Key elements if Ireland is to regain its competitiveness Padraic Mackin, Mark Matthews, Shane Bolton, Daniel Hoey & Bill Kenwright

IntroductionThis report states the various components which are critical if Ireland wishes to regain its competitiveness in the future. A lot of work has already been done to achieve this target such as the introduction of new finance schemes and work by the IDA Ireland, but more needs to be done. In this report we look at some of the possible actions that can be taken.

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ContentsIntroduction...........................................................................................................................................1

Government influence on Ireland’s competitiveness............................................................................3

Taxes..................................................................................................................................................3

Grants................................................................................................................................................3

Labour...............................................................................................................................................3

Subsidies............................................................................................................................................4

Infrastructure....................................................................................................................................4

Improving Access to Finance.................................................................................................................5

Bank Lending.....................................................................................................................................5

Credit Guarantee Scheme..................................................................................................................5

Microfinance......................................................................................................................................6

Equity Finance...................................................................................................................................6

Crowdfunding....................................................................................................................................6

Enhancing Skill Base..............................................................................................................................7

Further Education and Training.........................................................................................................7

Labour Market Activation, Coordination and Evaluation...................................................................7

Apprenticeships.................................................................................................................................8

Cost competiveness...............................................................................................................................9

Cost of Property.................................................................................................................................9

Energy................................................................................................................................................9

Technology......................................................................................................................................10

IDA Ireland and their role in helping Ireland regain its competitiveness.............................................11

References...........................................................................................................................................13

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Government influence on Ireland’s competitiveness The government helps Ireland in many ways to remain competitive against other countries. It influences the country’s economy by providing investment into various projects and plans to secure stability. The government funds and aids these projects by raising capital via taxes, giving out grants, subsidies and providing investment where necessary. The main attraction for large companies to invest in Ireland is the low corporation tax.

Taxes Ireland has one of the lowest corporation taxes in the world. Corporation tax is the tax paid on the profits earned by companies and co-operatives. The rate of corporation tax in Ireland is 12.5 %. This is very low by international standards but is considered necessary by the government to stay in competition with other international countries. By having this tax so low, multinational companies will be attracted to set up in Ireland. The United Arab Emirates corporation tax is 55% (KPMG, 2014) which makes Ireland seem more likely to attract more companies. This not only attracts more business to Ireland but boosts the state’s finances. Income tax on the employees’ wages and value added tax (VAT) on goods helps boost the government’s revenue also to allow them to invest more in the likes of infrastructure and grants.

Grants A grant is free money provided to a business or a person by the government. A grant can only be given for a specific reason. There is no interest or cash repayments involved. Entrepreneurs starting up a new business usually receive a grant from the government because of the benefits the new business will provide to the economy. A new business will provide more jobs. Those new employees will pay taxes which benefits government revenue. The new business will be benefiting other businesses by purchasing supplies, giving the economy an even bigger boost. Grants can be given to students as well to increase their skills. These grants can also be provided for research and development (R&D). County enterprise boards specialise in assisting small local enterprises and enterprise Ireland provides grants to assist the expansion of Irish owned firms. (Connolly, 2008)

Labour The government tries to improve the education of the Irish population by providing grants to go to college. Going to college will enhance and improve the skills of Irish people to provide a highly skilled work force for new businesses. One of the primary ways to keep Ireland competitive is by our educated workforce. 200,000 people will enrol in the Department of Education and Skills funded by the government for Education and Training this year. A total of €826 million will be spent by the Department to support Further Education and Training, €640 million will be funded through SOLAS. This is the new further education and training authority in Ireland. The balance relates to the teacher pay element of the Post Leaving Cert programme. When compared to Mexico’s workforce who are very low skilled, Ireland stand out for new businesses. The government monitors and makes sure the grant given is spent on the purpose which it is given. The employed labour workforce wages where increased last year due to improved levels of productivity. As shown in Ireland’s Competitiveness Scorecard 2014 Irish labour costs increased in 2012 and 2014. (Central Statistics Office, 2014)

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Subsidies Subsidies are tariffs paid by governments to help firms cover their operating costs and keep their prices competitive. They usually take the form of grants or a sort of low interest loan. For example, the European Union has given subsidies to help Airbus compete internationally on price against rival United States firms such as Boeing (European Commission, 2010). State agencies such as Enterprise Ireland give grants to help the Irish state subsidise the international marketing efforts of Irish firms.

Infrastructure Infrastructure refers to the basic network support needed for economic activity such as rail, road, water systems, air links, waste disposal and sea. The government uses its infrastructure to compete with other foreign countries. Businesses are always looking for the easiest, cheapest and best sort of transport there is. The main motorway in Ireland is the M1.This motorway starts from Dublin and goes right through to Belfast. It also connects to other roads heading in different directions around Ireland. The government let out a plan in 2014 to spend €332.9 million on an investment programme for the improvement of regional and local roads. Ireland also has many airports and Ports such as Dublin Airport and Port. These two ways of travel are good for businesses because it makes it easy for them to import and export items. The Port of Galway has recently submitted a €126 million plan to build a new deep water port and reclaim land from Galway Bay under the Strategic Infrastructure Act. (Ireland, Engineers, 2014)

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Improving Access to FinanceIf Ireland is to regain its competitiveness in the future there has to be a strong flow of finance in the country to allow businesses to expand and grow. Due to the economic recession that has taken place in our economy within the last number of years, access to finance for small and medium enterprises (SME’s) in particular, is hard to come by. These companies have a disproportionate dependence on the banking industry for their funding needs.

“On the 31st December 2012, 94% of total SME finance for both Irish and Northern Irish SME’s came from bank funding.” (InterTradeIreland, 2013)

We will now look at various ways that small and medium enterprises will be able to gain finance, from traditional sources of finance like bank lending to more recent such as crowd funding.

Bank LendingBank loans are the single biggest source of finance for SME’s in Ireland. They are vital to the survival and growth of many organisations in the country. Bank lending has declined significantly post-recession however, due to banks such as Allied Irish Bank and Bank of Ireland returning to profitability in 2014 it is hoped that this will lead to increased lending in 2015 and the years beyond. From the years 2011-2013 both of these banks had set lending targets set out by the government under the 2011 recapitalisation program, these targets were critical to ensure continued finance to SME’s throughout these years.

On the 31st October 2014 the Strategic Banking Corporation of Ireland (SBCI) was launched. A strategic small and medium enterprise financing company, the SBCI’s main aim is to ensure the continued flow of flexible funding for SMEs. This new company will provide up to €800 million of funds for SME’s. These will be distributed through the current retail banks in Ireland and also new entrants to the lending market. This €800 million will be provided by the European Investment Bank (EIB), KfW which is a German promotional bank and the Ireland Strategic Investment Fund (ISIF).

Credit Guarantee SchemeThe Credit Guarantee Scheme commenced in October 2012 to assist in the delivery of further bank lending to suitable SMEs by offering a 75% state guarantee to lenders against shortfalls on qualifying loans. Over 150 businesses have so far used the scheme with loans of over €20 million backed by the state. In February 2015 the maximum length of the guarantee was extended to seven years.

In order to qualify for the credit guarantee scheme, the following applies:

SME businesses based in Ireland or are Irish owned

SME businesses that have less than 250 employees

SME businesses that have a turnover of less than or equal to €50 million, or

SME businesses that have an annual balance sheet less than or equal to €43 million

(Ulster Bank, 2013)

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MicrofinanceMicrofinance Ireland (MFI), was established as a subsidiary of the Social Finance Foundation to deliver the microenterprise loan fund set up by the government. The fund provides for unsecured loans from €2,000 up to €25,000 for a term of 3 to 5 years. The microfinance loan fund is only obtainable to businesses who were denied a loan request by the banks. This loan fund will have a greater attitude to risk than traditional banks could possibly afford and hence will be able to fund and aid in the establishment and sustainability of additional micro-enterprises which are unable to meet standard bank criteria. (MicroFinance Ireland, 2015)

Equity FinanceAfter bank lending, equity finance is the most substantial source of funding for SME’s. This source of finance, “including government-backed equity finance, accounted for approximately 5.6% of total SME funding at 31st December 2012”. (DKM economic consultants, 2013)

This works by the owners of the company selling a certain percent of the company in return for cash. This is a great method of raising finance however the existing owner’s dividend payments will reduce while there voting power at the annual general meeting will also reduce.

CrowdfundingCrowdfunding is the practice of soliciting small amounts of money from a large bulk of people in order to provide the finance to put new business ideas into practice or to expand an existing business project. While this idea has been around for generations, it is only within the last few years that it has really taken off, due to online platforms, such as www.fundit.ie and www.linkedfinance.com. Crowdfunding offers both sole-traders and businesses a chance to raise vital funds, by showcasing their businesses and ideas and allowing people from anywhere in the world to invest money, in return for a reward or interest over a certain period of time.

There are numerous ways a business can gain access to finance and the above is just a small proportion of those ways. Other sources of finance include:

Enterprise Ireland National Pension Reserve Fund (NPRV) Innovation Fund Business Angel Partnerships County and City Enterprise Boards Venture Capital

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Enhancing Skill BaseEnhancing Ireland’s skill base needs to be a key aspect if Ireland is to regain its competitiveness in the future. Although traditionally improving competitiveness is thought of in terms of cutting costs, another way to be competitive is to provide a highly skilled workforce. This skilled workforce can attract an array of industries to Ireland which need these educated employees. Ireland has already invested heavily in broadening its skill base and this has resulted in the country improving its competitiveness over the last number of years. In May 2014 Ireland moved up nine places from previous years to 15th in the IMD World Competitiveness Yearbook and ranked first in the world for the availability of skilled labour. (Ireland, IDA, 2014)

Although Ireland has highly skilled workforce already, there is more to be done. In late 2014, the national competitiveness council laid out its plan to enhance the skills base within Ireland. This plan includes engaging with employers and education providers to match skills provided with skills demanded. The main aims of the plan are as follows;

Further Education and Training Labour Market Activation, Coordination and Evaluation Apprenticeships

Further Education and TrainingThe further education and training sector is one of four sectors in the Irish educational framework that includes primary, secondary and higher education. In excess of 200,000 people enrol in Department of Education and Skills funded further education training programmes each year, costing approximately €826 million. With so much investment, it is important that the funds are being used wisely. So Solas and the Education Training Boards are collaborating with employers to ensure that further education and training programmes are more flexible and responsive to meet the needs of jobseekers and industry.

There is strong focus on employer engagement when it comes to further education and training. Employer input is essential to ensure funds are directed into areas of where skill shortages occur and where future demand is forecast. This input is also necessary to formulate curricula in further education so graduates will possess a skill set as close to what a potential employer requires as possible.

There should be greater participation of activation and training programmes that are linked directly to employer’s needs. To ensure that the skills that employers are seeking are provided, it is essential that the current training providers are developed to enable employer participation in the identification of the required skills, the development of relevant curricula, selection of candidates and the provision of sufficient internship and traineeship opportunities as appropriate. (The Irish National Organisation of the Unemployed, 2009)

Labour Market Activation, Coordination and EvaluationLabour market activation, coordination and evaluation is the process of retraining and reintroducing the unemployed back into the workplace. The recent global economic crisis has left many people un-employed and with a lack of relevant skills. And in many cases people have been unemployed long-term, which can be demoralising and can lead to dependence upon social welfare. This is the case with many people within the construction industry at present. The government has already set up a number of programmes to develop new skills amongst the unemployed. These programmes include Momentum, Skillnets’ Job-seekers Support Programme, Jobbridge and Springboard.

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Moving forward to the future unemployment can be reduced by retraining and up-skilling those receiving social welfare. With a particular focus on refining the current programmes provided, so they become better at delivering positive results. The National Competitiveness Council has laid out its recommendation on labour market activation in its 2014 report; it concludes that all labour market programmes need to be assessed regularly and refined, with funding being directed towards programmes which deliver in terms of targets and goals. It is also proposed that data be collected from participants who complete the training (e.g. progression rates, first jobs locations, etc.) and the information utilised to shape future courses and distributed to learners and employers to promote engagement. (National Competitiveness Council, 2014)

ApprenticeshipsApprenticeships are becoming less common in Ireland. Businesses seem to be less willing to engage in on the job training and apprenticeships and a focus on employing through the traditional higher education system has become the more popular approach. In the recent apprenticeship implementation plan, published in July 2014, it was commented that “Outside of the existing apprenticeship sectors many companies have limited involvement in forms of work based learning. Indeed over time FÁS developed 35 traineeships of which only 8 are currently active”.

The apprenticeship implementation plan 2014 has laid out the future of apprenticeships in Ireland. The plan aims to consult with employers to grasp the level of demand for apprenticeship programmes and in what sectors is there a demand for apprentices. The National Competitiveness Council has also commented on the need to improve apprenticeship programmes in Ireland. Stating, ‘When designing new apprenticeships, it is essential that employers engage with and contribute to the development groups on issues such as curricula design. All apprenticeships must adequately equip learners with the skills required necessary for the workplace. Employers must also demonstrate a willingness and ability to provide the necessary on-the-job training.’ (Department of Education and Skills, 2014)

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Cost competivenessCost of property, cost of labour and energy are the three most significant cost factors for most firms. There has already been proof that since the recession occurred, that cost reductions connected to the exclusion of lots of capacity restricts, this has caused an improved international competitiveness. This gives our enterprises advantages when trying to sell into foreign export markets, improves competitiveness at home, also makes Ireland a more attractive suggestion for international investors. This is why we think a further cut in cost competiveness would help the economy greatly. We are going to write about two of the major cost of doing business, cost of property and cost of energy.

Cost of Property We are going to be looking at cost of property first, houses prices and residential rentals have the possibility to produce knock on consequence in terms of prices and wages that will affect the entire economy. The first step we would look at is replacing commercial rates with site value tax to help Ireland competitiveness in the future. What is meant by the phrase ‘site value tax’ is a annually recurring tax levied without concern to how the land is used it is considered one of most effective taxes of property in terms of making the most productive use of the land. Since land is fixed, a non-discriminatory tax will not affect supply. Instead this will encourage efficient land use then taxes the value added by investment, rather than value created by the owner of the site. Site value tax will encourage owners to use land, sell it on or for privilege of wasting land. The benefits of this are rejuvenation of town, more development of land as less people would be inclined to reserve undeveloped land as there be an annual levy on it, could increase availability of land for housing as market needs grow. The reason I think we need to replace commercial rates is that it is not proving enough incentive for business to expand. This make it very important to manage property cost and we think the best way to reduce this problem is to swap commercial rates with a site value tax and backing the long term development of the property sector.

EnergyThe second cost that is a major issue in getting Ireland economy to grow is energy. The costs of fossil fuels are increasing making the cost of doing business more expensive. Energy is essential for company’s inputs and Ireland needs to confirm adequate regional spare network capacity to meet an increase in company’s demand this helps growth in the economy. EU energy prices have increase significantly resulting in the EU been the most expensive place for electricity and gas globally and Ireland being among the most expensive countries for electricity. We think the best way to solve this problem is to lower energy cost over time by undertaking controllable cost, taking measure to better energy efficiency and encourage renewable energy resources.

If these two major costs were to improve it would increase Ireland competitiveness as it would add to the attractions that Ireland already has.

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TechnologyWe think an improvement in the technology sector could be a key element in helping Ireland competitiveness in the future. Technology has become one of the main source of money for our economy as it supply many jobs for example jobs in software, engineering and life science. Here a quote that I think shows a worthy sample of what the technology sector does for our economy “software, engineering and life sciences sectors create high value added jobs and are already the fastest growing sectors for exports by indigenous Irish companies, growing at 15 to 20 per cent annually” (Coghlan, 2013). This is why we think a further investment and planning into the technology sector will help the growth of the economy as shown in the past a positives results. For the technology sector to grow in Ireland we need to start focusing on Irish technology companies by getting them from a small start up to large sustainable business by investing money into them at the start to assistance them expand this will help us reach out to target international markets. For an example of this is Havok Irish indigenous frim that has operations in more than 10 countries and Havok software is targeted towards large companies such as Microsoft, Sony and Nintendo. We think more company’s like this would help the growth of the Irish economy as it assistance with competitiveness in the future of the technology sector.

Ireland has a respectable technology sector that has attracted many companies in the past and this is why we think a further investment into this sector would be a key way to make Ireland a more competitiveness place to other countries.

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IDA Ireland and their role in helping Ireland regain its competitivenessIDA Ireland is the agency responsible for the countries industrial development. It was founded in 1949 as the International Development Authority, and was sponsored by Fine Gael minister Daniel Morrissey. They are responsible for attracting and developing foreign industry and enterprise in Ireland. In recent years, they have been targeting high growth companies. These are companies that are looking to upscale and internationalise their operations. These companies are generally in operation under seven years and have a turnover between $30m-$70m. According to IDA Ireland, since 2010 over 100 high growth global companies have established there operations in Ireland with their help. The IDA is using Ireland’s attractive ecosystem and proven track record to help regain its competitiveness, which in turn is bringing these high growth companies to our shores. They have set up a high growth team, led by Barry O’Dowd, who specifically focuses on the needs of these companies. (Ireland, IDA, 2014) They have uncovered All of Irelands positive factors even down to the time zone to show companies that Ireland really is the best and most competitive place to set up business.

“Top entrepreneurial country in Europe” (Capital, 2014)

There are many attractive perks to setting up your company’s operations in Ireland. Ireland has a highly skilled and flexible workforce. Ireland is ranked number 1 for the availability of skilled workers with the majority having 3 or 4 year degrees in their area of expertise, also a streamlined visa process for non-Europeans makes bringing workers from different operations over to work here easy. Ireland is also top of the flexibility and adaptability rankings which is no surprise given 50% of the workforce are under the age of 35. Another element that makes Ireland an attractive prospect is its location. Ireland sits on the edge of Europe, many companies that already operate here see its location as perfect, considering it is a gateway to European and American markets. Our transport infrastructure also helps non web-based companies distribute its products with ease. One of the main reasons for Ireland being competitive over the years is its low tax rate and R&D Tax credit. As discussed in previous paragraphs, Ireland has an extremely low corporate tax rate which has played a major role in attracting some of the world’s biggest companies. Also, with a 25% Research and Development tax credit, companies in industries such as pharmaceuticals are attracted to conduct their operations here. The IDA have numerous testimonials on their website and YouTube channel to show potential companies examples of companies that may be in a similar market, reeling in the benefits of operating out of Ireland.

“There is a cultural sense of adoption of E-commerce and internet based businesses here”

(Wheeler, 2014)

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ConclusionIreland is slowly but surely building recovery and regaining its competitiveness. With more companies deciding to set up operations here and more importantly, Irish owned businesses getting the help they need, we are recovering from the economic downturn we recently suffered. In turn, this means unemployment is going down and economic growth has resumed. The government’s commitment in addressing and improving Ireland’s competitiveness is clearly evident in the grants and schemes they are providing for businesses. With the economy on the mend, access to finance has becoming easier, which is essential for most businesses, especially the SME’s. Banks are finally lending again and with the popularity of crowd funding it gives businesses another trend to raise funds. In our opinion, with finance being slowly more accessible, entrepreneurs who might have been afraid to go ahead with an idea might know feel it is finally feesable. Enhancing the countries skill base, apart from the low corporation tax, is probably the most attract aspect of our economy with so many people having college degrees. As seen in the IDA research, we have an extremely highly skilled young workforce. This definitely helps Ireland stand out and really shows it is a competitive place for business with easy access to qualified staff. The two major costs to operating in Ireland is the cost of property and energy, we found out that if we could improve these costs via changing taxes and lowering energy costs by going green would certainly help regain competitiveness. The IDA Ireland have been at the forefront in regaining Irelands competitiveness through attracting major companies to our shores, which in turn, creates jobs and boosts our economy.

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