The Irish Miracle:

Is it Relevant to Colombia?

Agenda

Background

Economic PerformanceSuccess Factors

Lessons Learned and Implications

Industrial Policy

Background

Basic Facts:

Population: 9.2 million (1847) 4.1 million (2005)

Age: Half of population under 25

Size: 70,000 sq. Kms

Labor Force: 1.92 million

Ireland’s place in Europe

Background

Violent, colonial heritage (not independent until 1922)

Nationalist and protectionist economy following independence

Strong, political labor movement

Reliance up to the 1970s on one single sector for exports (agriculture) and one trading partner (UK)

Unclear vision of the country’s future (up to 1970s)

Disadvantaged geographical location (a small island, off an island, not connected to European markets)

Agenda

Background

Economic PerformanceSuccess Factors

Lessons Learned and Implications

Industrial Policy

Background

1. “Furniture for the average Irish dwelling is a luxury; the inhabitants of Tullahobagly, County Donegal, numbering 9,000 had in 1837 only 10 beds, 93 chairs, and 243 stools between them.” -- Census of Ireland, 1841

2. In 1987, Ireland was described as “The poorest of the rich.” -- The Economist

3. In 2004, Ireland is assessed as the only country in the EU with the ability to reach the the same level of wealth as the USA. --US Government Think Tank

Ireland’s economic past

Estimated sectoral shares(%) in exports 1960-2000

29262000

283151990

459371980

446501970

629651960

OtherIndustryAgri-based

GDP per capita: UK, EU Average & Ireland

0

20

40

60

80

100

120

140

160

EU

Av

era

ge

Ireland

UK

EU

Source: AMECO

Selected Data Points5 Year change in total employment (1997-2002)

Ireland: +25.3%

EU Average: 6.6%

UK: 4.5%

Unemployment in 2005: 4. 2%

Economic Performance

Globalization and Openness

Exports as % of GDP 2004: 85%

Imports as % of GDP 2004: 70%

Makes Ireland the most open and globalized economy in the world

Twenty Years to an “Overnight Miracle”

1980s 2004

Unemployment: 17% 4.2%

Inflation: 20%+ 2.5%

Interest Rates: 12%+ 4.9%

National Debt % of GNP: 122% 31%

Marginal Tax Rates: 65% 42%/20%/

Immigration/Emigration: losing univ. grad. 40,000/yr. +

Average growth 1995-2003: 9%

Economic Performance

Agenda

Background

Economic PerformanceSuccess Factors

Lessons Learned and Implications

Industrial Policy

The reasons for success…No single factor – A combination of: Macroeconomic management

EU Membership

Social Partnership Agreements

Industrial Policy

No overnight Success – some factors rooted in decisions taken 20+ years ago

Success Factors

.In the mid 1980’s the Irish Economy

was in appalling condition: Inflation at 20%+ Mass emigration Unemployment at 17% IMF about to take over the country’s

finances Long and costly strikesWe could either sink or swim …..

Social Partnership Agreements Unions: Moderation and Inclusion Government: Address Finance and Tax Employers: Accept Partnership/Social Policies Led to:

-- Improved Industrial Relations Climate -- Public Finances Control -- Shared Analysis -- Inclusion in Policy Formulation

-- Increased take home pay for workers

Industrial Policy

Executed every 3-5 years

Agenda

Background

Economic PerformanceSuccess Factors

Industrial Policy

Lessons Learned and Implications

Vision(The Big Picture)

Strategy(The what needs to be done)

Policy (The how to)

Implementation(The lets get it done)

Empowerment Resources

Ireland as knowledge economy leader, attracting large investments

Make FDI driving force in economy; create local linkages to FDI. TOUGH CHOICESConsensus, macro eco. stability, tax policies, incentives, education, tech. development

Institutional structure, commit serious resources, after care on FDI and constantly move up the added-value chain

Industrial Policy

Enterprise Development Process

1. Total commitment to vision and strategy

2. National consensus on country’s economic future, leading to social pact, long-term stability

3. Significant (and very costly) tax and other incentives, as part of aggressive industrial policy to attract investment

4. Selective, long-term investments in education, IT etc.

5. Macroeconomic stability/pro-business environment

6. Membership of EU (Trade agreements)

7. EU transfers

8. Exogenous factors (e.g., English speaking)

Success Factors

Strategy and Vision

Implementation

Exogenous

FDI as the driving force in economic growth

Industrial Policy

No. of FDIs: 1, 200 firms

FDI Employment: 130,000

FDI Sales: €69.34 bn

FDI Exports: €65.17 bn

Expend. in Ireland: €14.73 bn

Payroll: €5.34 bn

Irish Materials: €4.38 bn

Irish Services: €5.01 bn

Plus €5.0+ bn in Corp. Tax

Enterprise Development Path

+

Global

Market

+

Value Chain

Industrial Policy

Background

Economic PerformancePrincipal Factors

Industrial Policy

Lessons Learned and Implications

Agenda

Irish success is a result of tremendous commitment and vision which was shared and accepted by all

…coupled with good policies, hard work, lots of patience, and many trials and errors

FDI was Ireland’s key for accelerated growth, but it needs a detailed planning and implementation process

There are no “Miracles”, but in 15 years we have achieved the impossible…...

Lessons Learned

. With limited budget it is difficult for

governments to satisfy all requirements Key to increased prosperity is economic

growth Growth comes from increased trade and

investment Increased investment leads to extra

revenues for government Extra revenues allows government to

allocate more to needy causes

Ensure enterprise sector is the engine of economic growth

Jump start with FDI National cohesion and partnership Ensure pro-enterprise regulatory and

competitive environment Government to provide longer-term

strategic direction and vision Develop policies to support vision

Lessons Learned

Basis of Success

Ensuring that the issue of enterprise growth is kept at the top of all government agendas

A strong FDI attraction program, focused on key sectors, high-value low-volume manufacturing (ICT,chemicals, pharmaceuticals), selected services etc.

Constantly being ahead of the curve…...

Lessons Learned

Appropriate Instruments in place

1. Generating the Vision, Strategy, and Commitment -- Emphasis on emerging sectors/technologies/niches2. Creating Consensus and Buy-in

-- Are people willing to make sacrifices for the National good?

-- The future of a country is shaped by people, not the past.

-- Major political issue.3. Moving Beyond Commodities to The Future…….. -- How do you go from current level to Hi Tech and beyond?

-- How do you convince international investors?

-- Don’t wait for perfect solution….it never comes!

Lessons Learned What are the Implications for

Colombia?

To Get Ahead of the Pack!

Go for investment led growth Detailed Enterprise Strategy Focus on niche opportunities Boost investment in key infrastructure Allocate resources to do the Job Clear National priority on facilitating

the enterprise sector