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Ireland’s Experience with Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás & Secretariat, National Competitiveness Council at the launch of the OECD-MENA Competitiveness Centre, Tunisia 31March 2010

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Page 1: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Ireland’s Experience with

Measuring and Benchmarking

Competitiveness

Presentation by

Declan Hughes,

Head, Competitiveness Division, Forfás

& Secretariat, National Competitiveness Council

at the launch of the

OECD-MENA Competitiveness Centre, Tunisia

31March 2010

Page 2: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Agenda

1. Irish Economy in Context

2. Benchmarking Competitiveness

3. Ireland’s National Competitiveness Council

4. Competitiveness Pyramid

5. Changes in Focus over Time

6. Conclusions

Page 3: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

National Training Agency

Tanaiste and

Page 4: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Agenda

1. Irish Economy in Context

2. Benchmarking Competitiveness

3. Ireland’s National Competitiveness Council

4. Competitiveness Pyramid

5. Changes in Focus over Time

6. Conclusions

Page 5: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

A Snapshot of the Irish Economy

A small island, off an island, off the North West Coast of Europe but…

Page 6: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

A Snapshot of the Irish Economy

Page 7: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Rapid Transformation of the Irish Economy

MAY 1997

1988 1997 2004 2010

• Modern enterprise base

• Strong investment

(infrastructure, education,

health, research)

• Positive demographics

• Cost base rapidly realigning

with EU trading partners

But

• Domestic and International

recession

• High private debt

Page 8: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Ireland’s Economic Success – Key Factors

► Pro-active industrial policy – export oriented MNCs

► Change in outlook since 1960’s – GATT/WTO

► EU Membership – Structural Funds, Single Market, EMU

► Investment in education and skills

► Investment in critical infrastructure

► Social partnership agreements in the 1980s

► Tax reform – investment and work

► Restructuring of the economy

► Development of R & D activities

Page 9: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Our success as an exporting country is of vital importance

9

0%

10%

20%

30%

40%

50%

60%

70%

80%

Neth

erl

ands

Hung

ary

Irela

nd G

NP

Luxe

mbo

urg

Irela

nd G

DP

Germ

any

Sw

eden

Fin

land

Den

mar

k

Pola

nd

EU

-15

Ital

y

Port

ug

al

Fra

nce UK

Spain

Exports to Non-EU Countries Exports to EU Countries

Source: Eurostat, External Trade

Exports of goods, intra-EU and extra-EU (as a % of GDP), 2008

Page 10: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

How have we been doing?

10

Contribution of Net Exports to Irish Economic Growth, 2001 - 2009

Source: NCC Calculations; Central Statistics Office, Annual National Accounts

-15%

-10%

-5%

0%

5%

2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1+Q2+Q3

Net Exports Investment Government Consumption

Page 11: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

11

11

Source: Central Bank of Ireland; January 2000=100.

Harmonised Competitiveness Indicator, 2000-2009

Cost competitiveness has weakened in recent years

90

95

100

105

110

115

120

125

130

135

140

Jan-0

0

Jul-

00

Jan-0

1

Jul-

01

Jan-0

2

Jul-

02

Jan-0

3

Jul-

03

Jan-0

4

Jul-

04

Jan-0

5

Jul-

05

Jan-0

6

Jul-

06

Jan-0

7

Jul-

07

Jan-0

8

Jul-

08

Jan-0

9

Jul-

09

Axis

Title

Nominal HCI Real HCI

Imp

rov

em

en

tD

ete

rio

rati

on

Impact of Irish Inflation

Page 12: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

How have we been doing?

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2000

2001

2002

2003

2004

2005

2006

2007

2008

Services

Total

Merchandise

Ireland’s Share of World Trade: Total, Merchandise and Services (%), 2000-08

Source: World Trade Organisation

Page 13: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

13

There is no return to domestic led growth Our debt burden grew rapidly and we are now highly indebted

€0

€10,000

€20,000

€30,000

€40,000

€50,000

€60,000

Slo

venia

Italy

Finla

nd

Gre

ece

Belg

ium

Port

uga

l

France

Euro

are

a-1

3

Aust

ria

Germ

any

Spain

Neth

erl

ands

Irela

nd

Luxe

mbo

urg

2009 Q4 2004

Source: ECB

Household Borrowing per Capita, December 2009

Page 14: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Government debt is rising sharply

Source: Eurostat, Economy and Finance European Commission, Autumn Economic Forecasts December 2009

General Government Consolidated Debt (as a % of GDP), 2000-2011F

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

F

2011

F

Euroarea Ireland UK

Page 15: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Irish exports holding up relatively well as world trade contracts in 2009

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Japan

Germ

any

Italy

Euro

are

a

OE

CD

Fra

nce

US

Canada

UK

Irela

nd

2004-2007 2008 2009F 2010F

Percentage Change in Volume of Exports of Goods and Services

Source; OECD Economic Outlook, Interim Report, March 2009. ESRI, QEC, Spring 2009.

Page 16: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Current Competitiveness

► Ireland retains a wide range of competitive

strengths

►Cost competitiveness is beginning to improve

►Growing unemployment a new long term challenge

►High levels of outward migration a key risk

►Government resolute focus on:

• Restoring stability to the public finances

• Repairing the banking system

• Restoring competitiveness and investing in creating new

employment opportunities.

► Irish economy is adjusting to the new realities

Page 17: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Agenda

1. Irish Economy in Context

2. Benchmarking Competitiveness

3. Ireland’s National Competitiveness Council

4. Competitiveness Pyramid

5. Changes in Focus over Time

6. Conclusions

Page 18: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Measuring and Benchmarking Competitiveness – early actions

Focus of Forfás competitiveness benchmarking 1995 (drawing

on M Porter’s Competitive Advantage of Nations)

►direct and indirect costs, e.g., labour, electricity

► indirect costs and quality of infrastructure, e.g., ports,

roads, workforce

►company level competitive capability and facilities

► inter-firm competitiveness

► fiscal and regulatory framework

►coherence among government ministries/agencies in

developing/implementing policy on wide range of areas

Main focus on costs, prices and real exchange rate

Page 19: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Forfás long-term enterprise policy review 1996, key

dimensions of competitiveness analysis

►competitiveness potential - costs, education, skills…

►competitiveness performance- trade, investment

►competitiveness process - strategic management

Identified need for Council on Competitiveness

► involving the social partners

►benchmark progress annually & identify areas of weakness

►make recommendations on improving competitiveness

Measuring and Benchmarking Competitiveness – early actions cont’d

Page 20: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Agenda

1. Irish Economy in Context

2. Benchmarking Competitiveness

3. Ireland’s National Competitiveness Council

4. Competitiveness Pyramid

5. Changes in Focus over Time

6. Conclusions

Page 21: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

National Competitiveness Council (NCC)

►Established 1997, independent body reporting to the

Prime Minister

►Provide a rigorous and agreed approach to the

monitoring and assessment of Ireland competitiveness

• Annual benchmarking report

• Annual assessment of key competitiveness issues

►Operate under auspices of Forfás, providing research,

benchmarking and technical expertise

►Membership of the Council is a mix of industry, unions,

academia and the public sector, with Government

Ministries in attendance

Page 22: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

NCC First Benchmark Report

►1998 – pragmatic definition of competitiveness as

‘…success in international markets that translates into

general increases in welfare’

►Prices, costs and effective exchange rates only one

element of longer-term competitiveness assessment

► Ireland ‘competing’ in two spheres:

• international trade

• mobile investment

►Sustainable economic growth dependent on performance

of enterprises in international markets, which is a

function of the competitiveness of the operating

environment and inputs in the country

Page 23: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

NCC First Benchmark Report, cont’d

►125 indicators, 29 countries/EU/OECD, six thematic areas

• Human resource development (35)

• Business Services (28)

• Infrastructure (46)

• SME competitiveness and performance (6)

• Public administration (5)

• Socioeconomic performance (5)

►Eleven priority policy areas incl: education and labour

markets, trade, EMU, costs, tax, innovation, telecom and

information society

Over time recognised need to clarify linkages and

inputs/outcomes – Competitiveness Pyramid

Page 24: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Agenda

1. Irish Economy in Context

2. Benchmarking Competitiveness

3. Ireland’s National Competitiveness Council

4. Competitiveness Pyramid

5. Changes in Focus over Time

6. Conclusions

Page 25: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

The NCC Competitiveness Pyramid

Page 26: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Methodology

Use internationally comparable metrics

• OECD, the EU, the UN and the WTO

• specialist international bodies, WEF and IMD

• national sources Central Bank, the CSO, ESRI, Forfás

Benchmark against 17 countries

• Eurozone peers (Finland, France, Ger, Italy, Nethers and Spain)

• other non-Eurozone (Denmark, Sweden, Switzerland and the UK),

• two newer EU members (Hungary and Poland)

• five non-European global leaders/similar size countries (Japan,

South Korea, New Zealand, Singapore and the US)

• Relevant peer group average, OECD-28, EU-15 or Eurozone average

• Averages weighted country population or GDP as relevant

• ‘Traffic light’ system

Page 27: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Sustainable Growth

• National Income

• Quality of Life

• Environmental

Sustainability

Page 28: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Benchmarking Ireland’s Performance Essential Conditions

Page 29: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Essential Conditions

Business Performance

- Investment

- Trade

Productivity and

Innovation

- Productivity

- Innovation

Page 30: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Prices and Costs

- Prices

- Pay Costs

- Non-Pay Costs

Page 31: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Labour Supply

- Overview

- Employment

- Labour Supply

Characteristics

Page 32: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Benchmarking Ireland’s Performance Policy Inputs

Page 33: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Business Environment - Taxation - Finance - Regulation & Competition - Labour Market Regulation - Social Capital

Page 34: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Physical and Economic Infrastructure - Investment - Transport - ICT - Housing

Page 35: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Knowledge

Infrastructure

- Pre-primary and

primary

- Secondary

- Tertiary and LLL

- R&D

Page 36: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Agenda

1. Irish Economy in Context

2. Benchmarking Competitiveness

3. Ireland’s National Competitiveness Council

4. Competitiveness Pyramid

5. Changes in Focus over Time

6. Conclusions

Page 37: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Changes in Indicators Used

►Benchmark indicators do change to better

reflect stage of development

• definitions of success change over time, reflecting

economic and social context and understanding of

issues

• less focus on input indicators to outcomes

• less reliance on perception indicators

• use of more composite indicators

Page 38: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Changes in Indicators Used

►Recent reports, more emphasis on indicators

assessing essential inputs and sustainable growth

outcomes

• sustainable growth - more emphasis on income, environment

and quality of life

• essential conditions - more emphasis on pay and non-pay

costs and on business performance indicators relating to

trade, investment, employment and entrepreneurship

• policy inputs - greater focus on competition and regulation,

taxation and finance, with reduction in some areas such as

cluster development, business formation management and

innovation, in part due to data availability issues.

Page 39: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

How the Council’s Focus and Policy Advice has evolved

Reports serve two broad purposes

• identify priority areas for action to improve competitiveness;

• provide reference material for policy makers in refining actions

needed to improve competitiveness.

1998-2000

• Council warned ‘competitive position not yet based on solid

foundations...danger signs such as skill shortages, infrastructural

bottlenecks, lack of investment in telecommunications’

• input to significant national decisions on National Development

Plan for capital investment, National Spatial Strategy, expansion in

funding for education, training and R&D

Page 40: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

How the Council’s Focus and Policy Advice has evolved cont’d

2001-2005, the Council highlighted:

• tightening of the labour market

• increases in costs crowding out internationally trading

activities

• weakening export performance

• policy advice focus on productivity growth, skills and

innovation, prices and regulation and competition in

markets

Page 41: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

How the Council’s Focus and Policy Advice has evolved cont’d

2006-2007

• Council concerns as to he un-sustainability of

economic growth

• rapid rise in private sector debt

• construction and domestic demand as the main drivers

of growth

• advice focused on the key messages of firm-level

productivity, innovation and costs and competition in

locally trading services.

Page 42: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

How the Council’s Focus and Policy Advice has evolved cont’d

2008-2009

• Council role with Forfás and others in monitoring and

building consensus on the dynamics of change and

options for corrective action – 2 high-level

conferences 2008, 7 statements in 2009

• Mid-2009. Noted progress on the public finances and

the banking stabilisation but called for focus on

• cost competitiveness

• wage adjustment

• lowering energy costs

• supporting competition

• investment prioritisation

• R&D

• Ireland’s reputation

Page 43: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

How the Council’s Focus and Policy Advice has evolved cont’d

►End of 2009 – Council recommended policy focus on macro

issues of restoring stability to public finances and banking

and focus on costs and measures to boost productivity

growth and export performance

►Focus of advice

• return to productivity and export-led growth

• broaden the tax base to provide a more sustainable basis for the

public finances

• greater competition in locally trading services

• investment in education and support innovation

• investment in productive capacity of cities as drivers of growth

• allow necessary adjustment to happen in the property market

Page 44: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Agenda

1. Irish Economy in Context

2. Benchmarking Competitiveness

3. Ireland’s National Competitiveness Council

4. Competitiveness Pyramid

5. Changes in Focus over Time

6. Conclusions

Page 45: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Conclusions

Competitiveness measurement initially based on costs and labour and

exchange rates but understanding of the dynamics of enterprise and

longer term development broadened that perspective:

• enterprises rather than nations are basis of competition

• comparative productivity levels at the firm level matter to winning

market share

• that the productivity performance of each of the inputs to

enterprises matter

• as pace of globalisation increases, basis for comparative advantage

and for competitiveness will be dynamic

• competitiveness is important not just for its own sake, but to

achieve our broader national economic and social development

objectives

Page 46: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Conclusions cont’d

Benchmarking is useful to inform policymaking,

notwithstanding:

• natural lags in collating comparable official statistics across

selected countries;

• given uniqueness of each country, not realistic or even desirable

for any country to seek to outperform other countries on all

measures

• customise indicators to stage of development and circumstances

• are no generic strategies to achieve national competitiveness

• trade, investment even competitiveness between countries is not

a zero-sum game

Page 47: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Conclusions cont’d

Measuring and benchmarking competitiveness

►has a precise objective – to identify weaknesses

and to determine corrective actions

► is needed at national level, especially for

governments, trade unions and business

associations to share a common and agreed

baseline assessment of potential and

performance

►helps identify the key areas for policy action

and to learn from the best practice as to

solutions and policy options.

Page 48: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Conclusions cont’d

Systematic measuring and benchmarking of competitiveness

• helps identify most important areas for a broader and deeper

analysis of key issues

• helps identify linkages between indicators, policy domains and

policy actors

Benchmarking is not to duplicate or substitute for the work

of existing advisory bodies or ministries, rather

• add value in terms of providing common base for analysis and

discussion

• provide a common platform for action

• basis for ensuring that we are dealing with the most important

issues

Page 49: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Conclusions cont’d

Do not have to be the best at everything to be

competitive, but we do need to have the right

combinations of policies so that we create the

right environment for long term sustainable

growth

Page 50: Measuring and Benchmarking Competitiveness Presentation by · Measuring and Benchmarking Competitiveness Presentation by Declan Hughes, Head, Competitiveness Division, Forfás

Thank You

www.forfas.ie

www.competitiveness.ie