Celtic Tiger's competitiveness in decline, report finds

October 18, 2006

Brussels, 17 October 2006


The National Competitiveness Council of Ireland has published a report warning that despite outstanding economic performance in recent years, there are signs that the country's global competitiveness is deteriorating. In the areas of research and development (R&D) and higher education - two of the report's indicators of future progress - much work still remains if Ireland is to fulfil its ambition of becoming a world-leading 'knowledge economy'.

The Annual Competitiveness Report is the first of two reports published by the Council, a social partnership body which reports to the Irish Prime Minister on key competitiveness issues facing the Irish economy. It uses 130 indicators to measure Ireland's competitiveness performance ranging from economic growth, productivity, trade and employment to innovation, education and research

The report confirms that, since 1995, Ireland's economy has grown, and continues to grow at an exceptional rate by the standards of other advanced economies. Thanks to high levels of foreign investment by multinational companies as well as pro-enterprise taxation, education and industrial relations, Ireland moved into the new millennium as a 'Celtic Tiger' and one of the world's most competitive economies. In 2004, the country's GDP grew by 5.5%, the second highest rate among the OECD countries, compared to average growth in the euro area and the OECD area in 2004 of 1.8% and 3..4% respectively.

However, despite continuing strong economic performance, the report finds that the country is losing momentum due to, among others things, an inadequate knowledge infrastructure. In the area of R&D, one of the drivers of competitiveness, Ireland spent just 1.2% of GDP in 2003, and envisages reaching 2.5% of Gross National Product (GNP) by 2013. These figures call into question whether Ireland will be capable of meeting the Barcelona goal of spending 3% of its GDP on R&D by 2010.

In the Irish Government's recently published strategy for science, technology and innovation, it states that much of the country's future R&D investment will come from the business sector. On first inspection, this appears possible given that in 2003 business R&D expenditure grew by 19.4% and in 2004 industry accounted for 64.7% of the total money spent on research. The majority of investment came from foreign multi-national companies which were attracted to Ireland by specific R&D tax incentives.

However, the report indicates that this high tide of business R&D investment as a proportion of output has not lasted, and now remains static. This is perhaps due to the recent decline in investment by multinationals that favour investing in Asia's emerging economies.

On a more positive note, the report points to Ireland's higher education sector, which has significantly increased its investment in R&D, from €322 million in 2002 to €492 million in 2004, a 53% increase. It attributes such growth to the government's direct funding of schemes like the National Science Foundation of Ireland (SFI) and the Higher Education Authority (HEA)'s Programme for Research in Third Level Institutions. However, it suggests that further linkages between industry and academy are needed to ensure effective knowledge transfer and innovation, as well as an increase in R&D investment by industry.

On formal education, another essential driver for the creation of a knowledge economy, the report finds that the country's pre-primary and PhD sectors remain small compared with other European countries, but expects that this may improve over time thanks to the country's current investment drive in these areas.

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