Com

petitive Ranking Less Com

petitive

IMD WEF World Bank

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Competitiveness, exchange rates and inflation

Ireland’s competitiveness narrative can be illustrated using Harmonised Competitiveness Indices (HCIs). The

purpose of HCIs is to provide meaningful and comparable measures of countries' price and cost

competitiveness that are also consistent with the real effective exchange rates (REERs) of the Euro. Ireland's

HCI captures the impacts of both exchange rates and relative price movements. The latest HCI data for April

2017 show that the nominal HCI decreased by 0.8 per cent on a year-on-year basis. The real HCI decreased by

2.4 per cent when deflated with consumer prices. Both the nominal and real HCI are currently at relatively low

levels, by historic standards and recent data points to continued HCI competitiveness in Ireland.

Favourable exchange rates vis-à-vis our main trading partners makes firms based in Ireland more cost

competitive and allows them to trade more effectively in international markets. As a result of the scale of

Ireland’s non-Euro denominated trade, (i.e. with the UK and US), Euro exchange rates have a greater impact

on our relative international competitiveness than is the case in many Euro area countries. Over the past year

there has been a pronounced fall in the value of Sterling against the Euro. Following the UK referendum result

in June 2016, the value of Sterling against the Euro fell sharply and in October and November 2016 was trading

at times at £0.90. In the first half of 2017, Sterling has remained weak in relation to the Euro averaging around

£0.85 but has fluctuated higher at times, averaging £0.87 in early June 2017. In contrast to continued

weakness in Sterling, the Dollar has strengthened in relation to the Euro. As of May 2017, the Euro/Dollar

exchange rate was $1.10 compared with $1.13 in May 2016.

Low levels of price inflation have been a characteristic of Ireland and most OECD economies in recent years.

In 2016, consumer price inflation was low or negative through much of the year. However, inflation has been

positive in the first half of 2017 reflecting a pick- up in energy and services prices. Prices on average, as

measured by the CPI, were year on year 0.2 per cent higher in May 2017. The CSO report the most notable

annual changes were increases in Transport (+2.2%), Alcoholic Beverages & Tobacco (+2.1%), Restaurants &

Hotels (+1.8%) and Education (+1.7%). Prices as measured by the EU Harmonised Index of Consumer Prices

(HICP) were unchanged in May 2017 compared with May 2016. Our price profile might be described as “high,

rising slowly”. At present, Ireland is experiencing moderate consumer price growth. Eurostat data shows price

levels in Ireland were 25 per cent above the EU 28 average in 2016.

Economic outlook

Table 1.1 shows the European Commission’s forecasts for economic growth for Ireland and our major trading

partners. The Irish economy was the fastest growing economy in the EU in 2016. The European Commission's

forecast for 2017 and 2018 indicates that the economy will continue to expand but at a slower pace, and

Ireland will be the 4th fastest growing economy in the EU after Luxembourg, Malta and Romania. Projections

for the next two years indicate that strong labour market performance and increased domestic demand as a

result of continued increase in private consumption and investment will be the main factors underpinning

economic growth.

However, while the overall economic outlook for Ireland is positive, the OECD2 in its 2017 Economic Outlook

suggests that the Irish economy is overheating somewhat. Strong economic growth and shortage of housing

supply fuel the property prices and contribute to an increase in property-related loans, thus possibly forming

another property bubble. In addition, as an open economy, the country is highly exposed to risks related to the

external environment. It is expected that economic growth in both the EU and the euro area will remain

moderate (below 2% over the next two years).

2 OECD Economic outlook, Volume 2017

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The extent of the impact of the outcome of the Brexit negotiations on the Irish economy remains uncertain. In

the short-term, as the UK remains Ireland’s largest market in the EU, a forecast of UK GDP growth of 1.8 per

cent in 2017, diminishing to 1.3 per cent in 2018, coupled with a potential further weakness in Sterling would

have a negative impact on the Irish economy. The economic outlook for the US, Ireland’s principle trading

partner outside of the EU, indicates that the US economy will continue to grow by 2.2 – 2.3 per cent over

2017-2018 but this forecast may be downgraded due to potential protectionist policy changes in the areas of

taxation and trade.

Table 1.1 Economic Growth Outlook, (Annual percentage change) European Commission

2016 2017 2018

World 3 3.4 3.6

EU 1.9 1.9 1.9

Euro area 1.8 1.7 1.8

Ireland 5.2 4 3.6

Germany 1.9 1.6 1.9

France 1.2 1.4 1.7

Italy 0.9 0.9 1.1

UK 1.8 1.8 1.3

US 1.6 2.2 2.3

China 6.7 6.6 6.3

Japan 1 1.2 0.6

Source: European Commission Spring Economic Forecast 2017

Table 1.2: Forecast Annual percentage change key indicators, Ireland, 2017

GDP GNP HICP Employment

Rate

Department of Finance 4.3 4.2 0.6 2.7

Central Bank of Ireland 3.5 3.3 0.7 2.6

ESRI 3.8 3.5 0.7 2.9

European Commission 4 n/a 0.6 2.6

OECD 3.7 n/a 0.8 n/a

Source: Various Bodies

Despite the uncertainties associated with the external environment and a range of domestic challenges,

economic forecasts indicate that the Irish economy will expand with a moderate pace. Employment will

continue to grow and the main drivers of economic growth are projected to be domestic investment and

consumption.

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Table 1.3: Forecast Annual percentage change in the composition of Irish economic growth, 2015-2021

2016 2017 2018 2019 2020 2021

Real GDP 5.2 4.3 3.7 3.1 2.7 2.5

Real GNP 9 4.2 3.5 2.8 2.3 2.1

Exports 2.4 5 5.1 4.2 3.9 3.8

Imports 10.3 -2 5.3 4.5 4.2 4

Personal Consumption 3 2.8 2.7 2.5 2.2 2

Government Consumption 5.3 2.6 2.1 2 1.9 1.8

Investment 45.5 -17.1 5.4 4.3 3.3 2.9

Source: Department of Finance Stability Programme Update

Although contingent on a number of external factors, the Department of Finance’s projections for growth in

the medium term (Table 1.3) are positive. Achieving these projections will require balanced growth,

underpinned by increased contribution from all sectors of the economy whilst respecting the parameters set

out by the Stability and Growth Pact.

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Competitiveness Implications of Brexit

While the Irish economy is experiencing strong growth, it is at a critical juncture. In particular, the challenges

of Brexit and the imminent structural shift in the UK’s trading relations with the EU has far reaching

implications for Ireland across a range of policy areas including trade, investment, the labour market, and

energy, as well as many sector specific competitiveness impacts – particularly Agri-food, Traditional

Manufacturing, Tourism and sectors exposed to cross border trade. Ireland is in a unique geographic situation

– the UK is our land bridge to the EU, with 80 per cent of our exports being exported to the UK for direct use or

onward transit. The immediate impact of Brexit has been uncertainty, reduced growth prospects and

increased currency volatility. Through currency effects, there have been immediate short term cost

implications for Irish exporters, many of whom are dependent on the UK market. The permanency of the

exchange rate shift is an important competiveness consideration. Ireland’s ability to achieve sustainable

growth is dependent on our ability to trade internationally.

The EU and UK commenced the first round of exit negotiations on 19 June 2017. The policy implications arising

from these negotiations will have a significant bearing on Ireland’s future. While the UK is and will remain a

key trading partner for Ireland it is also a country it competes with for mobile investment and export market

share. While the UK is a key trading partner it is also a crucial competitor in terms of mobile investment and

export market share. The World Bank’s Ease of Doing Business report ranks Ireland 18th and the UK 7th out of

190 economies. The WEF Global Competitiveness Report ranks Ireland 23rd and the UK 7th most competitive

out of 138 countries. The IMD measure of competitiveness ranks Ireland 6th and the UK 19th out of 61

countries. In April 20173, the Council considered Ireland’s strengths and weaknesses relative to the UK with

respect to competiveness and benchmarked performance across a range of areas. For example, in comparison

to the UK, Ireland performs well in international competitiveness rankings with respect to:

• World Bank ease of starting a business; (Ireland 10th, UK 16th, World Bank)

• Labour productivity; (Ireland 1st, UK 21st, IMD)

• Quality of institutions; (Ireland 12th UK 14th, WEF )

• Attracting and retaining talent. (Ireland 1st, UK 14th, IMD)

The UK has higher rankings with respect to:

• Ease of Doing Business overall ranking; (Ireland 18th, UK 7th, World Bank)

• Perceptions of infrastructure quality; (UK 31st, Ireland 38th IMD)

• Public expenditure per capita on education; (UK 14th, Ireland 18th ,IMD)

• Export Concentration by partner. (UK 15th, Ireland 55th, IMD)

The challenges posed by Brexit provide urgent impetus to pursue policies that enhance competitiveness. The

Council considers policy needs to focus on Ireland’s macroeconomic environment as well as microeconomic

structural factors such as innovation capacity, the quality of infrastructure, costs of doing business and

productivity across all economic sectors. The Council is particularly concerned about the challenges

confronting our indigenous enterprise sector arising from Brexit. Specifically, the cost competitiveness

implications caused by shifting exchange rates and uncertainty regarding trade pose real threats to continued

growth. Brexit will inform the Council’s consideration of policy recommendations to improve competitiveness

which will be set out in the 2017 Competitiveness Challenge report.

3 NCC Competitiveness Benchmarking, Ireland and the UK, 2017

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Report Structure The 2017 Competitiveness Scorecard is set out in four main sections - sustainable growth (Chapter 2),

competitiveness outputs (Chapter 3), competitiveness inputs (Chapter 4) and essential conditions for

competitiveness (Chapter 5) – these correspond to the layers of the NCC’s competitiveness framework.

This report uses internationally comparable metrics, with the OECD, the EU, the UN, IMF and the WTO as the

sources for the majority of indicators. Indicators from specialist international competitiveness bodies (e.g.

from the World Bank’s Doing Business report, the World Economic Forum’s Global Competitiveness Report

and the Institute for Management Development’s World Competitiveness Yearbook) are also used. Where

further depth is of benefit, national sources such as the Central Bank and the CSO are used.

Subject to data availability, Ireland’s performance is benchmarked over time against 19 other countries.

Countries have been chosen to provide a mix of Euro area members (Finland, France, Germany, Italy, the

Netherlands and Spain), other non-Euro area European countries (Denmark, Sweden, Switzerland and the

UK), and newer EU member states (Hungary, Latvia and Poland). Seven non-European countries which are

global leaders or are of a similar size to Ireland are also included where data is available. These countries are

Brazil, China, Japan, South Korea, New Zealand, Singapore, and the US. This allows for comparison between

Ireland and many of its closest trading partners and competitors. Ireland is also compared to a relevant peer

group average – either the OECD or the Euro area average4.

Measuring and benchmarking competitiveness performance relative to third countries highlights Ireland’s

strengths in a number of areas but is also intended to identify potential threats and elaborate on weaknesses

and to determine corrective actions. Benchmarking competitiveness is useful - it informs the policymaking

process and raises awareness of the importance of national competitiveness to Ireland’s wellbeing.

Nonetheless, there are limitations to benchmarking:

The most recent and up-to-date data is used. While every effort is made to ensure the timeliness of the

data, there is a natural lag in collating comparable official statistics across countries. Competitiveness

indices and rankings can seek to measure a vast range of issues. Generally, these indices are based on

weighting systems. The relevance and importance of the individual metrics included will vary across

countries. There are also factors that are difficult to benchmark (e.g. the benefit of being in the GMT time

zone or of speaking English fluently);

Secondly, given the different historical contexts and economic, political and social goals of various

countries, and their differing physical geographies and resource endowments, it is not realistic or even

desirable for any country to seek to outperform other countries on all measures of competitiveness.

There are no generic strategies to achieve national competitiveness as countries face trade-offs; and

Finally, it is important to note that trade and investment between countries is not a zero-sum game;

economic advances by other countries can, in aggregate terms, lead to improvements in living standards

for the Irish population.

4 OECD rankings and averages are based on a maximum of 32 countries. Turkey and Mexico are not included in the analysis, in part due to how their size and income levels affect averages and in part due to data availability. The OECD-32 countries are as follows: Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, South Korea, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, UK and the US.

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Chapter 2

Sustainable Growth

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Sustainable Growth At the apex of the Council’s Competiveness Framework is sustainable growth. Competitiveness is not an end

in itself, but is a means of achieving sustainable improvements in growth and living standards. The ultimate

goal of economic policy making is to achieve broad based improvements in people’s well-being. The Council

monitors progress on this goal by assessing economic, social and environmental dimensions of societal

wellbeing. Both in Ireland and internationally, there is increasing interest in benchmarking quality of life

improvements - incorporating aspects of living standards, income levels, equality, health and life expectancy.

The Scorecard benchmarks three elements of sustainable growth: quality of life, income (growth rates, levels

and distribution) and environment sustainability.

Quality of Life: A key objective of competitiveness is to support a high quality of life, which is broader

than material living standards. Quality of life is measured by indicators of life satisfaction, health and

life expectancy.

Ireland performs relatively well in objective measures of well-being (income, education attainment,

air and water quality) and health. Eurostat data shows life expectancy in Ireland has increased over

the past decade and the latest comparable data shows that Irish life expectancy in 2014 (81.4 years) is

above the EU28 average (80.9 years). Further, the proportion of life expectancy at age 65 lived in

good health continues to improve and is higher for both men and women in Ireland compared with

the EU28 average. Healthy life years at birth in Ireland for females were estimated at 67.9 years in

2015, the third highest rate in the EU and 4.6 years above the EU average. Male healthy life years at

birth in Ireland in 2015 were estimated at 66.6 years, 4 years higher than the EU average.

In the OECD’s Better Life Index (Figure 2.1.1), Ireland performs well in many measures of subjective

well-being relative to most other countries in the Better Life Index. Ireland ranks above the average in

measures relating to housing, personal security, health status, education and skills, social

connections, subjective well-being, work-life balance, civic engagement, and environmental quality,

but below average in income and wealth, and jobs and earnings. The Index indicates that Irish people

report to being more satisfied with their lives than the OECD average. On a rating of general

satisfaction with life on a scale from 0 to 10, Ireland scores 6.8, higher than the OECD average of 6.5.

Ireland ranks 8th in the OECD in terms of the UN’s human development index which measures

average achievement in three basic dimensions of human development—a long and healthy life,

knowledge and a decent standard of living (Figure 2.1.2).

National Income: High and rising incomes are a key measure of the success of national

competitiveness. The indicators used in this section cover the level, growth and distribution of

Ireland’s national income. Indicators include median incomes, income distribution, risk of poverty

and material deprivation.

Over the course of the recession, Ireland's GDP per capita declined but remained relatively high. As a

result of exceptionally strong economic growth in recent years, Ireland's GDP per capita is the second

highest in the Euro area in 2016 (Figure 2.2.1).

Ireland’s household net financial wealth to income ratio has been rising steadily from 126.62 in 2010

to 207.51 in 2015. However, the indicator remains below the EU average of 252 .55. Disposable gross

income fell during the recession but has increased since 2013. In Ireland, the annual adjusted

disposable income per capita in PPPs was 20,181, 13 per cent below the Euro area figure 23,295.

The median equivalised net income in Ireland was €21,688 in 2015, above the Euro area median

(€17,759). However, median equivalised disposable income remains below 2008 levels (€22,995).

(Figures 2.2.2 and 2.2.3)

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The Irish Gini coefficient score in 2015 was 29.8, compared with 31.1 in 2010. Ireland is below the Euro

area average (30.8) indicating that income distribution in Ireland is more equal than in the Euro area

(Figure 2.2.4).

The risk-of-poverty rate (16.3%) is below the Euro area average (17.2%). It increased by 1.1 per cent

between 2010 and 2015. Social transfers play a significant role in reducing poverty risk in Ireland:

excluding social transfers, the at-risk-of poverty rate was 36.2 per cent. Figure 2.2.6 shows the risk of

in-work poverty for working households is below the Euro area average and was 4.8 per cent down

from 5.4 per cent in in 2014 and 5.5 per cent in 2010. The proportion of the population considered

materially deprived increased in Ireland over the recession. It was 5.7% in 2010, peaked at 9.9% in

2013 and has declined since (7.5% in 2015). The Irish rate was 0.6% above the Euro area average in

2015.

Environmental Sustainability: The quality of a natural environment and the commitment to

environmentally sustainable policies is a key determinant of sustainable growth. The essence of

environmental sustainability is a stable relationship between human activities and the natural world,

one that does not diminish the prospects for future generations to enjoy a quality of life at least as

good as our own. Indicators in this section include per capita CO2 emissions, waste generation and

renewable energy use.

The Paris Agreement, which entered into force in November 2016, aims to limit global average

temperature rise to well below 2 degrees Celsius above pre-industrial levels, with an ambition of 1.5

degrees Celsius. The EU is committing to a reduction of at least 40 per cent in EU-wide emissions by

2030 compared with 1990 levels, which will be met through reductions of 43 per cent in the Emission

Trading System (ETS) and 30 per cent in the non-ETS sector compared with 2005 levels. Under the

2009 EU Effort Sharing Decision (ESD), which applies to greenhouse gas emissions (GHG) outside the

scope of the EU Emissions Trading System, Ireland has a series of challenging commitments. For each

year between 2013 and 2020, Ireland has been given a carbon budget for GHG emissions, the

cumulative effect of which mandates Ireland to achieve a 20 per cent emissions reduction based on

2005 levels. This target is considered jointly the most demanding 2020 reduction target allocated

under the ESD and one shared only by Denmark and Luxembourg. Ireland has also committed to

increasing the share of renewables in final energy consumption to 16 per cent by 2020 and to move

towards a 20 per cent increase in energy efficiency.

While declining, (98% in 1990), Figure 2.3.3 shows fossil fuels account for 90 per cent of Irish gross

inland consumption in 2015. Ireland still has a much higher reliance on imported oil to meet its energy

consumption needs (48%) than the EU average. Figure 2.3.4 shows the relative decoupling of energy

use from economic growth. This is a result of changes in the structure of the economy, particularly

the growth of the less energy intensive services sector, greater use of gas and renewables, and

improved energy efficiency. However, 2015 saw an increase in the overall energy requirement linked

to increased domestic economic activity in the industry and transport sectors.

Between 1990 and 2015, total emissions increased by 6.7 per cent to 59,878kt of CO2 equivalent. The

agriculture (33%), transport (20%), energy (20%), and residential (10%) sectors account for the

majority of emissions (Figure 2.3.6). Emissions by the agriculture and industrial sectors have declined

and are below 1990 levels.

The EU 2030 targets envisage a domestic EU greenhouse gas reduction target of at least 40 per cent

compared to 1990. Ireland was given a 39 per cent target in the 2016 Effort Sharing Regulation issued

by the Commission which was reduced to 30 per cent based on cost-effective mitigation potential,

and further reduced to 20.6 per cent net of flexibility options in the land use, land-use change and

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forestry sector, and the possibility to make a one-off transfer or surplus emissions allowances from

ETS into non-ETS.

Ireland’s emission levels peaked in 2001, 28.5 per cent above 1990 levels. Ireland’s emissions have

fallen on a year-on-year basis since 2008, but the rate of decline has slowed since 2011. In 2014

emissions were 5.6 per cent above the 1990 level.

Figure 2.3.8 shows the share of renewable energy production in Ireland continues to grow (albeit from

a low base) with 9.6 per cent of gross final consumption derived from renewables in 2015.

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2.1 Quality of Life

Figure 2.1.1 OECD Better Life Index, Indicators of life satisfaction5, Ireland, 2014

Ireland performs well in

measures of well-being

in the Better Life Index.

Ireland ranks at the top

in social connections

and above the average

in housing, personal

security, health status,

subjective well-being,

work-life balance, civic

engagement and

environmental quality

but below average in

jobs and earnings and

income and wealth.

Rank n/a

Source: OECD Economic Survey of Ireland 2015

Figure 2.1.2 Human development index, 2010 - 2015

The Human

Development Index

measures average

achievement in three

basic dimensions of

human development - a

long and healthy life,

knowledge and a decent

standard of living.

Ireland performs

strongly, ranking 8th in

the world and above the

OECD average.

OECD rank: 8th (-)

Source: UN

5 Life satisfaction is measured on a scale from 0 to 10, with 0 being the lowest score- indicating least satisfied.

0123456789

10Income and wealth

Jobs and earnings

Housing

Work and life balance

Health status

Education and skillsSocial connections

Civic engagement andgovernance

Environmental quality

Personal security

Subjective well-being

Ireland OECD

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Switz

erlan

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and US

New

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en UK

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n

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and

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2015 2010

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29 July 2017

2.2 National Income

Figure 2.2.1 GDP per capita current prices, 20166

Over the course of the

recession, Ireland's GDP

per capita declined but

remained relatively

high. As a result of

exceptionally strong

economic growth in

recent years, at €56,800,

Ireland's GDP per capita

is the second highest in

the Euro area.

Euro area-19 rank: 2nd

(↑1)

Source: Eurostat

Figure 2.2.2 Adjusted gross disposable income of households per capita in PPPs 7

Disposable income, as a

concept, is closer to the

idea of household

income than GDP.

In Ireland, the annual

adjusted disposable

income per capita in

PPPs was 20,181, 13%

below the Euro area

figure 23,295.

Disposable income fell

during the recession but

has increased since

2013.

Euro area-19 rank: 10th

(↑1)

Source: Eurostat

6 No data available for Switzerland for 2016, provisional data for 2015 used instead. Data for Netherlands, Greece, Cyprus, Spain and France is provisional, data for Poland and Portugal is estimated. 7 Adjusted gross disposable income of households per capita in PPS reflects the net resources, earned by households which are available for consumption and/or saving. It includes the flows corresponding to the use of individual services which households receive free of charge from the government. These services, called "social transfers in kind", mainly include education, health and social security services.

0

10000

20000

30000

40000

50000

60000

70000

80000

Switz

erla

nd

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nd

Den

mar

k

Swed

en

Net

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Finl

and

Ger

man

y

UK

Fran

ce

Euro

are

a-19

EU28

Italy

Spai

n

Latv

ia

Hun

gary

GD

P pe

r cap

ita (€

)

2016 2011

0

5000

10000

15000

20000

25000

30000

35000

Switz

erla

nd

Ger

man

y

Fran

ce

Swed

en

Finl

and

Den

mar

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Net

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Euro

are

a 19 UK

EU 2

8

Italy

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gary

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ia

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ss d

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com

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seho

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cap

ita in

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2015 2010

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30 July 2017

Figure 2.2.3 Median equivalised8 disposable net income (€) , 2015

The median equivalised

net income in Ireland

was €21,688 in 2015,

above the Euro area

median (€17,759).

Median incomes

declined in the period

2009-2011 but have

increased since.

However, median

equivalised disposable

income remains below

2008 levels (€22,995)

Euro area-19 rank: 4th(-)

Source: Eurostat

Figure2.2.4 Gini9 coefficient of equivalised disposable income, 2015

The Gini Coefficient is a

measure of equality of

income in the

population. The Irish

Gini coefficient score in

2015 was 29.8,

compared with 31.1 in

2010. Ireland is below

the Euro area average

(30.8) indicating that

income distribution in

Ireland is more equal

than in the Euro area.

Euro area-19 rank: 10th

(↑2)

Source: Eurostat

8 Equivalised disposable income is defined as the total income of a household, after tax and other deductions, divided by the number of household members. 9 The Gini Coefficient is a measure of equality of income in the population where 0 represents a situation where all households have an equal income and 1 indicates that one household has all of national income.

0

5000

10000

15000

20000

25000

30000

35000

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land

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ark

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and

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any

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are

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EU 2

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Italy

Spai

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Pola

nd

Hung

ary

€eq

uiva

lised

2015 2010

0

5

10

15

20

25

30

35

40

Slov

enia

Finl

and

Swed

en

Net

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Den

mar

k

Hun

gary

Fran

ce

Switz

erla

nd

Irela

nd

Ger

man

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Pola

nd

Euro

are

a 19

EU 2

8

Italy UK

Spai

n

Latv

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Coef

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nt o

f equ

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ised

dis

posa

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inco

me

Sc

ale

(0-1

00)

2015 2010

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31 July 2017

Figure 2.2.5 At-risk-of poverty rate, (60% of median income after social transfers), 2015

The Irish at-risk-of-

poverty rate (16.3%) is

below the Euro area

average (17.2%) and has

been below the Euro

area since 2008. On an

annual basis the Irish

rate decreased by 0.1%.

It increased by 1.1%

between 2010 and 2015.

Social transfers play a

significant role in

reducing poverty risk in

Ireland: excluding social

transfers, the at-risk-of

poverty rate was 36.2%.

Euro area-19 rank:

10th (↓1)

Source: Eurostat

Figure 2.2.6 In-work at-risk-of poverty rate, persons employed aged 18+,2015

In 2015 the percentage

of working persons aged

18+ at risk of poverty in

Ireland has fallen to

4.8%, down from 5.4% in

in 2014 and 5.5% in 2010.

The Irish rate was almost

half the Euro area rate

(9.4%) in 2015 and below

the UK rate 8.2%.

Euro area-19 rank: 3rd

(↑2)

Source: Eurostat

0

5

10

15

20

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2015 2010

0

2

4

6

8

10

12

14

Finl

and

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nd

Net

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mar

k

Swed

en

Fran

ce UK

Switz

erla

nd

Latv

ia

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gary

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are

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EU 2

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Ger

man

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Spai

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Popu

latio

n at

wor

k at

ris

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pov

erty

(%

)

2015 2010

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Figure2.2.7 Percentage of population defined as severely materially deprived10, 2015

Material deprivation

covers issues including

economic strain,

durables and housing.

The proportion of the

population considered

materially deprived

increased in Ireland over

the recession. It was

5.7% in 2010, peaked at

9.9% in 2013 and has

declined since (7.5% in

2015). The Irish rate was

0.6% above the Euro

area average in 2015.

Euro area-19 rank:

11th (↓4)

Source: Eurostat

10 Material deprivation" covers indicators relating to economic strain, durables, housing and environment of the dwelling. Severely materially deprived persons have living conditions severely constrained by a lack of resources, they experience at least 4 out of 9 following deprivations items: cannot afford i) to pay rent or utility bills, ii) keep home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein equivalent every second day, v) a week holiday away from home, vi) a car, vii) a washing machine, viii) a colour TV, or ix) a telephone.

0

5

10

15

20

25

30Sw

eden

Switz

erla

nd

Finl

and

Net

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Ger

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Fran

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are

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nd

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Pola

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gary

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2015 2010

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33 July 2017

2.3 Environmental Sustainability

Figure 2.3.1 Environmental performance index (Scale 0-100), 201611

The Yale Environmental

Performance Index

assesses 20 indicators of

environmental health

and ecosystem

protection and resource

management. Ireland’s

performance has

improved since 2010 and

over a ten year

timeframe has improved

by 3.5%

OECD rank:17th (-)

Source: Yale Centre for Environmental Law and Policy

Figure 2.3.2 Components of the ECO-Innovation index12, Ireland, 2016

The European Eco-

Innovation Index

illustrates eco-

innovation performance

across five dimensions:

Overall, Ireland is

considered an average

eco-innovation

performer with scores

around the EU average

across most dimensions.

Ireland performs best on

inputs and resource

efficiency outcomes.

Rank EU 28: 13th (↓5)

Source: European Commission

11 Ranking and Score based on 2014 data 12 Index covers different aspects of ecoinnovation by applying 16 indicators grouped into five thematic areas. (1) inputs comprising investments (financial or human resources), which aim at triggering eco-innovation activities, (2) activities, illustrating the extent companies are active in eco-innovation, (3) outputs, quantifying activities in terms of patents, academic literature etc (4) Resource efficiency outcomes, covering resource (material, energy, water) efficiency and GHG emission s (5) Socio-economic outcomes, illustrating the extent eco-innovation performance generates positive outcomes for social aspects (employment) and economic aspects (turnover, exports). See https://ec.europa.eu/environment/ecoap/scoreboard.

-5

0

5

10

15

20

25

0102030405060708090

100

Finl

and

Swed

enD

enm

ark

Spai

nFr

ance

New

Zea

land U

KSi

ngap

ore

Switz

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land U

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any

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rea

Chin

a Ten

year

per

cent

age

chan

ge in

sco

re

Scor

e (0

-100

)

2016 EPI score (left axis) 10-Year percentage change (right axis)

98

112

45

72141

80

0

20

40

60

80

100

120

140

160Eco-Innovation Index

Eco Innovation Inputs

Eco Innovation Activities

Eco Innovation Outputs

Resource Efficency Outcomes

Socio Economic Outcomes

Ireland EU average (100)

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34 July 2017

Figure 2.3.3 Gross inland consumption, percentage by fuel type, 2015

Figure 2.3.3 shows there

is considerable

heterogeneity across

the EU in terms of the

composition of national

fuel consumption. While

declining, (98% in 1990)

fossil fuels account for

90% of Irish gross inland

consumption in 2015.

Ireland still has a much

higher reliance on

petroleum products

(48%) than the EU

average (34%).

Rank: n/a

Source: Eurostat

Figure 2.3.4 Index of GDP, total primary energy (TPER13) and energy-related CO2, 1990-2016

Fig 2.3.4 shows the

relative decoupling of

TPER from economic

growth. 2015 saw an

increase in overall

energy with TPER

growing by 4.9%. This

was linked to increased

domestic economic

activity in the industry

and transport sectors,

which are closely

aligned with the

economy, increasing by

4.8% and 5.9%

respectively.

Rank: n/a

Source: SEAI/CSO

13 Total Primary Energy (TPER) is also known as gross inland consumption

-20

0

20

40

60

80

100

Irela

nd

Spai

n

Net

herla

nds

Den

mar

k

UK

Italy

Euro

are

a 19

EU 2

8

Ger

man

y

Latv

ia

Fran

ce

Hun

gary

Finl

and

Pola

nd

Swed

en

Gro

ss in

land

con

sum

ptio

n (%

)

Total petroleum products Solid fuels Gas Renewable energies

Electrical energy Waste (non-renewable) Nuclear heat

0

50

100

150

200

250

300

350

400

450

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Pro

visi

onal

Inde

x (1

990=

100)

GDP Index TPER Index Energy CO₂ Index

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Figure 2.3.5 Total Final Energy Consumption by Sector, Ireland, 1990-2015

In 2015, overall energy

consumption increased

by 4.7% to 11,337 ktoe.

Energy use in transport

accounts for 42% of the

total and grew in 2015

by 5.9% to 4,789 ktoe

but was 16% lower than

in 2007. Consumption in

industry grew 4.8% to

2,397 ktoe. Over the

1990 – 2015 period, the

share of industry TFC

dropped from 24% to

21%.

Rank: n/a

Source: SEAI

Figure 2.3.6 Emissions by national climate change sectors (Kt CO2 equivalent), Ireland, 1990-2015

Between 1990 and 2015,

total emissions

increased by 6.7% to

59,878kt of CO2

equivalent. The

agriculture (33%),

transport (20%), energy

(20%), and residential

(10%) sectors account

for the majority of

emissions. Emissions by

the agriculture and

industrial sectors have

declined and are below

1990 levels. Transport

emissions however have

increased by 130%.

Rank: n/a

Source: EPA

0

2000

4000

6000

8000

10000

12000

14000

1990 2000 2005 2010 2011 2012 2013 2014 2015

Kilo

tonn

es o

f oil

equi

vela

nt (k

toe)

Industry Transport Residential Commercial/Public Services Agriculture

0

5,000

10,000

15,000

20,000

25,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

kt C

O2

equi

vale

nt

Agriculture Transport Energy Industries Residential Manufacturing Combustion Industrial Processes

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36 July 2017

Figure 2.3.7 Greenhouse Gas Emissions (Kt CO2 equivalent indexed to 1990), Ireland, EU 28, 1990-2014

The EU 2030 targets

envisage a domestic EU

greenhouse gas

reduction target of at

least 40% compared to

1990. Ireland’s emission

levels peaked in 2001,

28.5% above 1990

levels. Ireland’s

emissions have fallen on

a year-on-year basis

since 2008, but the rate

of decline has slowed

since 2011. In 2014

emissions were 5.6%

above the 1990 level.

Rank: n/a

Source: Eurostat

Figure 2.3.8 Share of renewable energy in gross final energy consumption, 2015

Increasing the share of

renewables in gross final

consumption of energy

is one of the headline

indicators of the Europe

2020 strategy. Ireland’s

use of renewable energy

sources has increased

over the period 2010-

2015 but at 9.1% in 2015

we remain below our

target of a 16% share of

renewables in gross final

consumption.

Rank: EU 28: % distance

from target 25th

Source: Eurostat

60

70

80

90

100

110

120

130

14019

90

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

Emm

issio

ns In

dex (

1990

=10

0)

Ireland EU 28 1990 C02 level

0

10

20

30

40

50

60

Swed

en

Finl

and

Latv

ia

Den

mar

k

Italy

EU 2

8

Spai

n

Fran

ce

Ger

man

y

Hun

gary

Pola

nd

Irela

nd UK

Net

herla

nds

Ener

gy fr

om re

new

able

sou

rces

(%)

2015 2010 2020 Target

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37 July 2017

Chapter 3

Competitiveness Outputs

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Competitiveness Outputs The outputs of competitiveness are represented in the second tier of the competitiveness framework. These

can be seen as the metrics of current competitiveness. The metrics in this tier cover business performance,

costs, productivity and labour supply. These indicators are defined as “competitiveness output” indicators and

are not directly within the control of policymakers. Ireland’s performance in these areas is directly related to

the quality of previous policies instituted at the input level and the ability to build a strong intermediate stage

of competitiveness.

Business Performance: The performance of the business sector is central to the Council’s definition of

competitiveness. The enterprise sector is the driver of the economy and as such, is critical to income

growth and maintaining high employment levels in Ireland. A strong and vibrant exporting sector is

essential to sustaining the government finances and funding public services. Business performance is

assessed across a range of headings including investment flows, export composition and market

flows.

Ireland has expanded its share of the world’s services market, reaching 3% in 2016, up from 2.2% in

2005. Over the same period, Ireland’s share of global merchandise exports declined from 1% to 0.8%

in 2016. Ireland’s share of total global export markets is 1.3%, as of 2016. (Figure 3.1.2)

Figure 3.1.3 shows Ireland’s share of world total exports at a sectoral level. Strong growth was

recorded in the Transport (27%), Telecoms, Computer & Information (20.3%) and Machinery (17.5%)

sectors over this 5 year period.

While exports have been the primary engine of economic growth in Ireland in recent years, the

composition and range of goods exported from Ireland has become increasingly concentrated. Figure

3.1.4 shows that within the services sector computer and business services dominate, whilst

chemicals (and particularly medical and pharmaceutical products) are the primary goods exports.

Irish merchandise exports to the EU-28 amounted to 22.3% of GDP in 2016. Ireland is also a

significant exporter to non-EU countries (24.1% of GDP). As a result of the scale of non-euro

denominated trade, Irish firms are particularly exposed to exchange rate fluctuations. The EU, US and

UK remain Ireland’s principal markets for exports. The UK is particularly important for services and

food exports.

Building on strong growth in 2015, the activity level of FDI and indigenous agency client companies in

2015 was exceptionably strong in terms of export growth, jobs created and new investment. From an

indigenous enterprise perspective, export and employment performance continues to be strong.

Over the period of its 2014-2016 Strategy ‘Driving Enterprise, Delivering Jobs’, 45,592 new full time

jobs were created by Enterprise Ireland client companies. This brings the total number of people

employed by Enterprise Ireland supported companies to 201,108 – an all-time high for the Agency.

Enterprise Ireland’s 2017-2020 Strategy ‘Build Scale, Expand Reach’ aims to increase client company

exports to €26 billion per annum by the end of 2020. Furthermore, the Strategy contains an

ambitious target to grow the level of exports to over two thirds outside the UK over this period. Data

from the Annual Business Survey of Economic Impact shows that the value of exports by Irish owned

companies increased by 67 percent to €18.7 billion in the period 2010-2015.

The attraction of FDI continues to be a central feature of Ireland’s enterprise policy, and foreign firms

contribute substantially to capital investment, exports, productivity, jobs, expenditure in the Irish

economy and to the exchequer. OECD data highlights the hugely significant contribution of FDI to

our economy. The most recent data shows that Ireland’s stock of inward investment (283% of GDP) is

the second highest in the Euro area. In January 2017 IDA Ireland reported that the number of

investments secured increased by 14.5 per cent in 2016, and that client companies created 11,842 net

jobs in 2016 – IDA clients account for almost 10 per cent of direct employment in Ireland. IDA Ireland

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39 July 2017

has completed two years of its five year strategy, Winning: Foreign Direct Investment 2015-2019 -

with the latest results indicating a strong performance towards delivering its 2019 target of 80,000

new jobs and 900 investments.

Analysis by the World Bank shows that Ireland has a relatively supportive environment for

entrepreneurship compared with many of our Euro area competitors. CSO QNHS data reflects this

and shows that the numbers of self-employed persons as a percentage of total employment in Ireland

continues to increase, albeit at a slow pace. Figure 3.6.4 shows that although the proportion of self-

employed in Ireland has fallen in recent years it remains above the Euro area average.

Costs: Cost competitiveness is critical to ensuring that enterprises based in Ireland have the ability to

compete successfully in international markets. This section examines the overall cost level and the

rate of change for a number of key business inputs. Data on both pay and non-pay is included.

The Council published its Costs of Doing Business in Ireland report in June 2017 and concluded that

despite the low inflation environment, Ireland remains a relatively expensive location in which to do

business. The analysis in the Costs report warns that the return to economic growth has resulted in a

series of upward cost pressures. These are briefly surmised below.

In Ireland, the hourly labour cost was €30.4 in 2016, compared to €26.7 in the UK and €29.8 for the

Euro area 19. While labour cost growth has been positive in Ireland, the growth has been below EU

and Euro area averages in the 5 year period to 2016, representing a competitiveness gain for Ireland.

Sectoral wage growth rates have been lower in Ireland than the Euro area over the corresponding

period with the notable exception of Wholesale & Retail and ICT. In 2016, growth in labour costs in

Ireland was strongest in Professional, scientific & technical activities (+3.4%, Euro Area+1.5%),

Transportation & storage (+2.6%, Euro Area +1.1%) and Administrative and support service activities

(+2.3%, Euro Area +0.8%).

The last number of years has witnessed a sustained recovery in the Irish commercial property market.

Commercial rents growth has been driven by an increase in demand, reflecting the improving

economy. This in turn, has boosted capital values, the price that would have been paid for property if

it had been purchased at the point of valuation, in all commercial sectors (e.g., office, industrial and

retail). Commercial property prices in Ireland, however, still compare favourably to comparable cities

in the UK but concerns persist about the availability of prime office space for rent in large urban

centres in the short term as the market tightens and vacancy rates decline. This could result in future

rent increases and any shortage of supply of new commercial space could adversely impact our

competitiveness.

The differential average price for electricity between Ireland and the UK has gone from a point where

we are almost 12 per cent more expensive in 2012 to a situation where in the first half of 2016

electricity prices are 6 per cent cheaper in Ireland. Whilst industrial gas prices are now equal to the

average prices across the Euro area, comparable prices are over 15 per cent lower in the UK. Ireland is

relatively cost competitive for telecoms, especially for business mobile broadband. However,

concerns persist around the issues of quality (speed) and the regional availability of high speed

services. Services prices in Ireland have risen continuously since the beginning of 2012 and the

magnitude of the increase has been higher than the Euro area 19 average during this period also.

Inflation has been low in Ireland and most advanced economies in recent years. In the Euro area, since

2013, inflation has been declining and remains well below the European Central Bank’s target level.

The annual average growth rate in Eurostat’s Harmonised Indices of Consumer Prices was 0.2 per

cent in 2016. The corresponding figure for Ireland was -0.2 per cent. Prices on average, as measured

by the Consumer Price Index, registered no growth in 2016 compared to 2015 and were 0.2 per cent

higher in April 2017 compared with April 2016. As highlighted by the CSO, the most notable changes

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40 July 2017

in the year were decreases in Transport (-0.52%) and Miscellaneous Goods & Services (-0.04%). The

aspects which caused the largest upward contribution in the month were Restaurants & Hotels

(+0.12%) and Alcoholic Beverages & Tobacco (+0.08%). Ireland, however, remains a relatively

expensive location in which to live and do business with a price profile which can be described as

“high cost, rising slowly”. Irish consumer prices remain over 25 per cent above the European Union

average.

Productivity: In the long run, a country’s standard of living is dependent upon productivity. The

charts in this section examine Ireland’s labour productivity performance in an OECD context, as well

as multi-factor productivity.

Ireland’s labour productivity performance is strong in an international context. Figure 3.5.1 shows

Ireland had the 3rd highest output per hour worked among OECD member states in 2016.Output per

hour was $79.7 in GDP terms, an increase of 28 per cent over 2011. Figure 3.5.4 shows significant

differences in productivity are evident when considering output as a measure of GDP or the OECD’s

measure of Gross National Income. As a measure of GDP, Ireland’s output is approximately 80 per

cent above the OECD baseline, as a measure of GNI, the differential falls to 44 per cent.

OECD data shows that taking the period 2010-2015, Ireland’s labour productivity annual growth rate

was 5.5 per cent which significantly exceeds the OECD average (0.8%). Irish labour productivity

growth has been above that in competitor countries since 2013 and was 2.3 per cent in 2016.

However, Ireland’s performance has been greatly influenced by shifts in the composition of

employment and the influence of a number of high value added sectors on output. The effects of

corporate restructuring, including the relocation of firms with significant IP assets and aircraft leasing,

led to noteworthy increases in total output and hence labour productivity, particularly in 2015 (Figure

3.5.2).

The narrow base of enterprises in high value added sectors (particularly in foreign owned Pharma and

ICT) disguises, to a degree, underperforming sectors and skews Ireland’s productivity level and

growth rate.

Multifactor productivity (MFP) reflects the overall efficiency with which labour and capital inputs are

used together in the production process. Figure 3.5.8 shows growth decelerated in nearly all countries

after the crisis compared with the period 2001-2007 Irish MFP grew by 0.9 per cent in 2001-2007 and

growth increased to 1.3 per cent in the years 2009-2014.

Employment: Employment is a key determinant of living standards, and growth in employment

combined with productivity growth is the main driver of economic growth. This section considers a

range of indicators, measuring key aspects of labour market performance including employment and

unemployment. Some labour market indicators such as participation rates and a number of other

demographic indicators are examined in the section on endowments (Chapter 5).

Figure 3.6.1 illustrates the continued improvement in the labour market. While employment has not

yet returned to peak pre-recession levels, over 2.05 million were in employment in Q1 2017, an annual

increase of 3.5 per cent. The increase in total employment of 68,600 in the year to Q1 2017 was

represented by an increase in full-time employment of 84,200 and a decrease in part-time

employment of 15,600. Overall, the majority of sectors in Ireland have experienced growth in

employment between 2011 and 2016 as recovery took effect. Employment growth in the year to Q1

2017 was spread relatively equally across the different sectors of the economy with employment

growing in 11 of 14 economic sectors.

Figure 3.6.2 shows the Irish employment growth rate in 2016 was well above both the Euro area and

EU28 averages. As set out earlier, Irish employment growth is relatively strong and balanced from a

sectoral and regional perspective. Consistent with the increase in employment levels, unemployment

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41 July 2017

and long term unemployment are on a steady downward trajectory. The number of unemployed and

long term unemployed persons in Q1 2017 was 146,200 and 78,655 respectively. Unemployment

decreased on a year on year basis and fell from 15.1 to 6.8 per cent, on a seasonally adjusted basis,

between Q1 2012 and Q1 2017.

Long term unemployment and youth unemployment levels are also declining, yet they remain high.

Eurostat data shows youth unemployment declined further in 2016 and is now below both the EU28

and the Euro area averages (17.2%). This is significantly below the 29.1 per cent rate recorded in 2011.

The proportion of self-employed in Ireland has risen since 2011 (from 0.75% to 0.85% in 2016). It

remains above the Euro area-19 average (0.33%). Ireland also has a high proportion of youth neither

in employment, education or training (NEET). Out of the total age cohort 15-24, 7.4 per cent were

classified as NEET in 2016, compared with the EU28 and Euro area 19 averages of 3.8 per cent and 3.7

per cent respectively. (Figure 3.6.8)

Figure 3.3.9 shows that for a long term unemployed, one earner married couple with 2 children

earning 100 per cent of the average wage; the Irish replacement rate (80%) exceeds the OECD

average (54.4%). The rate for single individuals (50.6%) also exceeds the OECD average (31.5%). The

unemployment trap measures the percentage of gross earnings lost to taxes when a person becomes

employed. This occurs through the loss of unemployment benefits combined with higher tax and

social security contributions. Figure 4.4.12 shows the how tax systems fare in encouraging those who

are unemployed into taking up employment. Other disincentives also exist which limit the

attractiveness of returning to work. In particular the high cost of childcare is a pressing concern.

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42 July 2017

3.1 Business Performance

Figure 3.1.1: Gross fixed capital formation (GFCF), current prices (% GDP), 2015

Investment is a key

driver of economic

growth. Following a

sharp drop during the

recession, investment

activity in Ireland has

increased significantly.

In GNP terms, Irish

private investment

(24%) exceeds the Euro

area average (17%),

although public

investment (2.4%) is

below average (2.7%).

Euro area-19 rank:

4th

(↑13)

Source: UNCTAD

Figure 3.1.2: Ireland’s share of world trade, 2016

Ireland has expanded its

share of the world’s

services market,

reaching 3% in 2016, up

from 2.2% in 2005. Over

the same period,

Ireland’s share of global

merchandise exports

declined from 1% to

0.8% in 2016. Ireland’s

share of total global

export markets is 1.3%,

as of 2016.

Rank: n/a

Source: WTO

0

0.05

0.1

0.15

0.2

0.25

0.3

Swed

en

Switz

erla

nd

Irela

nd

Japa

n

Fran

ce

Hun

gary

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n

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nd

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man

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euro

are

a 19

Finl

and

EU28

Net

herla

nds

Den

mar

k

UK

Italy

Perc

enta

ge o

f GD

P

Private sector 2015 General government 2015 Total 2010

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Per

cen

tag

e o

f g

lob

al e

xpo

rts

Ireland's share of global commercial services exports

Ireland's share of global merchanidise exports

Ireland's share of total global exports

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43 July 2017

Figure 3.1.3: Ireland’s share of world trade by Sector, 2015

This indicator measures

Ireland’s share of world

total exports at a

sectoral level. Ireland

lost market share in

insurance & pensions,

financial services and

pharmaceuticals

between 2010 and 2015.

Strong growth was

recorded in the

Transport (27%),

Telecoms, Computer &

Information (20.3%) and

Machinery (17.5%)

sectors over this 5 year

period.

Rank: n/a

Source: WTO

Figure 3.1.4: Total goods and services exports by sector from Ireland (€million), 2015

While exports have been

the primary engine of

economic growth in

Ireland in recent years,

the composition and

range of goods exported

from Ireland has

become increasingly

concentrated. Within

the services sector,

business and computer

services dominate,

whilst chemicals (and

particularly medical and

pharmaceutical

products) are the

primary goods exports.

Rank: n/a

Source: WTO

0%

4%

8%

12%

16%

Te

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44 July 2017

Figure 3.1.5: Intra and extra-EU merchandise exports (% GDP), 2016

Ireland is one of the

most open economies in

the EU. Irish

merchandise exports to

the EU-28 amounted to

22.3% of GDP in 2016.

Ireland is also a

significant exporter to

non-EU countries (24.1%

of GDP). As a result of

the scale of non-euro

denominated trade, Irish

firms are particularly

exposed to exchange

rate fluctuations.

EU 28 rank:

Total exports: 10th (↓1)

Extra-EU: 8th (↑1)

Source: Eurostat

Figure 3.1.6: Ireland’s Merchandise exports classified by commodity and principal countries, 2016

Merchandise exports

totalled €116.9 billion in

2016. Chemicals and

related products

accounted for 56% in

total and account for the

largest share of

exported goods to the

US, UK, and rest of the

EU. The UK accounted

for €13.3 billion, (11.5%)

of total exports and is

the primary destination

for Food exports,

accounting for 28% of

total Food exports.

Rank: n/a

Source: CSO

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Hu

ng

ary

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the

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UK

Ex

po

rts

(% G

DP

)

Intra 2016 Extra 2016 2011

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

UK Other EU US China Rest ofWorld

Expo

rts,

€m

illio

n

Commodities and transactions notclassified elsewhere

Miscellaneous manufactured articles

Machinery and transport equipment

Manufactured goods classified chieflyby material

Chemicals and related products

Animal and vegetable oils, fats andwaxes

Mineral fuels, lubricants and relatedmaterials

Crude materials, inedible, except fuels

Beverages and tobacco

Food and live animals

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45 July 2017

Figure 3.1.7 : Share of total Irish Merchandise Exports, classified by country, 2016

The US accounted for

26% of merchandise

exports up from 23% in

2011. Other key

markets include Belgium

(12.5%), UK (11.4%),

Germany (6.7%) and

Switzerland (5%).

Notable non EU/US

markets with increasing

market share compared

with 2011 are China

(3.1%), Japan (2.4%),

Australia (1.2%), Mexico

(1.1%), Canada (0.8%),

Korea (0.8%) and Saudi

Arabia (0.7%).

Rank n/a

Source: CSO

Figure 3.1.8: Ireland’s Services exports classified by service type and principal countries, 2015

Ireland's exports of

computer services

represent 47.2% of the

total export in services,

followed by financial

services (9.08%) and

insurance (8.47%).

Computer services

account for the largest

share of exported

services to the EU

(including the UK), US

and the rest of the major

export destinations,

apart from Luxembourg.

Rank n/a

Source: CSO

0

5

10

15

20

25

30

USA

Belg

ium UK

Ger

man

y

Switz

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nd

Net

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er c

ount

ries

Fran

ce

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a

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n

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Italy

Nor

ther

n Ire

land

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ia

Pola

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ico

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da

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orea

Saud

i Ara

bia

Swed

en

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A*

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e of

Tot

al G

oods

Exp

orts

(%)

2016 2011

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Ger

man

y

Fran

ce

Italy US

Net

herla

nds

Spai

n

Swed

en

Switz

erla

nd

Cana

da

Chin

a

Japa

n

Kore

a

Braz

il

Expo

rts,

€m

illio

n

Transport Tourism and Travel Insurance Financial services Royalties/Licences Computer services

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46 July 2017

Figure 3.1.9 : Share of total Irish Services Exports, classified by country, 2015

In 2015 Ireland's total

exports in services

accounted for €121,605

million. The largest

share of services is

exported to the EU (54%

of total export). In terms

of individual countries,

the largest share of

exports in services is

attributed to the UK -

19.35% of total export,

the US (10.01%) and

Germany (7.87%).

Rank n/a

Source: CSO

Figure 3.1.10: Direct expenditure in the economy by enterprise agency clients by sector, 201514

In 2015, total

expenditure by

enterprise agency

clients increased by

34.1% to €42.6 billion

from 2010. The

proportion of

expenditure by industry

and manufacturing and

ICT has increased

significantly.

Rank: n/a

Source: DJEI, Annual Business Survey of Economic Impact

14 Figure 3.1.10 shows direct expenditure in the Irish Economy (payroll, Irish materials, and Irish services) by enterprise agency client companies.

0

5

10

15

20

25U

K US

Ger

man

y

Italy

Fran

ce

Net

herla

nds

Chin

a

Switz

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e of

Tot

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xpor

t by

Coun

try

(%)

2015

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2010 2015

€m

illio

ns

Information, Communications & Other Services

Energy, Water, Waste & Construction

Manufacturing & Other Industry (including Primary Production)

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47 July 2017

Figure 3.1.11: Exports by Irish owned clients of enterprise agencies by sector, 2015

Exports by Irish owned

clients of enterprise

agencies increased by

67% in the five years to

2015. The Food, Drink

and Tobacco sector and

Business Services

account for more than

50% of the exports by

indigenous companies.

All sectors recorded

increases in export

volume over the 5 years

in question.

Rank: n/a

Source: DJEI, Annual Business Survey of Economic Impact

Figure 3.1.12: Exports by Foreign owned clients of enterprise agencies by sector, 2016

Exports by Foreign

owned clients of

enterprise agencies

increased by 41% in the

five years to 2015. The

Computer Programming

and Chemical Sectors

account for more than

50% of exports by

Foreign owned

companies. However,

little export growth was

recorded in the chemical

sector over the time

period in question.

Rank: n/a

Source: DJEI, Annual Business Survey of Economic Impact

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Food

, Drin

k & To

bacco

Busin

ess Se

rvices

Co

mpute

r Con

sultan

cy

Finan

cial Se

rvices

Energ

y, Wate

r, Wast

e & Co

nstruc

tion

Machi

nery

& Equ

ipmen

t

Basic

& Fab

ricate

d Meta

l Prod

ucts

Comp

uter, E

lectro

nic &

Optic

al Prod

ucts

Electr

ical eq

uipme

nt

Rubb

er & P

lastic

s

Educa

tion

Non-M

etalic

Mine

rals

Chem

icals

Othe

r IT &

Comp

uter S

ervice

s

Texti

les, C

lothin

g, Foo

tware

& Lea

ther

€millio

n

2015 2010

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

C

ompu

ter P

rogr

amm

ing

Chem

ical

s

C

ompu

ter C

onsu

ltanc

y

Com

pute

r, El

ectr

onic

& O

ptic

alPr

oduc

ts

Med

ical

Dev

ice

Man

ufac

turin

g

Oth

er IT

& C

ompu

ter S

ervi

ces

Food

, Drin

k &

Tob

acco

C

ompu

ter F

acili

ties M

anag

emen

t

Mac

hine

ry &

Equ

ipm

ent

Fina

ncia

l Ser

vice

s

Rubb

er &

Pla

stic

s

Oth

er S

ervi

ces

Tran

spor

t Equ

ipm

ent

Basic

& F

abric

ated

Met

al P

rodu

cts

Elec

tric

al e

quip

men

t

€m

illio

n

2015 2010

Page 49: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

48 July 2017

Figure 3.1.13: FDI outward stock15 (% GDP), 2015

Levels of outward direct

investment from Ireland

by Irish MNCs and

foreign MNCs based

here increased from

182% of GDP in 2012 to

283% in 2015. Much of

this increase can be

attributed to the foreign

assets of foreign owned

companies being re-

domiciled in Ireland16.

OECD rank:

1st

(-)

Source: OECD

Figure 3.1.14: Growth in Greenfield Investments17, 2011-2016

Figure 3.1.14 shows the

absolute growth rates in

the number of

greenfield investments

between 2011 and 2016.

Ireland experienced

steady growth rates in

investment except for a

significant fall off in 2013

and an almost 50%

increase in 2016. This is

a result of the surge in

FDI inflows which

occurred in 2015.

Rank: n/a

Source: UNCTAD

15 Foreign Direct Investment (FDI) stocks measure the total level of direct investment at a given point in time, usually the end of a quarter or of a year. The outward FDI stock is the value of the resident investors' equity in and net loans to enterprises in foreign economies. 16 For more information on the impact of this, see CSO, Domiciled PLCs in the Irish Balance of Payments, July 2015 17 A green field investment is a form of foreign direct investment where a parent company builds its operations in a foreign country from the ground up by building a new facility.

0

50

100

150

200

250

300Ir

elan

d

Net

herla

nds

UK

OEC

D

Ger

man

y

US

Isra

el

Kor

ea

Hun

gary

New

Zea

land

Pol

and

Latv

ia

Out

war

d FD

I Sto

ck (%

GD

P)

2016 2012

60%

80%

100%

120%

140%

160%

2011 2012 2013 2014 2015 2016

Gre

enfie

ld In

vest

men

t G

row

th In

dex

(201

1=10

0)

Ireland United Kingdom European Union United States

Page 50: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

49 July 2017

3.2. Costs - Labour

Figure 3.2.1: Average annual gross & net earnings, single individual, no children, 100% of average earnings,

201618

Gross earnings include

wages, taxes on income

and employer and

employee social security

contributions. While

gross earnings are 4.6%

below the Euro area

average, net earnings

are 14.9% above the

average, reflecting the

relatively small gap

between before and

after tax wages in

Ireland.

Rank: n/a

Source: Eurostat

Figure 3.2.2: Annual growth in Business labour costs (wages and Salaries), 2011-2016

Irish labour costs fell in

2011. While labour cost

growth has been

positive between 2012

and 2015, the rates

recorded have been

consistently below EU

and Euro area averages,

representing a

competitiveness gain for

Ireland. In 2016 growth

rates in Ireland

converged with those in

both the Euro area and

the UK.

Rank: n/a

Source: Eurostat

18 Gross wages include wages, taxes on income and employer and employee social security contributions.

€0

€10,000

€20,000

€30,000

€40,000

€50,000

€60,000

€70,000

€80,000

€90,000

Hun

gary

Pola

nd

Spai

n

Italy

EU28

Irela

nd

Euro

are

a-19

Japa

n

Fran

ce

Finl

and

Swed

en US

Ger

man

y

Net

herla

nds

UK

Den

mar

k

Switz

erla

nd

Ann

ual e

arni

ngs

(€)

Gross annual earnings (€) Net annual earnings (€)

-1.5

0

1.5

3

4.5

2011 2012 2013 2014 2015 2016

Ann

ual P

erce

ntag

e C

hang

e

EU28 Euro area 19 UK Ireland

Page 51: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

50 July 2017

Figure 3.2.3: Labour cost index, 2012-2016

Figure 3.2.3 shows

similar data as the 3.2.2

but expressed in index

form. Setting 2012

labour cost levels equal

to 100, it is evident that

Irish labour costs have

cumulatively increased

by less than EU and Euro

area and UK labour costs

respectively. However,

an index such as this

does not reflect the

different starting levels

of labour costs in each

country.

Rank: n/a

Source: Eurostat

Figure 3.2.4: Annual growth in labour costs in Ireland by sector, 2012-2015

Figure 3.2.4 shows that

total earnings across all

sectors in Ireland grew

by 1.2% between 2014

and 2015 with increases

recorded in 8 out of the

12 sectors examined.

The largest increase in

2015 was recorded in

ICT. Construction and

Finance & Insurance

earnings fell by 2.1% and

0.7% in 2015. Finance &

Insurance costs also fell

in 2015.

Rank: n/a

Source: CSO

98

100

102

104

106

108

110

2012 2013 2014 2015 2016

Labo

ur C

ost

Inde

x (2

012=

100)

EU28 Euro area 19 UK Ireland

-4%

-2%

0%

2%

4%

6%

All

sect

ors

Con

stru

ctio

n (F

)

Who

lesa

le &

reta

il(G

)

Tra

nspo

rt &

sto

rage

(H)

Acc

omm

& fo

od(I)

ICT

(J)

Pro

fess

iona

l(M)

Pub

lic a

dmin

(O)

Edu

cati

on (P

)

Indu

stry

(B to

E)

Fina

nce

& in

sura

nce

(K,L

)

Art

s &

ent

erta

inm

ent(

R,S

)

Gro

wth

in T

otal

Ear

ning

s

2012-13 2013-14 2014-15

Page 52: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

51 July 2017

Figure 3.2.5: Earnings per hour and hours worked, Q4 2015

Figure 3.2.5 examines

Irish Labour Costs for a

range of sectors. It

includes data on regular

and irregular earnings as

well as “other labour

costs. The highest

hourly labour costs

occur in sectors such as

finance and insurance,

ICT and education.

Earnings per hour range

from €12.19

(Accommodation &

Food) to €33.35

(Education).

Rank: n/a

Source: CSO

0

10

20

30

40

50

Acc

om

m &

fo

od

(I)

Ad

min

(N

)

Wh

ole

sale

& r

eta

il (G

)

Art

s (R

,S)

Co

nst

ruct

ion

(F

)

Tra

nsp

ort

(H

)

Hu

ma

n h

ea

lth

(Q

)

All

NA

CE

se

cto

rs

Man

ufa

ctu

rin

g (

C)

Re

al e

stat

e (

L)

Pu

blic

ad

min

(O

)

Pro

fess

ion

al (

M)

Min

ing

& q

ua

rryi

ng

(B

)

ICT

(J)

Fin

an

ce &

Insu

ran

ce (

K)

Ed

uca

tio

n (

P)

Eu

ro p

er

ho

ur

Average Hourly Other Labour Costs (Euro)Average Hourly Irregular Earnings (Euro)Average Hourly Earnings excluding Irregular Earnings (Euro)Q3 2011

Page 53: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

52 July 2017

3.3 Other Business Costs

Figure 3.3.1: 5-year Growth19 in Cost of renting a prime office unit, € per square metre per year, Q4 201620

In the 5 years to Q4

2016 Compound Annual

Growth Rates

associated with Office

Rents were 14.1% in

Dublin (D2 and D4

districts) and 7% in Cork.

The rates in Dublin were

over 3 times the

equivalent rates in both

London City and

London’s West End.

Rank: n/a

Source: Cushman and Wakefield, Office Snapshot Reports

Figure 3.3.2: Cost of Renting a Prime Retail Unit, € per square metre per month21

In 2016 prime retail

rents had increased by

31.5% in Ireland since

2014. Ireland was the

5th

most expensive

location in the Euro

area. Rents range from

€550 per square metre in

O’Connell Street,

Limerick to €5,920 in

Grafton Street, Dublin.

Euro area-13 Rank: 5th

(↑2)

Source: Cushman and Wakefield, Main Streets Across the World

19 This growth is measured in Compound Annual Growth Rate (CAGR) Terms. CAGR equates to the mean annual growth rate of an investment over a specified period of time longer than one year. 20 Figures for both Dublin (D2/D4) and Cork are from Q2 2016. 21 The chart is based on the most expensive retail location in each country, and uses data collected in September 2014. Data for retail rents relates to the expected rent obtainable on a standard unit and/or shopping centre in a prime pitch in 330 locations across 65 countries around the world. Rents in most countries are supplied in local currency and converted to a common currency for purposes of international comparison. Data for Ireland is based on rents for Grafton St. in Dublin. The chart excludes data on the US (New York - €29,822 per metre squared) for presentational purposes.

-2

1

4

7

10

13

16P

aris

(CB

D)

Mila

n C

BD

)

Cop

enha

gen

(Cit

y)

Fran

kfur

t (C

BD

)

Mad

rid

(CB

D)

Man

ches

ter

Am

ster

dam

(Cen

tral

)

Ber

lin (C

BD

)

Edi

nbur

gh

Hel

sink

i (C

entr

e)

Lond

on (W

est

End

)

Lond

on (C

ity)

Cor

k*

Dub

lin (D

2/D

4)*C

ompo

und

Ann

ual G

row

th R

ate

(%)

€0

€2,000

€4,000

€6,000

€8,000

€10,000

€12,000

€14,000

Pola

ndH

unga

rySw

eden

New

Zea

land

Finl

and

Den

mar

kN

ethe

rland

sIre

land

euro

are

a 17

Spai

nSi

ngap

ore

Chin

aG

erm

any

Switz

erla

ndSo

uth

Kor

eaJa

pan

Italy UK

Fran

ce

€pe

r met

re s

quar

ed

2016 2014

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53 July 2017

Figure 3.3.3: Industrial electricity prices22 (excluding VAT), S1 2016

In the first half of 2016,

weighted average

industrial electricity

prices in Ireland were

2.9% higher than the

simple Euro area 19

average but 6% cheaper

than the UK average

price. Nominal prices in

S1 2016 here were 4.5%

lower than in S2 2012.

Rank: n/a

Source: Eurostat, SEAI

Figure 3.3.4: Industrial gas prices for (excluding VAT)23, S1 2016

In the first half of 2016

weighted average

industrial gas costs in

Ireland were in line with

the average Euro area 19

price. The weighted

average price in Ireland

has fallen by 17% since

S2 2012 whereas

average prices across

the Euro area fell by

19.5% over the

corresponding period.

Rank: n/a

Source: Eurostat, SEAI

22 The Irish figures are weighted average electricity prices whereas the remaining prices are simple arithmetic averages. Weighted average figures for other European countries will be available later in 2017. It should be noted that Ireland’s energy supplies, excluding renewables, are often at the end of supply pipelines and this combined with low spatial density make energy more expensive to deliver in Ireland. 23 The Irish figures are weighted average gas prices whereas the remaining prices are simple arithmetic averages. Weighted average figures for other European countries will be available later in 2017. Again it should be noted that Ireland’s energy supplies, excluding renewables, are often at the end of supply pipelines and this combined with low spatial density make energy more expensive to deliver in Ireland.

€0.00

€0.03

€0.06

€0.09

€0.12

€0.15

€0.18Sw

eden

Finl

and

Hun

gary

Pola

nd

Net

herla

nds

Fran

ce

Den

mar

k

Euro

are

a 19

Ire (W

eigh

ted

Avg

)

Spai

n

UK

Ger

man

y

Italy

€pe

r kilo

wat

t hou

r

S1 2016 S2 2012

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

Pola

nd

Hun

gary

Spai

n

Ger

man

y

UK

Fran

ce

Irl (W

eigh

ted

Avg

)

Euro

Are

a 19

Den

mar

k

Italy

Net

herla

nds

Finl

and

Swed

en

€pe

r kilo

wat

t hou

r

S1 2016 S2 2012

Page 55: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

54 July 2017

Figure 3.3.5: Business Fixed Broadband, € per month excluding VAT, Q4 2016

Figure 3.3.6 shows that

over the previous six

quarters Fixed

Broadband costs

remained stationary and

in Q4 2016 for Irish

Business were €35.28,

significantly less than

the most expensive

country benchmarked

(Spain at €51.52). The

least expensive country

benchmarked was

Denmark (€28.11).

Rank: n/a

Source: Comreg

Figure 3.3.6: European Services Producer Price Index, Q2 2012-Q3 2016

Figure 3.3.6 compares

the evolution of SPPI’s

across the EU36

. Since

2010, service prices have

risen markedly in both

Ireland (6.8%) and

Germany (4%), and to a

lesser extent the UK

(3.4%), compared to the

Euro area 19 (0.7%).

Corresponding prices in

France and Spain were

lower in Q3 2016 than in

comparable quarter in

2010.

Rank: n/a

Source: Eurostat

20

30

40

50

60

Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

€pe

r mon

th e

xcl V

AT

(PPP

)

Spain Netherlands IrelandUK Germany Denmark

92

96

100

104

108

20

12

Q2

20

12

Q3

20

12

Q4

20

13

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

14

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

15

Q1

20

15

Q2

20

15

Q3

20

15

Q4

20

16

Q1

20

16

Q2

20

16

Q3

Se

rvic

es

Pro

du

ce

r P

ric

e I

nd

ex

(Q

1 2

01

2=

10

0)

Euro area (19) Germany Ireland Spain France United Kingdom

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55 July 2017

Figure 3.3.7: Childcare-related costs and benefits, percentage of average wage24, 2012

This data takes account

of childcare fees, child

benefit and relevant tax

reductions. For couples,

earning 167% of the

average wage, Ireland is

the 2nd

most expensive in

the OECD, resulting in

low rates of female

labour force

participation. For lone

parents (67% of the

average wage) Ireland is

the most expensive

OECD location.

OECD rank: 31st

Source: OECD

24 Data for couples refers to a situation where the first earner earns 100% of the average wage and the second earns 67% of the average wage.

-60

-40

-20

0

20

40

60

80So

uth

Kor

ea

Hun

gary

Swed

en

Pola

nd

Spai

n

Ger

man

y

Den

mar

k

Fran

ce

EU27

Isra

el

OEC

D-3

0

Japa

n

Finl

and

Net

herla

nds

Switz

erla

nd US

New

Zea

land

Irela

nd UK

Perc

enta

ge o

f ave

rage

wag

e

Childcare fee Childcare benefits Tax reductions Net Cost

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56 July 2017

3.4 Prices

Figure 3.4.1: Consumer price levels (2016) and average annual inflation, 2012-2016

Figure 3.4.1 examines

both changes in prices

(inflation) and the price

level. It shows that

Ireland’s current price

profile is “high cost,

rising slowly” with

consumer prices 25%

above the EU 28.

Inflation in Ireland over

the past 4 years has

been significantly less

than the equivalent

across the EU28.

Euro area-19 Rank:

HICP: 19th (↓2)

Source: Eurostat

Figure 3.4.2: Price levels (2016) and GDP per capita (2016)

While Irish and Euro area

inflation is low, Irish

consumer prices remain

over 25% above the Euro

area average. In 2016,

Ireland was the second

most expensive location

in the EU28 for

consumer goods and

services and the highest

in the Euro area.

Euro area-19 rank:

Price Levels: 19th (↓1)

Source: Eurostat

Denmark

EU 28

Finland

France

Germany

Hungary

Ireland

Italy

Netherlands

Poland

Sweden

UK

0

1

2

3

4

5

6

7

8

0 20 40 60 80 100 120 140 160

HIC

P In

flatio

n (P

erce

ntag

e Ch

ange

201

2-20

16)

Comparative price levels of final consumption by private households including indirect taxes, 2016

Low prices, rising slowly

High prices, rising quickly

EU28

Denmark

Germany

Estonia

Ireland

Spain

France

Italy

Latvia

Lithuania

Luxembourg

Hungary

Netherlands

Poland

PortugalSlovenia

Slovakia

Finland Sweden

UK

50

60

70

80

90

100

110

120

130

140

0 50 100 150 200 250 300

Com

para

tive

Pric

e Le

vel,

2016

(EU

28=1

00)

GDP purchasing power standard per capita, 2016 (EU28=100)

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57 July 2017

Figure 3.4.3: Average annual inflation rate by commodity group, Ireland, EU and Euro area, 2011-2016

Figure 3.4.3 examines

average annual inflation

in Ireland and the EU

over the period 2011 to

2016 across a range of

commodity categories.

Overall, Irish HICP

inflation was below both

the Euro area and EU

average. However, for

education Irish inflation

exceeded the average

annual rate.

Rank: n/a

Source: Eurostat

Figure 3.4.4: Irish price levels relative to the European Union 28 (including indirect taxes), 201625

Figure 3.4.4 compares

relative prices for a

range of goods and

services in Ireland with

the EU28 average price.

Irish prices are above the

Euro area average for 11

out of 12 categories of

goods and services

(education being the

exception). The wide

differential in alcohol

and tobacco prices is

primarily a consequence

of taxation policy. Rank:

n/a

Source: Eurostat

25 *In the period March - May 2017, the total number of trips to Ireland increased by 4.8% to 2,496,400 - an overall increase of 113,500 compared to the same period twelve months earlier. STR Global data shows the Average Daily Rates (ADR) for hotel rooms Ireland increasing at a faster rate than competitor destinations such as the UK, Scotland and Northern Ireland are compared over the years 2014-2017.

-10%

-5%

0%

5%

10%

15%

20%

All

Ite

ms

Fo

od

& N

on

-Alc

oh

ol

Alc

oh

ol &

To

ba

cco

Clo

thin

g &

Fo

otw

ea

r

Ho

usi

ng

He

alt

h

Tra

nsp

ort

Co

mm

un

ica

tio

ns

Re

cre

ati

on

Ed

uca

tio

n

Re

sta

ura

nts

Mis

c

Go

od

s

Av

era

ge

An

nu

al I

nfl

ati

on

(%

)

EU28 Euro area 19 Ireland

0 0.5 1 1.5 2

Alcohol & Tobacco

Housing & utilities

Communication

Misc. goods & services

Total

Food & non-alcoholic beverages

Restaurants and hotels*

Clothing and footwear

Recreation and culture

Household & maintenance

Transport

Education

EU 28 = 100

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58 July 2017

Figure 3.4.5: Euro, Dollar and Sterling exchange rates, Jan 2012-April 2017

In 2016, the Euro

strengthened and

appreciated by 16 per

cent against Sterling

posing significant

challenges for parts of

the exporting sector

reliant on trade with the

UK. The Euro/Sterling

exchange rate has

oscillated around £0.85

in 2017. Further volatility

and depreciation of

Sterling represents a

major threat to Irish

export competitiveness.

Rank: n/a

Source: European Central Bank

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

£0.60

£0.65

£0.70

£0.75

£0.80

£0.85

£0.90

£0.95

£1.00

Jan

-05

Au

g-0

5

Ma

r-0

6

Oc

t-0

6

Ma

y-0

7

De

c-0

7

Jul-

08

Fe

b-0

9

Se

p-0

9

Ap

r-1

0

No

v-1

0

Jun

-11

Jan

-12

Au

g-1

2

Ma

r-1

3

Oc

t-1

3

Ma

y-1

4

De

c-1

4

Jul-

15

Fe

b-1

6

Se

p-1

6

Ap

r-1

7

Do

lla

r E

xc

ha

ng

e R

ate

Ste

rlin

g E

xc

ha

ng

e R

ate

GBP (LHS Axis) USD (RHS Axis)

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59 July 2017

3.5 Productivity

Figure 3.5.1 GDP per hour worked, (USD, constant prices, 2010 PPPs), 2016

Ireland had the 3rd

highest output per hour

worked among OECD

member states in 2016.

Output per hour was

$79.7 in 2016 in GDP

terms, an increase of

28% over 2011.

However, Ireland’s

performance is

significantly affected by

the measurement

multinational activities

in the national accounts.

OECD rank:

GDP phw 3rd (↑2)

Source: OECD

Figure 3.5.2 Growth in GDP per hour worked, (USD, constant prices, 2010 PPPs), 2011- 201626

Irish labour productivity

growth has been above

that in competitor

countries since 2013 and

was 2.3% in 2016.

However, corporate

restructuring, including

the relocation of firms

with significant IP assets

and aircraft leasing , led

to noteworthy increases

in labour productivity,

particularly in 2015

(22.5%).

OECD rank: 1st (↑1)

Source: OECD

26 Data for 2016 for US, Euro area and OECD corresponds to 2015 figure

0

10

20

30

40

50

60

70

80

90

Irela

nd

Den

mar

k

US

Net

herla

nds

Fran

ce

Ger

man

y

Switz

erla

nd

Swed

en

Euro

are

a 19

Finl

and

UK

Italy

Spai

n

OEC

D

Japa

n

New

Zea

land

Kor

ea

Hun

gary

Pola

nd

Latv

ia

GD

P ph

w,U

S$, c

onst

ant p

rices

, 201

0 PP

Ps

2016 2011

-5

0

5

10

15

20

25

2011

2012

2013

2014

2015

2016

GD

P pe

r hou

r wor

ked,

US$

Con

stan

t Pric

es, 2

010,

Ann

ual p

erce

ntag

e ch

ange

Ireland UK US Euro area OECD

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60 July 2017

Figure 3.5.3 Growth in labour productivity (GDP per hour worked) Total economy, 2010-2015

Across the OECD, labour

productivity growth has

been subdued in most

OECD countries in

recent years. Large

disparities exist among

OECD Member States in

terms of growth rates.

Taking the period 2010-

2015, at an annual rate

of growth, Ireland’s

growth was 5.5% which

significantly exceeds the

OECD average (0.8%).

OECD rank:

GDP phw growth (1st)

Source: OECD

Figure 3.5.4 GDP and GNI27 per hour worked, Percentage differential to the OECD average, 2015

In Ireland significant

differences in

productivity are evident

when considering

output as a measure of

GDP or GNI. As a

measure of GDP,

Ireland’s output is

approximately 80%

above the OECD

baseline, as a measure

of GNI, the differential

falls to 44%. This

reflects the presence of

multinationals.

Rank: n/a

Source: OECD

27 GNI is GDP plus net receipts from abroad of compensation of employees and property income plus net taxes and subsidies receivable from abroad. Property income from abroad includes interest, dividends and all or part of the retained earnings of foreign enterprises owned fully or in part by residents.

0

1

2

3

4

5

6

Irelan

d

Latv

ia

Polan

d

Kore

a

Spain

Denm

ark

Swed

en

Japa

n

Germ

any

New

Zeala

nd

OECD

Neth

erlan

ds

Hung

ary US UK Ita

ly

Switz

erlan

d

Finlan

d

Grow

th in

labo

ur pr

oduc

tivity

, per

cent

age c

hang

e at a

nnua

l rat

e

-60

-40

-20

0

20

40

60

80

100

Latv

ia

Pola

nd

Kor

ea

Hun

gary

New

Zea

land

Japa

n

Spai

n

UK

Italy

Finl

and

Euro

are

a

Swed

en

Switz

erla

nd

Ger

man

y

Net

herla

nds

Fran

ce US

Den

mar

k

Irela

nd

Perc

enta

ge p

oint

diff

eren

ce fr

om th

e O

ECD

(OEC

D=0

), cu

rren

t pric

es &

PPP

s

GDP per hour worked, 2015 GNI per hour worked, 2015

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61 July 2017

Figure 3.5.5 Labour productivity growth by main economic activity, 2009-2015

Across the OECD, labour

productivity growth in

manufacturing has

tended to outpace

services sector growth.

Between 2009 and 2015,

Irish growth in

manufacturing was 16%

compared with 3% in

services and -2% in

construction. Irish

manufacturing

productivity data has

been significantly

influenced by corporate

restructuring.

Rank: n/a

Source: OECD

Figure 3.5.6 Labour productivity, Value Added per Employee,€000’s, 2015

There is considerable

heterogeneity between

and within sectors in

terms of output per

person employed.

Assessing the relative

output of foreign firms

relative to Irish firms

shows the differential is

five times larger in

manufacturing than

services where output is

three times as high per

person employed.

Rank: n/a

Source: DJEI

-5

0

5

10

15

20Ire

land

Hung

ary

Pola

nd

Denm

ark

Swed

en

Latv

ia

Euro

area

Germ

any

Spai

n

Italy

Fran

ce

Kore

a

Neth

erla

nds

UK

Finl

and

New

Zea

land

Switz

erla

nd

Real

gro

ss va

lue

adde

d pe

r hou

r wor

ked,

per

cent

age

chan

ge a

t an

nual

rate

Manufacturing Business sector services excl. real estate Construction

0 100 200 300 400 500 600 700 800

Agriculture, Fishing, Forestry, Mining & QuarryingFood, Drink & Tobacco

Textiles, Clothing, Footware & LeatherWood & Wood Products

Paper & PrintingChemicals

Rubber & PlasticsNon-Metalic Minerals

Basic & Fabricated Metal ProductsComputer, Electronic & Optical Products

Electrical equipmentMachinery & Equipment

Transport EquipmentMedical Device Manufacturing

Other Misc. ManufacturingSub Total Manufacturing

Energy, Water, Waste & ConstructionPublishing, Broadcasting & Telecommunications

Computer Programming Computer Consultancy

Computer Facilities ManagementOther IT & Computer Services

Financial ServicesBusiness Services

EducationOther Services

Sub Total ICT & ServicesGrand Total - All Sectors

Value Added (€K, per person employed)

Foreign owned Irish owned

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62 July 2017

Figure 3.5.7 Contributions to labour productivity growth of business sector services, 2009-2015

In Ireland, over the

period 2009-2015, the

relative contribution of

ICT to business sector

productivity growth

(2.3%) is particularly

strong. The Professional

Services (1.6%) and

Financial sectors (0.3%)

also made positive

contributions to

business sector

productivity growth.

The Trade, Hotels and

Transport sector

contribution to growth is

negative, in contrast to

the UK and OECD trends

Rank: n/a

Source: OECD

Figure 3.5.8 Multifactor productivity growth, total economy, percentage change at annual rate, 2001-201428

Multifactor productivity

(MFP) reflects the

overall efficiency with

which labour and capital

inputs are used together

in the production

process. MFP growth

decelerated in nearly all

countries after the crisis

compared with the

period 2001-2007 Irish

MFP grew by 0.9% in

2001-2007 and growth

increased to 1.3% in the

years 2009-2014.

OECD rank: 2nd (↑5)

Source: OECD

28 Data for Ireland and Spain correspond to the period 2009-2014.

-2

-1

0

1

2

3

4

5Ire

land

Kor

ea

Swed

en

Latv

ia

Pola

nd

Hun

gary

Den

mar

k

Finl

and

Spai

n

Ger

man

y

Net

herla

nds

Euro

are

a

Fran

ce UK

Switz

erla

nd

Italy

Real

gro

ss v

alue

add

ed p

er h

our w

orke

d, p

erce

ntag

e po

int c

ontr

ibut

ion

at a

nnua

l ra

te

Trade, hotels and transport Information and communication Finance and insurance Professional services

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

Kor

ea

Irela

nd

Japa

n

Ger

man

y

Swed

en

Den

mar

k

US

Fran

ce UK

Net

herla

nds

Finl

and

Switz

erla

nd

Italy

New

Zea

land

Spai

n

Tota

l eco

nom

y, p

erce

ntag

e ch

ange

at a

nnua

l rat

e

2009-2015 2001-2007

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63 July 2017

Figure 3.5.9 Average percentage point contribution of productivity to GDP growth, 2009-201529

GDP growth can be

decomposed into a

labour input

component, a capital

input component and

MFP growth. While

productivity growth in

Ireland (capital, non-

capital and MFP)

contributes positively to

overall growth in recent

years, the effect of this

is offset by the negative

contribution of labour as

a result of the recession.

Rank: n/a

Source: OECD

29 Data for Ireland and Spain correspond to the period 2009-2014.

-2

-1

0

1

2

3

4

Kor

ea

Swed

en

New

Zea

land U

S

Ger

man

y

Irela

nd UK

Switz

erla

nd

Japa

n

Den

mar

k

Fran

ce

Net

herla

nds

Finl

and

Italy

Spai

n

Perc

enta

ge p

oint

con

trib

utio

n to

GD

P gr

owth

Labour input ICT capital Non-ICT capital Multifactor productivity GDP growth

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64 July 2017

3.6 Employment

Figure 3.6.1: Employment, unemployment & long term unemployment (000's), Q4 2007-Q4 2016

Figure 3.6.1 shows the

continued improvement

in the labour market.

While employment has

not yet returned to peak

pre-recession levels,

over 2 million were

employed in Q4 2016,

an increase of 3.3% over

Q4 2015. Headline and

long term

unemployment are on a

steady downward

trajectory.

Rank: n/a

Source: Central Statistics Office

Figure 3.6.2: Employment Growth Rate, 2015

As a consequence of the

recession, employment

growth collapsed in

Ireland in 2009-2011.

The job rich nature of

the Irish economic

recovery in employment

terms is evident in

Figure 3.6.2. At 2.9%,

the Irish employment

growth rate in 2015 was

well above the Euro area

average 0.9% and was

the 4th

highest in the

Euro area.

Euro area-19 rank:

4th

(↑12)

Source: Eurostat

0

50

100

150

200

250

300

350

0

500

1000

1500

2000

2500

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

Per

son

s in

Em

plo

ymen

t (0

00's

)

In Employment (Full-Time) In Employment (Part-Time) Long-Term Unemployment (right axis) Unemployment (right axis)

-3%

-2%

-1%

0%

1%

2%

3%

4%

Hu

ng

ary

Ire

lan

d

Ge

rma

ny

Sp

ain

Eu

ro a

rea

19

Sw

ed

en

EU

28

UK

Ne

the

rla

nd

s

Po

lan

d

Fin

lan

d

An

nu

al C

ha

ng

e in

Em

plo

yme

nt

(%)

2015/16 2010/11

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65 July 2017

Figure 3.6.3: Change in employment in Ireland by sector and gender, Q4 2010-Q4 2016

The majority of sectors

in Ireland have

experienced growth in

employment between

2011 and 2016 as the

recovery strengthens.

Growth in construction

employment is

particularly noteworthy

(given the previously

extensive job losses in

that sector), as is the

increase in

accommodation and

food and agricultural

employment.

Rank: n/a

Source: CSO

Figure 3.6.4: Self-employed (proportion as a percentage of total employment), 2016

Figure 3.6.4 examines

the number of self-

employed persons and

those self-employed

who also have

employees (a proxy for

entrepreneurship). The

proportion of self-

employed in Ireland has

risen since 2011 (from

0.75% to 0.85% in 2016),

remains above the Euro

area-19 average (0.33%).

EU 28 rank:

With Employees 4th

Without Employees 5th

Source: Eurostat

-10%

0%

10%

20%

30%

40%

-100

1020304050

Co

nstru

ctio

n (

F)

Ind

us

try

(B

to

E)

Ag

ric

ult

ure

(A

)

ICT

(J)

Ac

co

mm

& f

oo

d (

I)

Pro

fes

sio

na

l (M

)

Tra

ns

po

rt &

sto

ra

ge

(H)

Ad

min

istra

tiv

e (

N)

He

alt

h (

Q)

Wh

ole

sa

le a

nd

re

ta

il(G

)

Fin

an

ce

& i

nsu

ra

nc

e(K

,L)

Ed

uc

atio

n (

P)

Pu

bli

ca

dm

inis

tra

tio

n (

O)

Pe

rc

en

ta

ge

ch

an

ge

in

em

plo

ym

en

t

Ch

an

ge

in

em

plo

ym

en

t (

00

0)

Change in male employment (left axis) Change in female employment (left axis) Percentage change (right axis)

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

Ire

lan

d

UK

Ge

rma

ny

Sp

ain

Eu

ro a

rea

19

EU

28

Sw

ed

en

Ita

ly

Ne

the

rla

nd

s

De

nm

ark

Pe

rce

nta

ge

of

To

tal

Em

plo

ym

en

t

Self-employed with employees 2016 Self-employed without employees 2016 2011

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66 July 2017

Figure 3.6.5: Unemployment rate (seasonally adjusted, standardised rate)30, Q1 2006-Q4 2016

This indicator measures

the number of

unemployed people as a

percentage of the labour

force. The rapid

deterioration in Ireland’s

labour market upon the

onset of recession and

its subsequent rapid

improvement is evident.

The US labour market

has proven more

resilient than its

European counterpart.

Rank: n/a

Source: OECD

Figure 3.6.6: Dispersion of regional unemployment rates by NUTS 3 regions (%)

The lower the dispersion

rate the greater the level

of cohesion between

regions. The differential

in unemployment rates

across Ireland’s 8

regions (12.5%) is the

lowest in the Euro area.

While this is virtually

unchanged compared

with 2009, it did

increase for a time in

2010 to 2013.

Euro area-14 rank:

1st

(↑2)

Source: Eurostat

30 Harmonised unemployment rates define the unemployed as people of working age who are without work, are available for work, and have taken specific steps to find work. The uniform application of this definition results in estimates of unemployment rates that are more internationally comparable than estimates based on national definitions of unemployment. Euro area-15 excludes Cyprus, Latvia, Lithuania and Malta. Change in rankings compares Q4 2010 with Q4 2015.

0

2

4

6

8

10

12

14

1620

11-Q

120

11-Q

220

11-Q

320

11-Q

420

12-Q

120

12-Q

220

12-Q

320

12-Q

420

13-Q

120

13-Q

220

13-Q

320

13-Q

420

14-Q

120

14-Q

220

14-Q

320

14-Q

420

15-Q

120

15-Q

220

15-Q

320

15-Q

420

16-Q

120

16-Q

220

16-Q

320

16-Q

4

Har

mon

ised

Une

mpl

oym

ent (

%)

Ireland USA EU28 OECD

01020304050607080

Irel

and

Den

mar

k

Net

herla

nds

Swed

en

Finl

and

Spai

n

Pol

and

Euro

are

a-14 UK

Hun

gary

Ger

man

y

Ital

y

EU28U

nem

ploy

men

t dis

pres

ion

rate

(%)

2014 2009

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67 July 2017

Figure 3.6.7: Youth unemployment rate, 2016

Unemployment

amongst those aged 15-

24 years in Ireland

(17.2%) is now below the

Euro area average

(20.9%). Ireland’s high

proportion of youth

neither in employment,

education or training

and

long term youth

unemployment remains

a serious challenge

EU 28 rank:

Youth: 12th (↓7)

Source: Eurostat

Figure 3.6.8: Neither in Employment, Education or Training (NEET), 2016

Ireland also has a high

proportion of youth

neither in employment,

education or training

(NEET). Out of the total

age cohort 15-24, 7.4%

were classified as NEET

in 2016, compared with

the EU28 and Euro area

19 averages of 3.8% and

3.7% respectively. The

comparable rate in 2016

in the UK was 3.3%

EU28 Rank: 26th (↓1)

Source: Eurostat

0

10

20

30

40

50Sp

ain

Ital

y

Fran

ce

Euro

are

a 19

Finl

and

Swed

en

EU28

Pol

and

Latv

ia

Irel

and

UK

Hun

gary

Den

mar

k

Net

herl

ands

Ger

man

y

Per

cent

age

2016 2011

0

10

20

30

40

50

Spai

n

Italy

Fran

ce

Euro

are

a 19

Finl

and

Swed

en

EU28

Pola

nd

Latv

ia

Irela

nd UK

Hun

gary

Den

mar

k

Net

herla

nds

Ger

man

y

Perc

enta

ge

2016 2011

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68 July 2017

Figure 3.6.9: Net replacement rates for long term unemployed31, 2014

For a long term

unemployed, one earner

married couple with 2

children earning 100% of

the average wage, the

Irish replacement rate

(80%) exceeds the

OECD average (54.4%).

The rate for single

individuals (50.6%) also

exceeds the OECD

average (31.5%). Rates

are higher for lower

income families.

OECD rank:

Married: 31st

(↓3)

Single: 30th

(-)

Source: OECD

Figure 3.6.10: Job Vacancy Rate, Q4 2016

Figure 3.3.10 shows that

at 1 per cent, the Irish

job vacancy rate in Q4

2016 was half the

equivalent EU28 rate.

Over the two years, Irish

job vacancy levels have

been stationary at

around 1 per cent. The

comparable level in the

UK has oscillated around

2.5% over the

corresponding period.

EU24 rank: 8th

Source: Eurostat

31 OECD-31 excludes Chile, Mexico and Turkey.

0102030405060708090

Italy

Hun

gary

Spai

n

US

Sout

h K

orea

OEC

D-3

1

Fran

ce

Pola

nd

New

Zea

land

Japa

n

Swed

en

Ger

man

y

Switz

erla

nd

Den

mar

k

Net

herla

nds

UK

Finl

and

Irela

nd

Repl

acem

ent r

ate

(%)

One-earner married couple, 2 children (2014)Single person (2014)One-earner married couple, 2 children (2009)

0

1

2

3

2014

Q2

2014

Q3

2014

Q4

2015

Q1

2015

Q2

2015

Q3

2015

Q4

2016

Q1

2016

Q2

2016

Q3

2016

Q4

Job

Vac

ancy

(%)

EU28 Euro area 19 Ireland UK

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69 July 2017

Chapter 4

Competitiveness Inputs

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70 July 2017

Competitiveness Inputs The third tier of the pyramid focuses on “competitiveness policy inputs”. Four categories of inputs are

examined - the business environment, physical infrastructure, clusters and firm sophistication and knowledge

and talent. These represent the drivers of current and future competitiveness. It is within these particular

areas that policymakers can have the greatest impact on competitiveness.

Business Environment: The business environment indicators examine the conditions within which

enterprise must operate. Benchmarked themes include the cost and availability of credit and the

taxation system. While access to and affordability of credit has improved, Irish firms continue to face

higher interest rates and greater volatility in those rates than their competitors abroad. Irish interest

rates on business loans have been consistently higher than equivalent Euro area rates. Figure 4.1.8

shows that in April 2017, the interest rate in Ireland on loans of up to €1 million was more than 74 per

cent higher than the Euro area average rate for new business; the rate on loans of up to €1 million

was more than 79 per cent more expensive in Ireland.

o In Ireland and across the Euro area the volume of credit supplied to non-financial corporation’s

(NFC’s) has been low in the wake of the economic and financial crisis as a result of low economic

growth, structural adjustments in the banking system and weak demand. In addition, many

firms, particularly SMEs, micro-enterprises and start-ups had encountered difficulties accessing

credit and working capital. Using Q1 2012 as the base, the outstanding amount of credit lent to

various SME sectors analysed contracted considerably. The total loans outstanding to SMEs in

the Construction sector in Q4 2016 were 30 per cent of what they were some 5 years previously

(Figure 4.1.3).

o While bank financing will continue to be crucial for enterprise, broadening the finance options

available and accessible to SMEs and micro-enterprises remains a challenge. The CSO’s Access to

Finance survey shows how relatively few SMEs (particularly, non-exporting SMEs) seek funding

from non-bank sources: for example only 4.7 per cent of medium sized enterprises looked for

equity finance compared to 39.8 per cent of similar sized enterprises who looked for bank

finance. Increasing levels of private equity, crowdfunding and venture capital funding remains a

challenge. Figure 4.1.4 shows the intensity of total venture capital investment is marginally

below the OECD average with the greater portion of venture capital in Ireland attributed to early

stage investments. Private equity accounts for 0.16 per cent of GDP in Ireland (down from 0.28

per cent in 2007). This is well below the levels in the best performing Euro area countries and

significantly below the level seen in the UK (0.72%).

o Figure 4.1.7 shows Non-performing loans (this includes all lending, not just business lending) at

the end of 2016 made up 9 per cent of gross loans, down from 16.1 per cent in 2011, in Ireland and

continue to hinder recovery in the banking sector. This compares to an OECD High Income

average of 3.5 per cent.

o Maintaining a growth-friendly taxation system while simultaneously broadening the tax base, is

critical to maintaining existing levels of employment and creating new jobs in Ireland. In terms of

the tax base, income tax receipts - reflecting the growth in the labour market - have increased by

€5.3bn (40%) in the past five years. Between 2011 and 2016 Capital Gains Tax and corporation tax

receipts increased by 101 per cent and 124 per cent respectively (Figure 4.2.1). Ireland’s

corporation tax rate remains internationally competitive at 12.5 per cent. While Ireland’s rate has

remained consistent over recent years, many of our key competitors have reduced their rates

(e.g. the UK). Figure 4.2.2 highlights central statutory rates – effective rates in many counties,

however, can be significantly lower.

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71 July 2017

o Ireland remains competitive in terms of the levels of income tax and social security contributions

as a proportion of total labour costs. For a married couple with 2 children on a combined income

of 167 per cent of the average wage (i.e. a 2 earner family), the rate including social security

contributions is lower than the OECD average. Figure 4.2.6 shows marginal rates are particularly

high for individuals in Ireland earning the average wage or above. Social security contributions in

Ireland are lower than is the case in other OECD countries. The Irish Standard VAT rate (23%) is

higher than the OECD average (19.2%), however, there are a number of lower VAT rates and

exemptions for certain activities. In 2014 Ireland had the third highest headline Capital Gains Tax

rate in the OCED, and fell 5 places since 2011 (Figure 4.2.11).

Physical Infrastructure: The availability of competitively priced world-class infrastructure (e.g.

energy; telecoms; transport - road, public transport, airport, seaports; waste and water) and related

services is critical to support competitiveness. Well-developed infrastructure can increase mobility of

workers and goods reduce traffic congestion and increase productivity. As well as the immediate

impact on labour mobility, for instance, physical infrastructure also plays an important role in

determining quality of life and the attractiveness of place (a key factor in terms of attracting high

skilled, internationally mobile workers).

Over the medium term, capital investment as a percentage of GDP is projected to increase but will

remain low relative to pre-crisis levels. Developing our infrastructure base, while complying with the

EU’s fiscal rules, is a fundamental challenge to enhancing competitiveness relative to countries such

as the UK.

The relatively low levels of net investment projected over the medium term represent a significant

challenge in light of demographic pressure, EU budgetary commitments and clear infrastructure

deficits in housing, health, education, innovation, transport and water. Figure 3.1.1 shows public

investment (2.4%) in Ireland has increased since 2010 but remains below the Euro area average

(2.7%). Figure 4.3.2 shows that as a percentage of GDP, Ireland’s inland infrastructure expenditure

declined from 0.8 per cent in 2009 t0 0.3 per cent in 2014 and was well below the OECD average

(0.8%). Diminished investment in infrastructure is reflected in our low scores in relation to the

perception of overall infrastructure quality. Reflecting a period of sustained capital investment by the

State, there was a strong improvement in perceptions up until 2010. Ireland’s score fell over the five

years to 2016 and remains below the OECD average (Figure 4.3.3).

In terms of capital stock, net capital stock grew by 0.6 per cent per annum in the period 2005 to 2015.

Gross Fixed Capital Expenditure continues to recover and grew by 11 per cent in 2015. Intangible fixed

assets (9.5%) and transport equipment (7.6%) have grown most rapidly over the ten year period.

Clusters and Firm Sophistication: Firm sophistication concerns two elements that are intricately

linked: the quality of a country’s overall business networks, and the quality of individual firms’

operations and strategies. Clusters are diverse and varied in terms of development; some originate

out of the third level sector or Government research centres, others are loose networks of SMEs,

some orbit around anchor firms. Despite Ireland’s small size it has a large number of cities/towns that

have proven ability to attract FDI and develop new enterprises.

The European Commission’s Cluster Mapping tool indicates that Ireland has a relatively high degree

of specialisation and cluster presence in biopharma, digital, medical devices and business services

sectors. Figure 4.4.1 uses the Commission’s Regional Ecosystem Scoreboard to show the regions

ranking in the top 10 per cent of all of the EU28 regions are found in the UK (median score (0.546), NI

(0.521). In Ireland, the South East (0.511) scores ahead of the BMW region (0.496). Figure 4.4.2

presents WEF data provided on the basis of personal assessment of managers in surveyed companies

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72 July 2017

about cluster development in their country. In Ireland the weighted average score in 2015/16 was 4.9.

This was above the Euro area-19 average score of 4.3.

Competitive economies require sufficient and effective investment in knowledge based capital,

especially by firms; the presence of high-quality scientific research institutions; extensive

collaboration in research between universities and industry; and sophisticated business practices and

effective clusters. Results from the 2012–2014 Community Innovation Survey (published by the CSO

as Innovation in Irish Enterprises) show that total spending on innovation activities in Industry and

Selected Services sectors was almost €3.8bn in 2014, a 4 per cent increase on the 2012 spend of

€3.65bn.

The EU Innovation Scoreboard classifies Ireland as behind the EU average in the finance and firm

investments dimensions of innovation. European Commission/Eurostat data shows Business R&D

expenditures as percentage of GDP (BERD) has been relatively flat in Ireland over the period 2010-

2015. BERD is reported at 1.1 per cent for 2015, below the EU average of 1.3 per cent (Figure 4.4.5).

CSO data shows foreign owned companies in Ireland account for 61 per cent of business expenditure

on R&D.

Figure 4.4.7 shows firms in Ireland were more likely to be innovative (61%) compared to the EU

average (49%) with relative performance strong across all firm sizes. However, small firms are less

likely to be innovation active than larger firms. Figure 4.4.8 shows 36 per cent of SMEs in Ireland are

reported as having introduced a product or process innovation in 2015. This is above the EU average

(31%), however Ireland’s performance is down on an annual basis (41%) and since 2010 (43%).

Ireland has a higher proportion of innovative enterprises than both the EU28 and Euro area-19

averages in product, process and marketing but performance is relatively weak in terms of

organisational innovation. Creating, exploiting and commercialising new technologies are vital for

competitiveness. The proportion of sales of new to market and new to firm innovations as a

percentage of turnover has fallen in recent years and at 9.3 per cent is below the EU average of 12.4

per cent (Figure 4.4.10). Technological innovation, as measured by the introduction of new products

(goods or services) and processes, is a key ingredient to growth. In Ireland 52 per cent of product

exports are classified as medium/high tech compared with an EU average of 55 per cent (Figure

4.4.11).

Innovative businesses need affordable fast broadband coverage and this is a challenge throughout

the EU. The percentage of Irish businesses with a fixed fast broadband connection grew from 26 per

cent to 42 per cent between 2014 and 2016. The compares favourably with the OECD average of 35

per cent (Figure 4.4.12). As is the case with Ireland, many countries have improved their

telecommunications infrastructure in recent years and basic broadband is now widespread in the EU.

However, concerns persist around the issues of quality (speed) and the regional availability of high

speed services fast broadband which is still more concentrated in areas of high population density

and its extension to other areas, particularly rural areas, is needed.

Knowledge and Talent: The availability of knowledge, talent and skills are one of the main

differentiators between countries. The global war for talent has never been more intense. Ireland’s

education system has long represented a competitive advantage in this regard. This section

examines the quality of our formal education system at all levels.

The EU Innovation Scoreboard provides a comparative assessment of the research and innovation

performance of EU Member States. The 2016 Scoreboard shows that year on year Ireland moved up

two places from 8th to 6th in the overall ranking. Ireland is classed as an innovation follower with an

above average performance. Performance across the framework of the Innovation Scoreboard

relative to the best performing countries is mixed (Figure 4.4.4). Ireland is strong in the innovators

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73 July 2017

and economic effects dimensions. Ireland is behind the EU average in the finance, firm investments

and intellectual assets dimensions. Figure 4.4.5 shows there is considerable heterogeneity in R&D

expenditure as percentage of GDP in the EU. In 2015, Irish expenditure on R&D accounted for 1.51 per

cent of GDP, below the EU average (2.02%).

Ireland ranks 8th in the EU’s Digital Economy and Society Index 2017. Ireland ranks very high when it

comes to the integration of digital technologies by businesses, mostly because many SMEs embraced

e-commerce. Internet users increasingly take advantage of high-speed infrastructures and also make

good use of online public services. Ireland's main challenge is to equip more than half of the

population with at least basic digital skills (Figures 4.5.12 & 4.5.13).

Set in an international context, the IMD’s 2016 Competitiveness Yearbook 2017 ranks Ireland 1st for

attracting and retaining talent. Ireland’s other strengths are in relation to the availability of skilled

labour (5th), financial skills (6th) and the ability to attract foreign talent (10th). Relative weaknesses

include the pupil-teacher ratio in secondary education (43rd) and language skills (44th).

GDP per capita expenditure on education (primary to higher education) was amongst the lowest

among OECD countries. In recent years Ireland’s ranking has improved for this measure, most

significantly for expenditure at second-level education. However, Ireland’s overall ranking remains

slightly below the OECD average and the gap is most pronounced at tertiary level. Figure 4.5.2 shows

Ireland performs better in terms of spend when measured per student spending more at secondary

levels per student. Expenditure levels per student at tertiary levels are marginally below the OECD

average but significantly below the UK and US, where a higher proportion of expenditure is privately

funded.

At all levels, average educational attainment in Ireland has improved in recent years (Figure 4.5.1).

There is a significant inverse correlation in Ireland between educational attainment and age; while a

lower proportion of 45-54 and 55-64 year olds have attained tertiary education than the OECD

average, a greater proportion of the remaining cohorts have a third level qualification than is the case

in the OECD. Ireland has made significant progress in reducing the proportion of the population aged

18-24 that are early school leavers and is now well below the EU and Euro-area averages. (Figure

4.5.6). This reflects higher retention rates in secondary education. Some 80 per cent of 25-64 year

olds had attained at least upper secondary education in Ireland in 2015 compared with 91 per cent of

the 25-34 year old cohort. The most recent OECD data shows Irish PISA scores in 2015 for maths,

reading and science have improved since 2012. On average, Irish students score above the OECD in all

3 categories (Figure 4.5.7).

As a percentage of total undergraduates, Irish higher education and further education institutes

provide more Science & maths and ICT graduates that the EU28 average (Figure 4.5.10). However,

the number of engineering graduates Ireland produced is significantly below the EU28 average.

Eurostat data shows that at 1 per cent, the Irish job vacancy rate in Q4 2016 was half the EU28 rate.

(Figure 3.3.10) On a sectoral level there is evidence of higher than average job vacancy rates in a

number of sectors32. Recent research by the Expert Group on Future Skills Needs (EGFSN) anticipates

job opportunities arising from both expansion and replacement demand for a range of occupational

roles including in ICT, data analytics, manufacturing, medical devices, pharmaceuticals, food and

beverages, international sales and marketing, project management, freight transport, hospitality,

distribution and logistics .

32 In Q1 2017 there were high vacancy rates recorded in the Professional, Scientific & Technical (2.7%), Financial, Insurance and Real Estate (2.1%) and ICT (1.6%) sectors according to the CSO.

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74 July 2017

Participation in life-long learning has fallen since 2011 and stood at 11.9 per cent in 2016. The

percentage of people in Ireland aged 25-64 in receipt of education (both formal and non-formal) ranks

below the Euro area 19 (17.2%) and EU-28 (16.6%) averages (Figure 4.5.11). Of continuing concern is

the high proportion of the labour force with relatively low levels of formal education.

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75 July 2017

4.1 Finance for Business

Figure 4.1.1 Annual growth rate in outstanding credit, 2017

Growth rates in the

stock of credit in Ireland

have been negative

since December 2010,

reflecting in part the

scale of debt repayment

and consolidation since

the onset of the

economic downturn.

Since 2014 the stock of

credit continues to

shrink more quickly than

the Euro area average.

Rank: n/a

Source: ECB

Figure 4.1.2 Gross new lending to SMEs by sector, 2017

Figure 4.1.2 presents

new lending trends for

various sectors. The 12

months to March 2017

have seen large

increases in new

Manufacturing and

Construction lending.

Annualised lending in

Q3 2016 totalled €3bn.

New lending was 28%

higher in Q3 2016 than

two years previously.

Rank: n/a

Source: Central Bank of Ireland

-30.00

-20.00

-10.00

0.00

10.00

20.00

30.00

40.00

Jan-

06

Sep-

06

May

-07

Jan-

08

Sep-

08

May

-09

Jan-

10

Sep-

10

May

-11

Jan-

12

Sep-

12

May

-13

Jan-

14

Sep-

14

May

-15

Jan-

16

Sep-

16

Ann

ual G

row

th R

ate

(%)

Ireland Euro area

€0€200€400€600€800€1,000€1,200€1,400€1,600

€0€20€40€60€80

€100€120€140

Mar

-12

Jul-1

2

Nov

-12

Mar

-13

Jul-1

3

Nov

-13

Mar

-14

Jul-1

4

Nov

-14

Mar

-15

Jul-1

5

Nov

-15

Mar

-16

Jul-1

6

Nov

-16

Mar

-17

€(m

illio

ns)

€(m

illio

ns)

Construction ICT

Manufacturing Transport & Storage

Total (Right Hand Axis

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76 July 2017

4.1.3 Outstanding Credit lending to SMEs by sector, 2012-2017

Using Q1 2012 as the

base, the outstanding

amount of credit lent to

the SME sector analysed

shrunk considerably.

The total loans

outstanding to SMEs in

the Construction sector

in Q4 2016 were 30% of

what they were some 5

years previously. Total

credit afforded to

Primary Industries fell by

25% over the

corresponding period.

Rank: n/a

Source: Central Bank of Ireland

Figure 4.1.4 Venture capital investment as a % of GDP

74

, 2015

Figure 4.1.4 shows the

intensity of total

Venture Capital (VC)

investment as a

percentage of GDP in

Ireland is marginally

below the OECD

average. The greater

portion of VC in Ireland

is attributed to early

stage investments.

OECD rank:

GDP: 7th

Source: OECD

20%

40%

60%

80%

100%

120%

Ma

r-1

2

Ma

y-1

2

Jul-

12

Se

p-1

2

No

v-1

2

Jan

-13

Ma

r-1

3

Ma

y-1

3

Jul-

13

Se

p-1

3

No

v-1

3

Jan

-14

Ma

r-1

4

Ma

y-1

4

Jul-

14

Se

p-1

4

No

v-1

4

Jan

-15

Ma

r-1

5

Ma

y-1

5

Jul-

15

Se

p-1

5

No

v-1

5

Jan

-16

Ma

r-1

6

Ma

y-1

6

Jul-

16

Se

p-1

6

No

v-1

6Gro

wth

in

Ne

w L

en

din

g (

Q1

20

12

=1

00

)

Primary Industries Construction Information and Communication

Total Manufacturing Transportation and Storage

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

US

Kor

ea

OEC

D 2

9

Finl

and

Swit

zerla

nd

Swed

en

Irel

and

UK

Fran

ce

Den

mar

k

Ger

man

y

Euro

Are

a 15

New

Zea

land

Japa

n*

Net

herla

nds

Hun

gary

Spai

n

Pol

and

Ital

y

Ven

ture

Cap

ital

Inve

stm

ents

(% o

f GD

P)

Seed/start-up/early stage Later stage venture

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77 July 2017

Figure 4.1.5 Private equity33 investment (as a % of GDP), 2015

Private equity

investment decreased in

Ireland between 2012

and 2014, as it did across

all benchmarked

countries during the

period. Private equity

now accounts for 0.16%

of GDP (down from

0.28% in 2007) and is

below the best EU

performers and the UK.

Rank (out of 12

countries):

GDP: 11th

(↓2)

Source: European Private Equity & Venture Capital Association

Figure 4.1.6 Demand and Success in accessing credit

73

, 2016

Figure 4.1.6 shows in

2016, some 17% of Irish

firms surveyed applied

for bank credit. Of these

applicants 10% were

fully successful in their

application. The

corresponding Euro area

average is 19% showing

tighter lending

conditions for SMEs in

Ireland.

Euro area-19 rank:

Demand (19th)

Success (15th)

Source: ECB SAFE

33 Private equity, which comprises all stages of financing (seed, start-up, expansion, replacement capital and buyouts)

0.00

0.20

0.40

0.60

0.80

UK

Fran

ce

Sw

eden

Net

her

lan

ds

Eur

o a

rea-

6

Fin

lan

d

Den

mar

k

Sw

itze

rlan

d

Ger

man

y

Hun

gar

y

Po

lan

d

Irel

and

Ital

yPri

vate

Equ

ity

Inve

stm

ent

(% o

f G

DP

)

2014 2012

0%

10%

20%

30%

40%

Fran

ce

Italy

Spai

n

Finl

and

Ger

man

y

EU28

Euro

are

a 19

Latv

ia

Swed

en UK

Irela

nd

Net

herla

nds

Den

mar

k

Succ

ess

in A

cces

sing

Cre

dit

Success Rate Demand

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78 July 2017

Figure 4.1.7: Ratio of non-performing loans to total gross loans, 201534

Non-performing loans

(this includes all lending,

not just business

lending) at the end of

2016 made up 9% of

gross loans in Ireland,

down from over 16%

five years previously.

This compares to an

OECD High Income

average of 3.5%.

OECD Rank:

29th (↑1)

Source: World Bank

Figure 4.1.8 Interest rates for non-financial corporations by loan size (new business), 2017

Irish interest rates on

business loans have

been consistently higher

than equivalent Euro

area rates. In

April 2017, the interest

rate in Ireland on loans

of up to €1 million was

more than 74% higher

than the Euro area

average rate for new

business; the rate on

loans of up to €1 million

was more than 79%

more expensive in

Ireland.

Rank: n/a

Source: ECB

34 Figures are 2015 for Italy, UK and Switzerland.

0

5

10

15

20

25

30

35

40

Gre

ece

Italy

*

Hun

gary

Irela

nd

Pola

nd

Fran

ce

OEC

D 3

3

Latv

ia

Den

mar

k

Net

herla

nds

Swed

en

UK

*

Switz

erla

nd*

New

Zea

land

Non

-Per

form

ing

Loan

s (%

of T

otal

Loa

ns)

2016 2011

0.00

1.50

3.00

4.50

Ire > €1m Euro area > €1m Ire ≤ €1m Euro area ≤ €1m

Inte

rest

Rat

e (%

)

Apr-17 Apr-12

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79 July 2017

4.2 Taxation

Figure 4.2.1: Tax revenue in Ireland by category, 2016

Figure 4.2.1 compares

Irish tax revenues in

2016 with 2011. Overall,

revenues have increased

by €14bn (41%). Income

tax receipts -reflecting

labour market recovery

and a broadening of the

base- have increased by

€5.3bn. Between 2011

and 2016 Capital Gains

Tax and corporation tax

receipts rose by 101%

(€7.5bn in 2016) and

201% (€695m in 2016)

respectively.

Rank: n/a

Source: Department of Finance

Figure 4.2.2: Central government corporate income tax rate (%), 2017

Ireland’s corporation tax

rate remains

internationally

competitive at

12.5%.While Ireland’s

rate has remained

consistent over recent

years, many of our key

competitors have

reduced their rates (e.g.

the UK). This chart

reflects central statutory

rates – effective rates in

many counties can be

significantly lower.

OECD rank:

3rd (↓1)

Source: OECD

€0

€4,000

€8,000

€12,000

€16,000

€20,000

Inco

me

Tax

VA

T

Corp

o Ta

x

Exci

se D

uty

CGT

Loca

l Pro

pert

y Ta

x

CAT

Cust

oms

Mill

ions

(€)

2016 2011

05

10152025303540

Sw

itze

rlan

d

Hu

ng

ary

Irel

and

Ger

man

y

Po

lan

d

UK

Fin

lan

d

Ko

rea

Sw

eden

Den

mar

k

OE

CD

Jap

an

Net

her

lan

ds

Ital

y

New

Zea

lan

d

Sp

ain

Fran

ce US

Co

rpo

rate

Tax

Rat

e (%

)

2017 2012

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80 July 2017

Figure 4.2.3: Corporation tax receipts (% GDP), 2015

Corporation tax receipts

in Ireland accounted for

2.5% of GDP (2.2% of

GNP) in 2015, compared

with an OECD-31 (2013)

average of 2.8%. In the

five years to 2015 the

OECD-31 average

corporation tax receipts

as a percentage of GDP

grew by 6%.

OECD rank:

GDP: 13th (↑2)

Source: OECD

Figure 4.2.4: Income tax plus employee contributions (% of gross wage earnings) Single, 100% & 167% AW),

2016

For a single person with

no children on either

100% or 167% of the

average wage, the

difference between

what the employer pays

and what the employee

receives has increased

since 2013. At 167% of

average wages, the

difference in 2016 was

31.4% down from 38.2%

in 2012. OECD rank:

Single,0 ch, 100%: 28th

Single,0 ch, 167%: 18th

Source: OECD

0

1

2

3

4

5N

ew Z

eala

nd

Japa

n

Kor

ea

Swed

en

Swit

zerl

and

Irel

and

Net

herl

ands

OEC

D

Den

mar

k

Spai

n

UK

Finl

and

Fran

ce

Ital

y

US

Ger

man

y

Latv

ia

Per

cent

age

of G

DP

2015 2010

05

1015202530354045

Ko

rea

Sw

itze

rlan

d

New

Zea

lan

d

Po

lan

d

Jap

an

Sp

ain

UK

Latv

ia

OE

CD

US

Ital

y

Irel

and

Hun

gar

y

Fran

ce

Sw

eden

Fin

lan

d

Ital

y

Den

mar

k

Ger

man

y

% o

f Lab

our

Co

sts

Single 100% Single 167%

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81 July 2017

Figure 4.2.5: Income tax plus employee contributions (% of gross wage earnings) (Married, 2 children, 100% &

167% AW), 2016

Ireland remains

relatively competitive in

terms of the levels of

income tax and social

security contributions as

a proportion of total

labour costs. For a

married couple with 2

children on a combined

income of 167% of the

average wage (i.e. a 2

earner family), the rate

is below the OECD

average. OECD rank:

Married, 2 ch, 100%: 2nd;

Married, 2 ch,167%: 4th

Source: OECD

Figure 4.2.6: Marginal rate35 of income tax plus employee contributions less cash benefits (% of gross wage

earnings) , 2016

Marginal rates in Ireland

are particularly high for

individuals earning the

average wage or above.

Conversely, marginal

rates for married

couples, regardless of

income are lower than

OECD and Euro area

averages.

OECD rank:

Single, no ch, 100%:

26th

Married, 2 ch, 100%: 4th

Source: OECD

35 The marginal rate refers to the percentage of tax and social contributions paid on each additional unit of income

05

10152025303540

Ko

rea

Sw

itze

rlan

d

Ire

lan

d

Ne

w Z

eal

and

Sp

ain

US

Jap

an UK

Po

lan

d

OE

CD

Sw

ed

en

Lat

via

Ne

ther

lan

ds

Ital

y

Fra

nce

Fin

lan

d

Hu

ng

ary

Ger

man

y

Den

mar

k

Per

cen

tag

e o

f L

abo

ur

Co

sts

Married 100% Married 167%

0

10

20

30

40

50

60

Single, 67%Avg

earnings (0child)

Single,100% Avg

earnings (0child)

Single,167% Avg

earnings (0child)

Married,100% Avg

earnings (2children)

Married,133% Avg

earnings (2Children)

Married,167% Avg

earnings (2children)

Mar

gina

l Tax

Rat

e (%

)

Ireland OECD Euro Area 16

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82 July 2017

Figure 4.2.7: Value added tax gap (% GDP)36, 2014

In 2014 the estimated

VAT gap within the Euro

area ranged from the

low of 1.24% in Sweden

to the high of 37% in

Lithuania. As a result of

the rate in Ireland falling

from 12.9% in 2013 to

8.4% in 2014, our EU-22

ranking improved to

6th

during this period.

EU22 rank:

6th (↑4)

Source: Eurostat

Figure 4.2.8: Income from Property Taxes37, 2015

Revenues from

immovable properties in

Ireland are below the EU

average. Such revenues

amounted to 1.5 per

cent of GDP in 2015,

below the OECD

average of about 1.9 per

cent of GDP in the

corresponding year. In

both the UK and France

the tax income from

property in 2015

equated to 4.1% of GDP.

OECD Rank: 17th (↑1)

Source: OECD

36 The VAT Gap is an indicator of the effectiveness of VAT enforcement and compliance measures, as it provides an estimate of revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies as well as miscalculations. The VAT Gap is defined as the difference between the amount of VAT actually collected and the VAT Total Tax Liability (VTTL), in absolute or percentage terms. 37 Tax on property is defined as recurrent and non-recurrent taxes on the use, ownership or transfer of property. These include taxes on immovable property or net wealth, taxes on the change of ownership of property through inheritance or gift and taxes on financial and capital transactions. Empirical work by the OECD suggests a tax and economic growth hierarchy with recurrent taxes on immovable property being the least distortive tax instrument in terms of reducing long-run GDP per capita, followed by consumption taxes and other property taxes as well as environmentally-related taxes, personal income taxes and corporate income taxes.

0

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2015 2010

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83 July 2017

Figure 4.2.9: Social security contributions (% GDP), 2015

Social security is

comprised of employee

contributions, employer

contributions, self-

employed, non-

employed contributions

and some “unallocable”

contributions.

Significantly less

revenue was generated

through social security

contributions in Ireland

(3.9% of GDP) than is

the case across the

OECD (9.1% of GDP).

OECD rank:

26th (↓1)

Source: OECD

Figure 4.2.10: Tax rate on low wage earners (Unemployment Trap38), 2015

Figure 4.2.10 shows the

implicit tax rate of

taking up employment.

The Irish tax system has

reformed over the 5

years to 2015 and now

provides more

incentives for job

seekers. The tax rate on

low wage earners is

71.6% in Ireland

compared with the Euro

area rate 76.5%.

EU28 rank: 9th (↑5)

Source: Eurostat

38 The unemployment trap measures the percentage of gross earnings lost to taxes when a person becomes employed. This occurs through the loss of unemployment benefits combined with higher tax and social security contributions.

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84 July 2017

Figure 4.2.11: Capital Gains Tax, 2014

Figure 4.2.11

benchmarks Capital

Gains Taxes across the

OECD. In 2014 Ireland

had the third highest

headline CGT rate in the

OCED, and fell 5 places

since 2011. The OECD

average rate in 2014 was

just over 18% - the Irish

figure was almost

double this at 33%.

OECD rank:

32nd (↓5)

Source: Tax Foundation

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2014 2011

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85 July 2017

4.3 Physical Infrastructure

Figure 4.3.1: Average annual growth in net capital stock, 2005-201539

Figure 4.3.1 illustrates

the average annual

growth rate in the value

of Ireland’s fixed assets

between 2005 and 2015.

Overall, net capital stock

grew by 0.6% per

annum. Computer

software assets (0.84%)

and Office Machinery &

Hardware (0.8%) have

grown most rapidly over

the ten year period.

Rank: n/a

Source: Central Statistics Office

Figure 4.3.2: Total inland infrastructure investment as a percentage of GDP40, 2009-2014.

As a percentage of GDP,

Ireland’s inland

infrastructure

expenditure (transport

infrastructure) declined

from 0.8 per cent in

2009 t0 0.3 per cent in

2014 and since 2011 has

been well below the

OECD and UK’s level of

investment in 2014.

OECD rank:

32nd (↓11 )

Source: OECD

39 The CSO defines ‘Cultivated assets as livestock for breeding such as dairy cattle etc. 40 Infrastructure investment covers spending on new transport construction and the improvement of the existing network. Inland infrastructure includes road, rail, inland waterways, maritime ports and airports and takes account of all sources of financing.

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86 July 2017

Figure 4.3.3: Perception of overall infrastructure quality (Scale 1-7), 2016

Despite a strong

improvement in

perception up until

2010, perceptions

regarding the overall

quality of infrastructure

in the economy remain

low in Ireland.

Ireland’s score fell over

the five years to 2015

and remains below the

OECD average.

OECD Rank:

23rd (↓3)

Source: World Economic Forum

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2016 2011

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87 July 2017

4.4 Clusters and Firm Sophistication

Figure 4.4.1 Regional Ecosystem Scoreboard, Median Country Scores, 2016

The Regional Ecosystem

Scoreboard presents a

composite index to rate

the quality of the

regional entrepreneurial

and innovation

ecosystem that can

support cluster

development. The most

recent results indicate

the regions ranking in

the top 10% of all of the

EU28 regions are found

in the UK (median score

(0.546), NI (0.521). In

Ireland, the South East

(0.511) scores ahead of

the BMW region (0.496).

Rank: n/a

Source: European Commission Regional Ecosystem Scoreboard

Figure 4.4.2 Perceived State of Cluster Development, 2015/2016

Figure 4.4.2 presents

WEF data provided on

the basis of personal

assessment of managers

in surveyed companies

about cluster

development in their

country. In Ireland the

weighted average score

in 2015/16 was 4.9. This

was above the Euro

area-19 average score of

4.3.

Euro area-19 rank: 5th

(↑3)

Source: World Economic Forum (WEF)

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88 July 2017

Figure 4.4.3 European Innovation Scoreboard, Overall ranking, 2016

The EU Innovation

Scoreboard provides a

comparative assessment

of the research and

innovation performance

of EU Member States.

The 2016 Scoreboard

shows that year on year

Ireland moved up two

places from 8th to 6th in

the overall ranking of EU

Member States. Ireland

is classed as an

innovation follower with

an above average

performance.

EU 28 rank: 6th (-)

Source: European Commission

Figure 4.4.4 European Innovation Scoreboard, Performance, Ireland, EU , UK Switzerland, 2016

Figure 4.4.4 shows

Ireland’s performance

across the Measurement

framework of the

Innovation Scoreboard

relative to the best

performing country

Switzerland and the UK

and EU. Ireland is strong

in the innovators and

economic effects

dimensions. Ireland is

behind the EU average

in the finance, firm

investments and

intellectual assets

dimensions.

EU 28 rank: 6th (-)

Source: European Commission

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Ireland EU UK Switzerland

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89 July 2017

Figure 4.4.5 Public and Business Expenditure on Research and Development as a percentage of GDP, 2015

There is considerable

heterogeneity in R&D

expenditure as

percentage of GDP in

the EU. In 2015, Irish

expenditure on R&D

accounted for 1.51% of

GDP, below the EU

average (2.02%).

Business expenditure on

R&D (BERD) accounted

for 1.1%, with public

expenditure accounting

for 0.4%.

EU 28 rank:

Business 10th (-)

Public 23rd (↓6)

Source: European Commission/Eurostat

Figure 4.4.6 Business sector R&D expenditure by firm type, 2014

Foreign owned

companies in Ireland

spent over €1.32 billion

on R&D in Ireland in

2013, accounting for

65% of business

expenditure on R&D. By

comparison, indigenous

firms spent €703 million

on R&D in the same

year. The majority of

research expenditure

occurred in the services

sector (57.3%).

Rank: n/a

Source: CSO

0.0

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Business Expenditure Public Expenditure Total Expenditure (2010)

€0

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2005 2007 2009 2011 2013 2014

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90 July 2017

Figure 4.4.7 Percentage of Innovative Enterprises, by Size, 2014

Firms in Ireland were

more likely to be

innovative (61%)

compared to the EU

average (49%). Relative

performance is strong

across all firm sizes.

Reflecting the trend at

EU level, larger firms

tend to be more

innovation active. In

Ireland the proportions

are: Small firms (57%),

SMEs (71%), Large Firms

(85%).

Rank: Euro area

All firms (4th)

Source: Eurostat

Figure 4.4.8 SMEs introducing product or process innovations as a percentage of all SMEs, 2015

Technological

innovation, as measured

by the introduction of

new products (goods or

services) and processes,

is a key ingredient to

growth. 36% of SMEs in

Ireland are reported as

having introduced a

product or process

innovation in 2015. This

is above the EU average

(31%), however Ireland’s

performance is down on

an annual basis (41%)

and since 2010 (43%)

EU 28 rank: 10th (↓3)

Source: European Commission/Eurostat

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MEs

2015 2010

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91 July 2017

Figure 4.4.9 SMEs introducing marketing or organisational innovations as a percentage of SMEs, 2015

Figure 4.4.9 shows the

proportion of SMEs in

Ireland who introduced

a marketing or

organisational

innovation is high (50%)

in an EU context. The EU

average is 36%. Previous

iterations of the

Community Innovation

Survey suggest the

proportion of SMEs

engaging in marketing

innovations is greater

than organisational

innovation.

EU 28 rank: 2nd (↑8)

Source: European Commission/Eurostat

Figure 4.4.10 Sales of new to market and new to firm innovations as a percentage of turnover, 2015

Figure 4.4.10 shows

sales as a percentage of

turnover attributed to of

new/ significantly

improved products and

includes

both products which are

only new to the firm and

products which are also

new to the market. The

latest Irish data (from

2013) was 9.3%, down

from 12.6% in 2008.

The EU average in 2015

was 12.4% also slightly

down on 2010 (13.1%).

EU 28 rank: 20th (↓4)

Source: European Commission/Eurostat

0

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2015 2010

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30

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2015 2010

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92 July 2017

Figure 4.4.11 Medium and high-tech product exports as a percentage of total product exports,2015

Creating, exploiting and

commercialising new

technologies are vital for

competitiveness.

Medium and high

technology products

exports are key drivers

for economic growth

and are generally a

source of high value

added and well-paid

employment. In Ireland

52% of product exports

are classified as

medium/high tech

compared with an EU

average of 55%.

EU 28 rank: 14th (↑4)

Source: European Commission/Eurostat

Figure 4.4.12: Enterprises with Fast Fixed Broadband as % of total Enterprises, 2015

Figure 4.4.12 shows the

percentage of

businesses with a fixed

fast broadband

connection. Between

2014 and 2016 the

percentage of Irish

businesses with such a

connection increased

from 26% to 42%. The

OECD-29 average in

2016 was 35%

OECD rank: 10th

(↑4)

Source: OECD

0

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60

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2015 2010

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93 July 2017

4.5 Knowledge and Talent Figure 4.5.1: Educational attainment of population aged 25-64 by highest level of education (%), 2015

Figure 4.5.1 shows the

proportion of the

working age population

with tertiary (third level)

level education has

increased from 36% in

2009 and to 43% in

2015. The OECD

average is 36%. The

proportion with just pre-

primary, primary or

lower secondary is

below the OECD

average. OECD rank:

Upper-secondary (24th),

Tertiary (7th)

Source: OECD

Figure 4.5.2: Annual expenditure on educational institutions, per student ($US PPP),2013

Ireland spends more per

student at secondary

level than the OECD 32

average but 6.5% and

14% less at both primary

and tertiary level. The

gap between Ireland and

Euro area and US/UK

expenditure is

particularly pronounced

at tertiary level.

OECD rank:

Primary: 19th (↓6)

Secondary: 14th (↓6)

Tertiary: 19th (↓3)

Source: OECD

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94 July 2017

Figure 4.5.3: Breakdown of tertiary educational expenditure,2013

Figure 4.5.3 highlights

how tertiary education

in Ireland and the Euro

area is primarily funded

by the public sector. In

Ireland In 2013, the

breakdown of total

tertiary expenditure on

education in Ireland was

78% public: 22% private.

The corresponding

breakdown for the UK

was 57% public: 43%

private.

OECD rank: Public:14th

(↓3 on 2012)

Private:18th (↑2 on

2012)

Source: OECD

Figure 4.5.4: Average annual hours of tuition by subject at Primary Education, 2016

In 2015, Irish primary

school students received

more hours of tuition in

maths than the average

student across the

OECD countries. Despite

the limited time spent

on science tuition, Irish

students spent more

compulsory time in the

classroom than the

OECD average.

OECD rank: Maths

hours: 9th (↑6 on 2015)

Science hours: 25th (- on

2015)

Source: OECD

0%

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40%

60%

80%

100%

US UK OECD Ireland Euro Area

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Poland

Ireland

Denmark

Korea

OECD 26

Finland

Spain

Japan

Germany

Euro Area 13

Norway

Hungary

France

% of Total Tuition Hours

Reading, writing and literature Mathematics Natural sciences Other

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Figure 4.5.5: Percentage of population aged 25-64 that has at least upper secondary education, 2015

Some 80% of 25-64 year

olds had attained at

least upper secondary

education in Ireland in

2015 compared with

91% of 25-34 year old

cohort. Ireland

surpasses the OECD

average attainment for

both cohorts. In all

countries, more females

complete secondary

education than males.

OECD rank:

25-34 yr. olds: 8th

25-64 yr. olds: 18th

Source: OECD

Figure 4.5.6: Early school leavers as a percentage of population aged 18-24, 2016

Figure 4.5.6 measures

the percentage of the

population aged

between 18 and 24 who

have attained, at most,

lower secondary

education. Ireland has

made significant

progress in this area. In

2016, 6.3% of this age

cohort was classified as

early school-leavers,

down from 10.8% in

2011, reflecting higher

retention rates in

secondary education.

EU 28 rank: 7th (↑7)

Source: Eurostat

0

20

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2016 2011

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96 July 2017

Figure 4.5.7: Scientific, mathematical and reading literacy of 15 year olds, 2016

Irish PISA scores for

maths, reading and

science have improved

since 2009. On average,

Irish students score

above the OECD-32 in

all 3 categories. Scores

in maths in particular,

however, lag leading

performers. Males

outperformed females

in maths and science but

Irish females performed

better in terms of

reading. OECD rank:

Maths:12th (↑1 on 2012)

Reading:3rd (↑1 on 2012)

Science:13th (↓5 on 2012)

Source: OECD

Figure 4.5.8: Average annual hours of tuition in lower secondary, by subject, 2016

More time is dedicated

to science tuition (15%)

than to maths (12%) in

Irish Lower Secondary

education. The

percentage of tuition

time in Ireland for Maths

is in line with the OECD

average but for Science

it exceeds this average

by 35%.

OECD rank:

Maths hours:18th (↑8 on

2015)

Reading hours: 23rd (↑5

on 2015)

Source: OECD

420

440

460

480

500

520

540

Jap

an

Fin

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Ita

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ex

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era

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Maths Reading Science

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

DenmarkSpain

FranceLatvia

PolandOECD

EU22GermanyHungary

KoreaIreland

JapanFinland

% of Total Tuition Time

Reading, writing and literature Mathematics Natural sciences Other

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Figure 4.5.9: Population by age cohort that has at least third level education87

, 2014

There is significant

inverse correlation in

Ireland between

educational attainment

and age; while a lower

proportion of 45-54 and

55-64 year olds have

attained third level

education than the

OECD average, a

greater proportion of

younger cohorts have

third level qualifications

than is the case in the

OECD. OECD rank:

55-64 yrs:15th (↑4 on

2013) ; 25-34 yrs:4th (↑5

on 2013)

Source: OECD

Figure 4.5.10: STEM graduates (% of Total Bachelor Graduates), 2015

As a percentage of total

undergraduates, Irish

higher education and

further education

institutes provide more

Science & maths and ICT

graduates than the EU27

average. However, the

number of engineering

graduates Ireland

produced is significantly

below the EU27 average.

EU27 rank: Science &

Maths:4th (↑2 on 2014);

ICT:4th (↑1 on 2014)

Engineering: 18th (↑1 on

2014)

Source: Eurostat

0 10 20 30 40 50 60

Ireland

UK

US

OECD

Euro Area 15

Germany

Percentage of the Population

55-64 45-54 35-44 25-34

05

10152025303540

Ge

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UK

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27

Po

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s

De

nm

ark

% o

f T

ota

l Ba

che

lor

Gra

ds

Science & maths ICT Engineering & manufacturing

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98 July 2017

Figure 4.5.11: Lifelong learning (as a percentage of 25-64 year olds), 2016

Figure 5.4.11 shows the

percentage of people

aged 25-64 in receipt of

education (both formal

and non-formal). Ireland

(11.5%) ranks below the

Euro area 19 (16.5%) and

EU-28 (16.3%) averages.

However, participation

has increased modestly

since 2009.

EU 28 rank:

22nd (↓5)

Source: Eurostat

Figure 4.5.12: European Digital Economy and Society Index, 2017

Ireland ranks 8th in the

EU DESI 2017. Ireland

performs well in

integration of digital

technologies by

businesses, mostly

because many SMEs

embraced e-commerce.

Internet users use high-

speed infrastructures

and make good use of

online public services.

Ireland's main challenge

is to equip more than

half of the population

with at least basic digital

skills. EU 28 rank:

8th (-)

Source: Eurostat

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EU

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Sp

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Po

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d

Pe

rce

nta

ge

o t

he

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pu

lati

on

Ag

ed

25

-64

2016 2011

0

10

20

30

40

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60

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mar

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EU 2

8

Fran

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Pola

nd

Italy

Wei

ghte

d Sc

ore

Connectivity Human Capital

Use of Internet Integration of Digital Technology

Digital Public Services

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99 July 2017

Figure 4.5.13: European Digital Economy and Society Index, 2017

44% of persons in

Ireland report as having

advanced (25%) or basic

(19%) digital skills. This

is below the Euro area

average (57%). The

proportion of the

population in Ireland

who report to having

low overall digital skills

(37%) is the highest in

the EU and above the

Euro area average

(24%).

EU 28 rank:

Individuals who have

low overall digital skills

(28th)

Source: Eurostat

0

10

20

30

40

50

60

70

80

90

100

Den

mar

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man

y

Spai

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are

a

Fran

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nd

Hun

gary

Italy

Pola

nd

% o

f the

tota

l num

ber o

f ind

ivid

uals

age

d 16

to 7

4

Individuals who have no overall digital skills

Individuals who have low overall digital skills

Individuals who have basic overall digital skills

Individuals who have above basic overall digital skills

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Chapter 5

Essential Conditions

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Essential Conditions A range of factors which are either beyond the immediate reach of policy makers (such as demographic

effects) or which are determined by institutional effectiveness or other exogenous factors (e.g. the global

economic climate) but which have a significant impact upon relative competitiveness are considered in this

chapter.

Institutions: The quality of institutions has a strong bearing on competitiveness and growth.

Institutions influence investment decisions and play a key role in the ways in which societies

distribute the benefits and bear the costs of development strategies and policies. While difficult to

benchmark internationally, indicators in this section address government and public sector

effectiveness and ease of tax compliance.

The World Bank's Doing Business index assesses regulations affecting SMEs and measures

regulations applying to companies throughout their life cycle. In 2017, Ireland is ranked 18th overall

and 5th in the Euro area, a decline of 1 place from last year. Figure 5.1.1 shows that while Ireland has a

comparatively good enterprise environment conductive to doing business, the country falls behind

the UK in a number of areas, such as dealing with construction permits, getting electricity and trading

across borders. There is significant room for improvement in the area of enforcing contracts.

Figure 5.1.3 shows that Ireland is ranked in the top ten in terms of perceptions of judicial

independence, protection of minority shareholders, strength of investor protection and property

rights. Ireland's ranking has improved since 2011 and is above the OECD average. Ireland’s

performance in terms of perceptions of government effectiveness has also improved since 2010

(Figure 5.1.4). The perceptions of Ireland’s quality of public services, quality and independence of the

civil service, quality of policy formulation and implementation are above the OECD average. Figure

5.1.5 shows Ireland continues to perform strongly in terms of time to prepare and file tax returns and

pay taxes.

Ireland's trade in services is relatively open. This is measured by the Services Trade Restrictiveness

Index (Figure 5.1.6) which helps identify which policy measures restrict trade across 19 major services

sectors. Ireland's index is lower than the OECD average in all sectors.

Macroeconomic sustainability: It is important to note that this pillar evaluates the stability of the

macroeconomic environment; it does not directly take into account the way in which public accounts

are managed by the government. A range of indicators are monitored under this heading, including

the components of growth, government finances (debt, deficit,) and overall debt to income ratios.

o Following annual GDP growth of 8.5 per cent and 26.3 per cent in 2014 and 2015 respectively,

Eurostat estimates that in 2016 the Irish economy is the fastest growing economy for the third

year in a row with a GDP growth rate of 5.2 per cent. The European economy continued to

expand at a steady pace in 2016 and initial estimates indicate that GDP grew by 1.8 per cent in

the Euro area and by 1.9 per cent in the EU in 2016. In terms of our main trading partners outside

of the Euro area, GDP growth in both the UK and US declined year-on-year in 2016 to 1.8per cent

in the UK (-0.4%) and 1.6 per cent in the US (-0.8%). Since both countries are major export

destinations for Irish products and services, their economic performance remains particularly

important. Ireland’s GDP per capita remains substantially above the euro area average (+44.4%)

and is the second highest in the EU after Luxembourg.

o Preliminary national accounts data indicates that in 2016 the principle contribution to economic

growth came from domestic demand (investment and consumer spending) (Figure 5.2.1).

Increasing level of investment in intangible assets, particularly intellectual property services of

multinationals, and building and construction investment have been the main drivers of

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102 July 2017

investment growth (+9.1%). The strong improvement in the labour market has helped drive the

increase in consumer spending (+1.7%).

o There is a shift from the trend during the recession period, where net exports were the main

component of economic growth. The weaker value of the sterling had a negative impact on

export growth. In addition, the activities of multinationals have distorted the impact of net

exports somewhat. The decline in contract manufacturing and increased imports of intangible

assets by multinational companies undermined the impact of net export as a factor for economic

growth (-6.4%). In terms of output, Figure 5.2.11 shows that all sectors enjoyed increases in their

gross value added, with the biggest increase of 87 per cent recorded in the industry sector.

o As shown in Figure 5.2.1, in the years preceding the economic crash, growth was driven by

unsustainable increases in consumer expenditure and investment. During the recession, exports

were the key driver of growth. Exports in Ireland increased from 103 per cent of GDP in 2010 to

124 per cent in 2015. Ireland has the second highest level of exports as a percentage of GDP in

the OECD after Luxembourg. While Ireland’s current account was in deficit in the fourth quarter

of 2016 (largely due to an increase in research and development service imports), the annual

current account is in surplus, indicating that Ireland is paying its way in the world. Ireland’s

balance of payments current account expressed as a percentage of GDP 3 year average (5.5%) is

above the euro area of 2.2 per cent (Figure 5.2.4).

o Stable and sustainable public finances are a prerequisite for competitiveness. The focus of policy

in reducing the general government deficit has been effective and the general government

deficit continued to fall in 2016 to 0.6 per cent of GDP down from 2 per cent in 2015 and below

the threshold of 3 per cent of GDP set out in the Stability and Growth Pact. The euro area

recorded a deficit of 1.5 per cent with 8 States recording surpluses (Figure 5.2.5).

o The Fiscal Stability Treaty requires that the general government budget must be balanced or in

surplus. As a result, the new fiscal anchor is the achievement of a structural deficit of 0.5 per cent

of GDP. The Department of Finance’s estimates indicate that the structural balance in 2016 was -

1.9 per cent of GDP, and that based on current trajectory and assumptions within Budget 2017,

Ireland is on track to reach the target of 0.5 per cent in 2018.

o Economic growth has contributed to improvements in the debt-to-GDP ratio in 2016. While the

debt–to GDP ratio remains high, Figure 5.2.10 shows it has decreased substantially from its peak

of 119.5 per cent in 2012-2013 to 75.4 per cent in 2016. Recognising that metrics derived with

respect to ratios-to-GDP may be skewed due to on-shoring of intellectual property, and in order

to ensure that public finances are in a position to withstand Brexit related shocks, the

Department of Finance has set an additional mid-term goal of achieving debt-to-GDP ratio of 45

per cent of GDP.

o Reflecting improved economic and fiscal positions, Irish bond yield movements are continuing to

trade in line with core European sovereign yields but remain low from a historical perspective

(Figure 5.2.6). The yield on a ten year Irish government bond was trading at around 1 per cent in

2016, close to the French and German bond yield movements.

o In 2016, Irish Government revenue represented 27.5 per cent of GDP. Expenditure amounted to

28% of GDP. Figure 5.2.7 shows that across the EU, 'Social Protection' accounts for the major

share of Government spending, followed by 'Health', 'General Public Services', and 'Education'. In

line with EU rules, future increases in public expenditure will be based on the potential growth

rate of the economy and safeguarded from dependence on cyclical revenues.

o Moving beyond the public finances, Figure 5.2.12 shows Irish households continued to reduce

debt as a proportion of income in 2016. Notwithstanding this positive trend, they are still the

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103 July 2017

fourth most indebted households in the EU. The indebtedness of the business sector (non-

financial corporations) also remains evident with the Irish level the third highest in the EU (Figure

5.2.13)

Endowments The productivity-based view of competitiveness emphasises the importance of

endowments - that is natural resources, geographic location, demographics and size, as key

dimensions in determining national competitive performance. Every country has a range of natural

endowments pre-determined by geography (e.g. natural resources). While such factors cannot easily

be impacted by policy, it is important to be cognisant of their impact on competitiveness. Factors

such as demographic trends (i.e. population growth), labour force participation, migration and

population density are examined here.

o The evolution of the dependency ratio is a crucial element in determining the long-term funding

and sustainability of Ireland’s healthcare and pension systems. OECD population projections

indicate that the age profile of the population across the OECD countries, including Ireland is

increasing. While Ireland’s birth rate decreased in the period 2010 – 2015, Figure 5.3.2 shows the

Irish rate is considerably higher than the birth rate in the Euro area. In 2016 Ireland continued to

have the youngest population in the EU. The Irish median age of 36.6 is increasing, but remains

well below the median in the EU of 42.6 years (Figure 5.3.1). Over the period 2011-2016, the

median age of the Irish population has increased by 2 years. Ireland had the fourth highest

percentage increase in population (3.4%) between 2011 and 2016 in the EU (Figure 5.3.6), behind

Luxembourg and Cyprus. The combined effect of natural increase and positive net migration

resulted in an overall increase in the population of 38,400 bringing the population estimate to

4.67 million in April 2016.

o As Figure 5.3.3 shows, at 21.2 per cent Ireland has the 7th lowest old age dependency ratio in the

OECD, and the 2nd lowest in Europe. Ireland's dependency ratio is increasing steadily but is still

expected to be below the OECD average in 2025. Ireland’s rising dependency ratio increases the

importance of expanding labour force participation and employment. Despite the substantial

percentage increase in the population (12%) between 2006 and 2016, and the improvement in

Ireland’s labour market, the labour force growth (active population, 15 years and over) for the

same period is only 2.57 per cent, below the EU average of 4.19 per cent.

o Apart from social loss associated with emigration, outward migration of skilled labour causes loss

of talent which is important for achieving sustainable competitiveness). Total emigration from

Ireland continues to decline and in 2016 is estimated at 76,200 (Figure 5.3. 4). The number of

immigrants increased to 79,300, resulting in total net inward migration of 3,100. CSO data shows

that while in the period 2011-2015 more third level qualified people left Ireland than arrived in the

country, in 2016 this trend is reversed, which represents a gain of skills for the Irish economy

(Figure 5.3.5). Notwithstanding this positive trend, the figure of the emigrants with third level

qualifications remains high (45% of all emigrants).

o Population density has a direct impact on competitiveness – particularly through its impact on

infrastructure networks and service delivery costs. Ireland is one of the most sparsely populated

countries in Europe. In 2015 Ireland's population density was 67.9 persons per km2, up from 60.8

persons per km2 recorded in 2005 (Figure 5.3.7). There is significant divergence across regions

with density in Dublin estimated at 1427.6 persons per km2 compared to 32.1 persons per km2 in

the West. Ireland’s rate of urbanisation, while increasing, is relatively low. In 2016, 62.7 per cent

of the Irish population lived in urban areas, a marginal increase of 0.7 per cent compared to 2011.

The rural population constitutes 37.3 per cent of the total population. The fact, that 44 per cent of

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the urban population lives in Dublin is an important consideration from a planning and

development perspective.

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5.1 Institutions

Figure 5.1.1 Ease of doing business rankings41, 2017

The World Bank's Doing

Business accesses

regulations affecting

SMEs, and measures

regulations applying to

companies throughout

their life cycle. In 2017,

Ireland is ranked 18th, a

fall of 1 place from last

year. Ireland is 5th in the

Euro area behind

Estonia, Finland, Latvia

and Germany but ahead

of Netherlands and

Spain.

OECD rank: 13th Source: World Bank

Figure 5.1.2 Ease of doing business Ireland and the UK, 2017

Our top 20 ranking

indicates that Ireland

has a comparatively

good enterprise

environment in which to

do business. However,

Ireland falls behind the

UK in terms of dealing

with construction

permits, getting

electricity and trading

across borders. There is

a significant room for

improvement in the area

of enforcing contracts.

OECD rank: 13th

Source: World Bank

41 Due to changes in methodology, it is not possible to accurately compare performance over time.

0

10

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Figure 5.1.3 Perception of institutional effectiveness, 2016

According to WEF a

country's institutional

environment (legal and

administrative

framework) is a major

driver of

competitiveness. Ireland

is ranked in the top ten

in terms of perceptions

of judicial

independence,

protection of minority

shareholders, strength

of investor protection

and property rights.

Ireland's performance

has improved since 2011

and is above the OECD

average.

OECD rank: 7th (↑7)

Source: World Economic Forum

Figure 5.1.4 Perception of Government effectiveness, 2015

Figure 5.1.4 shows

perceptions of the

quality of public

services, the quality and

independence of the

civil service, the quality

of policy formulation

and implementation.

Ireland's performance

has improved since 2010

and while behind a

number of countries is

above the OECD

average.

OECD Rank: 14th (↑5) Source: World Bank, Worldwide Governance indicators

3

3.5

4

4.5

5

5.5

6

6.5

Finl

and

Sing

apor

e

New

Zea

land

Switz

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nd

Swed

en

Irela

nd

Net

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UK

Den

mar

k

Japa

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Ger

man

y

US

OEC

D

Fran

ce

Chin

a

Spai

n

Kor

ea, R

ep.

Latv

ia

Pola

nd

Italy

Hun

gary

Braz

il

Scor

e (0

-7)

2016 2011

40

50

60

70

80

90

100

Sing

apor

e

Switz

erla

nd

New

Zea

land

Den

mar

k

Net

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Finl

and

Swed

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Ger

man

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UK

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Fran

ce

OEC

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107 July 2017

Figure 5.1.5 Time to prepare and pay tax, 2016

Figure 5.1.5 shows the

time required for tax

compliance. Compliance

activities relating to

corporate, labour and

consumption taxes are

considered - these

include time taken to

prepare tax figures,

complete and file tax

returns, and paying

taxes. Ireland continues

to perform strongly in

this indicator.

OECD rank: 3rd (-)

Source: World Bank/PWC

Figure 5.1.6 Services Trade Restrictiveness Index, 2016

The Services Trade

Restrictiveness Index

helps identify which

policy measures restrict

trade across 19 major

services sectors. The

index quantifies

restrictions on foreign

entry, restrictions to

movement of people,

barriers to competition

and regulatory

transparency. Ireland's

index is lower than the

OECD average in all

sectors, indicating that

Ireland's trade in

services is relatively

open.

Rank: n/a

Source: OECD

050

100150200250300350

Switz

erla

nd

Irela

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Finl

and UK

Net

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D

Japa

n US

Sout

h K

orea

Ger

man

y

Isra

el

Italy

Pola

nd

Hun

gary

Hou

rs p

er a

nnum

2016 2011

0 0.1 0.2 0.3 0.4 0.5

Logistics cargo-handling

Accounting

Architecture

Engineering

Legal

Telecom

Air transport

Maritime transport

Road freight transport

Rail freight transport

Courier

Distribution

Commercial banking

Insurance

Computer

Construction

STRI (0=open, 1=closed)

OECD Ireland

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108 July 2017

5.2 Macroeconomic Sustainability

Figure 5.2.1 Components of Irish economic growth, 1999-2016

Prior to the economic

crash, growth was

driven by unsustainable

increases in consumer

expenditure and

investment. During the

recession, exports were

a key driver of growth

(+4.6% in 2010). Growth

in 2016 is being driven

mainly by significant

increases in investment

(+9.1%) and consumer

spending (+1.7%), while

the contribution of

export had declined

(-6.4%).

Rank: n/a

Source: CSO

Figure 5.2.2 Exports of goods and services as a percentage of GDP, 2015

The Irish economy is

very open with high

levels of trade in both

goods and services.

Exports in Ireland

increased from 103% of

GDP in 2010 to 124% in

2015. Ireland has the

second highest level of

exports as a percentage

of GDP in the OECD

after Luxembourg.

OECD rank: 2nd(-)

Source: OECD

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Perc

enta

ge o

f GD

P gr

owth

Consumption Government Investment Net Exports

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

Irela

nd

Hun

gary

Net

herla

nds

Switz

erla

nd

Den

mar

k

Pola

nd

Ger

man

y

Euro

are

a

Sout

h K

orea

Swed

en

Finl

and

Spai

n

Fran

ce

Italy

OEC

D

New

Zea

land U

K

Chin

a

Japa

n

US

Perc

enta

ge o

f GD

P

Y2015 Y2010

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109 July 2017

Figure 5.2.3: Harmonised competitiveness indicator (HCI) for Ireland, Jan 2005-Jan 2017

From March 2014 to

January 2015, renewed

euro depreciation

provided a boost to Irish

cost competitiveness.

The latest data up to

January 2017 show that

the nominal HCI

decreased marginally by

1 per cent, primarily as a

result of exchange rate

movements, whereas

real HCI improved by 1

percent over the

previous 12 months.

Rank: N/a

Source: European Central Bank

Figure 5.2.4 Balance of payments, current account (€millions), 2010-2016

The balance of

payments current

account is a measure of

Ireland's financial flows

with the rest of the

world. Ireland’s current

account was in deficit in

the fourth quarter of

2016 (-€11,132m). This is

largely related to an

increase in research and

development service

imports in the quarter.

For the year 2016, the

current account surplus

is €12,544m, a decrease

of €13,613m on 2015.

Rank: n/a

Source:CSO

80

90

100

110

120

130

Jan-

05

Jul-

05

Jan-

06

Jul-

06

Jan-

07

Jul-

07

Jan-

08

Jul-

08

Jan-

09

Jul-

09

Jan-

10

Jul-

10

Jan-

11

Jul-

11

Jan-

12

Jul-

12

Jan-

13

Jul-

13

Jan-

14

Jul-

14

Jan-

15

Jul-

15

Jan-

16

Jul-

16

Jan-

17

Imp

rove

men

t Ja

n 2

005=

100

Dis

imp

rove

men

t

Nominal HCI Real HCI

-€10,000

-€5,000

€0

€5,000

€10,000

€15,000

€20,000

€25,000

€30,000

2010 2011 2012 2013 2014 2015 2016

Mill

ion

s (€

)

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110 July 2017

Figure 5.2.5 Balance of Payments Current Account as percentage of GDP 3 year average

The balance of

payments current

account provides

information about the

transactions of the EU

States with the rest of

the world. Figure5.2.5

indicates that since 2011

Ireland's current account

has moved from deficit

to surplus. The figure is

significantly above the

EU average and Ireland

is currently ranked 6th in

the EU.

Euro area-19 rank: 5th(↑14)

Source: Eurostat

Figure 5.2.6 Ten-year government bonds (Interest Rates), 2010 -201742

Reflecting improved

economic and fiscal

positions, Irish bond

yield movements are

continuing to trade in

line with core European

sovereign yields. The

yield on a ten year Irish

government bond

peaked at 12% in 2011; it

has been trading at

around 1% in 2016 and

the first quarter of 2017.

Rank: n/a

Source: ECB

42 Owing to market closure in Greece no data are available for July 2015.

-6

-4

-2

0

2

4

6

8

10De

nmar

k

Net

herla

nds

Ger

man

y

Irela

nd

Swed

en

Hung

ary

Euro

-19

EU -2

8

Italy

Spai

n

Latv

ia

Fran

ce

Pola

nd

Finl

and

UK

% o

f GDP

3 y

ear a

vera

ge

2016 2011

-5

0

5

10

15

20

25

30

35

Jan-

10

Apr

-10

Jul-

10

Oct

-10

Jan-

11

Apr

-11

Jul-

11

Oct

-11

Jan-

12

Apr

-12

Jul-

12

Oct

-12

Jan-

13

Apr

-13

Jul-

13

Oct

-13

Jan-

14

Apr

-14

Jul-

14

Oct

-14

Jan-

15

Apr

-15

Jul-

15

Oct

-15

Jan-

16

Apr

-16

Jul-

16

Oct

-16

Jan-

17

Apr

-17

Inte

rest

rat

e (p

erce

ntag

e)

Germany Spain France Greece Ireland Portugal

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111 July 2017

Figure 5.2.7 General Government expenditure by function, 2015

Across the EU, 'Social

Protection' accounts for

the major share of

Government spending,

followed by 'Health',

'General Public

Services', and

'Education'. As a

percentage of total

Government

expenditure, Ireland

spends more on health

(19.3%), economic

affairs (11.5%) and

education (12.4%).

Rank: n/a

Source: Eurostat

Figure 5.2.8 Total government revenue, expenditure and deficit, 2016

In 2016, Irish

Government revenue

represents 27.5% of

GDP, a decline from

33.3% recorded in 2011.

Expenditure also

decreased from 46% in

2011 to 28% of GDP in

2016. Ireland's deficit

declined significantly in

recent years and in 2016

amounts to -0.6% of

GDP (down from -12.6%

in 2011).

Euro area-19 rank:

Deficit: 10th

Source: Eurostat

0.05.0

10.015.020.025.030.035.040.045.0

Soci

al p

rote

ctio

n

Hea

lth

Gen

eral

pub

licse

rvic

es

Educ

atio

n

Econ

omic

aff

airs

Publ

ic o

rder

and

safe

ty

Recr

eatio

n an

dCu

lture

Hou

sing

and

com

mun

ity

Envi

ronm

ent

prot

ectio

n

Def

ence

Perc

enta

ge o

f tot

al G

ovt e

xpen

ditu

re

Ireland Euro area-19

-10

0

10

20

30

40

50

60

Swed

en

Ger

man

y

Net

herla

nds

Latv

ia

Irela

nd

Denm

ark

Euro

-are

a-19

EU28

Hung

ary

Finl

and

Italy

Pola

nd UK

Fran

ce

Spai

n

Perc

enta

ge o

f GDP

Total income Total Expenditure Net lending/borrowing

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112 July 2017

Figure 5.2.9 General government deficit/surplus (as a percentage of GDP), 2016

Figure 5.2.9 shows the

general government

deficit in Ireland

continued to fall in 2016

to 0.6% of GDP, down

from 2% in 2015 and

significantly below the

deficit level of 12.6 in

2011. The Euro-area19

recorded a deficit of

1.5% with 8 States

recording surpluses.

Euro area-19 rank:

10th (↑9)

Source: Eurostat

Figure 5.2.10 General government gross debt (as a percentage of GDP), 2016

Ireland's debt as a

percentage of GDP

increased significantly in

the period 2009-2012

partly as a result of the

cost of the capital

support provided by the

State to several financial

institutions, and partly

due to the Exchequer

running large deficits.

Ireland's debt level

peaked at 119.5% in

2012-2013 but has

decreased substantially.

At 75.4% in 2016, it is

below the UK 89.3% and

the euro area 89.2%.

Euro area-19 rank: 10th

(↑5)

Source: Eurostat

-14

-12

-10

-8

-6

-4

-2

0

2

Swed

en

Ger

man

y

Net

herla

nds

Latv

ia

Irela

nd

Den

mar

k

Euro

-are

a-19

EU28

Hun

gary

Finl

and

Italy

Pola

nd UK

Fran

ce

Spai

n

Gen

eral

gov

ernm

ent d

efic

it/su

rplu

s

(% G

DP)

2016 2011

0

20

40

60

80

100

120

140

Latv

ia

Swed

en

Den

mar

k

Pola

nd

Net

herla

nds

Finl

and

Ger

man

y

Hun

gary

Irela

nd

EU-2

8

Euro

are

a-19 UK

Fran

ce

Spai

n

Italy

Perc

enta

ge o

f GD

P

2016 2010

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113 July 2017

Figure 5.2.11 Gross value added at constant factor cost by sector, Ireland, 2010-2015

In the period 2010 -

2014, the gross value

added contributed by

the sectors, as shown in

Figure 5.2.11, is

relatively stable. In 2015

all sectors experienced

positive growth. The

industry sector recorded

a growth of 97%, while

the other main sectors

had annual increases

ranging from 5.7% to

10.4%.

Rank n/a

Source: CSO

Figure 5.2.12 Gross debt-to-income ratio of households, 201543

Between 2010 and 2015,

Irish households

reduced their debt as a

proportion of disposable

income by 53% to

153.01%- the largest

reduction in the EU.

Aggregate household

indebtedness has

declined in Ireland in

recent years in nominal

terms, and as a share of

household income.

Euroarea-16 rank:

14th(↑1)

Source: Eurostat

43 Euro area-16 excludes Greece, Luxembourg and Malta. Information for France is provisional

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2010 2011 2012 2013 2014 2015

Gro

ss v

alue

add

ed m

illio

ns (€

)

Agriculture, forestry and fishing Industry

Building and construction Distribution, transport, software and communication

Software and communications Other services (including rent)

0

50

100

150

200

250

300

Hun

gary

Latv

ia

Pola

nd

Italy

Ger

man

y

Fran

ce

Euro

are

a-19

Spai

n

Finl

and

UK

Swed

en

Irela

nd

Net

herla

nds

Den

mar

k

Gro

ss d

ebt t

o in

com

e (%

)

2015 2010

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114 July 2017

Figure 5.2.13 Non financial corporations debt-to GDP ratio, 2011-2016

High indebtedness has a

negative impact on

companies' performance

and renders them

vulnerable to revenue

and interest rate shocks.

The Irish business sector

(NFC) is the third most

indebted in the EU and

euro area. Ireland’s

NFC’s debt is largely

affected by the activities

of the multinationals; a

proportion of the debt is

associated with non-

residential loans.

Euro area-19 rank44: (-) Source: European Central Bank

44 Due to lack of data in 2011 and 2012, the ranking is based on Q32013.

0

50

100

150

200

250

300

2011Q3 2012Q3 2013Q3 2014Q3 2015Q3 2016Q3

Ireland Euro area 19

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115 July 2017

5.3 Endowments

Figure 5.3.1 Median population age, 201645

Due to ageing and

changes in family

formation, the median

age of the Irish and EU

population has steadily

increased in the last

decades. In 2016 Ireland

continues to have the

youngest population in

the EU (median age

36.6). The median age of

the EU population was

42.6.

Euro area-19 rank: 1st(-)

Source: Eurostat

Figure 5.3.2 Crude Birth Rate, 201546

The crude birth rate is

the ratio of the number

of live births during the

year to the average

population in that year.

Ireland has consistently

topped the EU rankings.

The birth rate in 2015 is

14, considerably higher

than the birth rate in the

EU area-19 (9.7).

However, Ireland’s birth

rate figure has

decreased in the period

2010 – 2017.

Euro area-19 rank: 1st (-)

Source: Eurostat

45 Data for EU-28, EU-19 and France is provisional. Data for Portugal and UK is estimated 46 Data for Ireland and EU-19 is provisional, for UK - estimated and for EU28 - estimated provisional.

30

32

34

36

38

40

42

44

46

48

50

Irelan

d

Polan

d

UK

Swed

en

Fran

ce

Denm

ark

Hung

ary

Switz

erlan

d

Neth

erlan

ds

Finl

and

EU28

Spain

Latv

ia

Euro

area

-19

Italy

Germ

any

Age (

year

s)

2016 2011

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Irela

nd

Fran

ce UK

Swed

en

Latv

ia

Den

mar

k

Net

herla

nds

Finl

and

EU-2

8

Euro

are

a-19

Pola

nd

Hun

gary

Ger

man

y

Spai

n

Italy

Crud

e bi

rth

rate

per

100

0 pe

rson

s

2015 2005 2010

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116 July 2017

Figure 5.3.3 Old age dependency ratio, 2015

The age dependency

ratio shows the ratio of

persons older than 64 to

the working-age

population. At 21.2%,

Ireland has the 7th

lowest ratio in the

OECD, and the 2nd

lowest in Europe. Our

dependency ratio is

increasing steadily but is

expected to be below

the OECD average in

2025.

OECD rank: 7th (-)

Source: OECD

Figure 5.3.4 Net migration (000s), 2001 - 201647

Total emigration from

Ireland continues to

decline and in 2016 is

estimated at 76,200.

The number of

immigrants increased to

79,300, resulting in total

net inward migration of

3,100. This is the first

record of positive net

migration since 2009.

Rank n/a

Source:CSO

47 Data for 2016 is preliminary

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Braz

il

Chin

a

Sout

h K

orea

Irela

nd

Pola

nd US

New

Zea

land

OEC

D

Hun

gary

Switz

erla

nd

Spai

n

Net

herla

nds

UK

Den

mar

k

Fran

ce

Swed

en

Ger

man

y

Finl

and

Italy

Japa

n

Ratio

of o

lder

dep

ende

nts -

to-t

he w

orki

ng - a

ge p

opul

atio

n (%

)

2015 2000 2025

-150

-100

-50

0

50

100

150

200

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Mig

ratio

n (0

00's

)

Immigrants Emigrants Net migration

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117 July 2017

Figure 5.3.5 Net migration 15 years and over by educational attainment, 2011-201648

Figure 5.3.5 shows the

estimated net migration

by education

attainment. While in the

period 2011-2015 more

third level qualified

people have left Ireland

than arrived in the

country, in 2016 this

trend is reversed.

However, the proportion

of emigrants with third

level qualifications

remains high (45% of all

emigrants).

Rank n/a

Source: CSO

Figure 5.3.6 Population and labour force growth, 2011 - 2016

In the period 2006-2011,

Ireland's population

increased at a faster rate

(8.6%) than in the period

2011-2016 (3.4%). In

2016 Ireland was fourth

in the euro area in terms

of percentage increase

in population. Ireland's

labour force growth (≥

15 years) has also

slowed from 1% in 2006-

2011, to 0.3% in 2011-

2016.

Euro area-19 rank:

Population: 4th (↓1)

Labour Force: 10th (↓1)

Source: Eurostat and CSO

48 The information for 2011, 2012, 2013, 2014 and 2016 is preliminary.

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

2011 2012 2013 2014 2015 2016

Net

Mig

ratio

n (0

00's

)

Higher secondary and below Post leaving cert Third level Not stated

-6

-4

-2

0

2

4

6

8

10

Switz

erla

nd

Swed

en UK

Irela

nd

Fran

ce

Denm

ark

Ger

man

y

Italy

Finl

and

Net

herla

nds

Euro

are

a-19

EU28

Pola

nd

Spai

n

Hung

ary

Latv

ia

Perc

enta

ge C

hang

e

Percentage change population Percentage change labour force

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118 July 2017

Figure 5.3.7 Labour Force Activity Rate49, 2007-2016

Activity rates in Ireland

declined during 2008-

2012 and have been

slowly recovering since.

In 2016 the total rate

(70.5%) was behind the

Euro area average

(72.9%). At 63.7% the

female rate is now

above pre-crisis levels

but below the Euro area

average (67.4%) and the

best performing Euro

area country,

Netherlands (75%) and

UK (72.3%). Euro area

rank 2016: Total 14th ,

Male 11th , Female 15th

Source: Eurostat

Figure 5.3.8 Population density, 2005-201550

In 2015 Ireland's

population density was

67.9 persons per km2, up

from 60.8 persons in

2005. Ireland is one of

the most sparsely

populated countries in

Europe. There is

significant divergence

across regions with

density in Dublin

estimated at 1427.6

persons per

km2 compared to 32.1

per km2 in the West.

EU-28 rank: 22nd (-)

Source: Eurostat

49 The active population (labour force) is defined as the sum of employed and unemployed persons. 50 Data for EU-28 for 2015 is estimated

50

55

60

65

70

75

80

85

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Act

vity

Rat

e (%

of P

erso

ns a

ged

15-6

4)

Euro area male Euro area 19 total Euro area Female

Ireland Male Ireland Total Ireland female

0

100

200

300

400

500

600

Net

herla

nds

UK

Ger

man

y

Switz

erla

nd

Italy

Den

mar

k

Pola

nd

EU-2

8

Hun

gary

Fran

ce

Spai

n

Irela

nd

Latv

ia

Swed

en

Pers

ons p

er s

quar

e km

2015 2005

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119 July 2017

Annex 1: Methodology Competitiveness performance reflects the interaction of a wide range of factors that combined; determine a

firm’s ability to compete successfully in international markets. Levels of enterprise productivity, innovation,

investment, employment and profitability are the key determinants of their ability to compete and grow. The

ability of the enterprise sector to compete is also determined by the stability of the macroeconomic

environment, demographics, and the efficiency and effectiveness of public services and institutions.

The Council has approached its work by, inter alia, examining the essential conditions for competitiveness

(such as business performance, productivity, prices and costs, and labour supply) alongside the key policy

inputs (such as the business environment, physical infrastructure, clusters and firm sophistication and

knowledge infrastructure), to plot a path to improve Ireland’s overall competitive environment.

The Council has long promoted the idea that a co-ordinated, cross-government, and public-private approach

is required to enhance national competitiveness. The Council uses a bespoke competitiveness framework

(“the Competitiveness Pyramid”) to illustrate and describe the multifaceted and interlinked dimensions of

national competitiveness. In particular, the Council’s approach is cognisant of Ireland’s status as a small open

economy, dependant on trade, and the important impact that our international competitiveness has on our

overall economic wellbeing.

At the top of the Pyramid is sustainable growth in living standards – this reflects the fruits of competitiveness

success. The competitiveness outputs and enablers of competitiveness are represented in the second tier of

the pyramid framework. These can be seen as the metrics of current competitiveness. A range of national

performance indicators in business performance, costs, productivity and employment are examined and

assessed relative to international competitors to provide an overall macroeconomic view of Irish

competitiveness. These indicators are defined as “output” indicators and are not directly within the control of

policymakers. Ireland’s performance in these areas is directly related to the quality of previous policies

instituted at the input level and the ability to build a strong intermediate stage of competitiveness.

Figure A.1 The NCC Competitiveness Framework

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120 July 2017

The third tier of the pyramid focuses on policy inputs and includes four broad pillars of future competitiveness,

namely the business environment (taxation, regulation, finance and social capital), physical infrastructure,

clusters and firm sophistication, and knowledge and talent. These represent the foundation stones of the

economy and are the primary drivers of current and future competitiveness performance. The Council believe

that it is within these particular areas that policymakers can have the greatest impact on competitiveness. It is

crucially important to measure Ireland’s competitiveness at the input level and then benchmark it vis-à-vis

best international practise. This allows policy makers to identify policy weaknesses and thus design specific

policies to address these concerns.

The bottom tier of the pyramid is a new addition to the Council’s framework. Described as essential

conditions, this tier reflects the impact that a number of largely exogenous factors (exogenous, at least from

the perspective of competitiveness policy) have on national competitiveness. These factors include the

institutional make-up of a country, its macroeconomic stability, and a range of natural endowments (such as

demographics, for example).

The Council’s framework and definitions attempt to strike a pragmatic balance shorter term concerns relating

to costs (reflected in metrics around market share, macro imbalances, etc.) with more medium term concerns

around productivity performance: for instance, the Council’s focus on sustainable growth (economic growth,

environmental quality, and the standard of living) is clearly anchored in the productivity-based definition of

competitiveness. At the same time, the Council also focuses on the cost environment for enterprise, and the

resulting cost competitiveness of goods and services produced here.

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121 July 2017

Interpretation of the charts We have endeavoured to ensure that all charts are as clear as possible. However, with reference to the sample

chart that follows, the following points may be of value when interpreting the charts:

Figure 2.2.1 GDP per capita current prices, 201651

Over the course of the

recession, Ireland's GDP

per capita declined but

remained relatively

high. As a result of

exceptionally strong

economic growth in

recent years, at €56,800,

Ireland's GDP per capita

is the second highest in

the Euro area.

Euro area-19 rank: 2nd

(↑1)

Source: Eurostat

Rankings are provided where appropriate, but in a number of charts, it is not possible to designate a best

performer. In charts with both GDP and GNP performance for Ireland, where feasible rankings are

provided for both sets of data.

In interpreting the ranking for each indicator, a low ranking (i.e. close to 1st) implies a healthy

competitiveness position, while a high ranking implies an uncompetitive position.

Changes in rankings refer to the change in Ireland’s position since either the previous year, or in the case

of charts displaying more than one year of data, since the oldest data displayed. Exceptions to this are

highlighted in endnotes. (↑) refers to an improvement in Ireland’s competitive position in the time period

set out in the chart, so 1 means an improvement of one place in Ireland’s ranking. (-) means that there has

been no change in Ireland’s ranking, while (↓) refers to a fall in ranking.

51 No data available for Switzerland for 2016, provisional data for 2015 used instead. Data for Netherlands, Greece, Cyprus, Spain and France is provisional, data for Poland and Portugal is estimated.

0

10000

20000

30000

40000

50000

60000

70000

80000

Switz

erla

nd

Irela

nd

Den

mar

k

Swed

en

Net

herla

nds

Finl

and

Ger

man

y

UK

Fran

ce

Euro

are

a-19

EU28

Italy

Spai

n

Latv

ia

Hun

gary

GD

P pe

r cap

ita (€

)

2016 2011

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122 July 2017

Page 124: Ireland’s Competitiveness - DBEI...The trajectory of Ireland’s competitiveness performance in recent years has been positive, and is reflected in strong employment growth across

National Competitiveness Council c/o Department of Jobs, Enterprise and Innovation 23 Kildare Street, Dublin 2, D02 TD30 Tel: 01 6312121 Email: [email protected] Web: www.competitiveness.ie