Tuesday 6 December 2016

It's high time we tackled our crazy costs

Ireland lost out on several thousand potential foreign jobs last year -- and we could stand to lose even more if we don't address our extortionate business costs, writes Louise McBride

Published 28/02/2010 | 05:00

Foreign companies are running scared of Ireland. The number of new jobs that foreign employers brought to the country last year was almost half what it was in 2008, according to a report just published by National Irish Bank (NIB).

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The bank says that "negative perceptions" of Ireland -- due to the dire state of our public finances and rising unemployment -- kept most foreign companies from investing in new projects last year. However, the steep costs of running a business here has undoubtedly also put the heebie jeebies up them.

WAGE COSTS

UP TO EIGHT TIMES MORE EXPENSIVE

Irish labour costs are a major bugbear for Irish and foreign employers. Unless we tackle them, the layoffs announced last year at Dell, Intel and Microsoft could be a sign of things to come -- particularly when multinationals can hire IT staff in India and Singapore for an eighth of the price they pay here.

"The IT fees in Singapore and in Bangalore, India, work out at less than €20 an hour," says Pat Delaney, IBEC's director of business sectors and regions. "In Ireland, IT fees could work out at €160 an hour."

Delaney, who sits on the National Competitiveness Council (NCC), says that wage costs for engineering technicians -- professionals commonly hired by multinationals -- are about 80 per cent higher in Ireland than in Singapore. "For ICT [Information and Communications Technologies] systems analysts and programmers, wage costs are about 66 per cent higher, while for skilled production operatives, the differential is about 100 per cent. This is why we are losing jobs to the likes of India and Singapore."

IT wages aren't the only ones that are sky high. In Bangalore and the US city of Boston, accountants charge about €60 an hour, compared to €110 an hour here, according to Delaney.

Irish waitresses are earning up to five times more than their Spanish counterparts. Earlier this month, Adrian Cummins, chief executive of the Restaurant Association of Ireland, told a Dail committee that: "Irish restaurateurs pay the highest catering wage rate in Europe -- the minimum hourly catering rate in Ireland is €9.32 as opposed to €5.38 in the UK and €1.93 in Spain."

To attract more foreign employers to Ireland, both Delaney and Jim Power -- the chief economist with Friends First -- believe that wages need to come down by at least 10 per cent. "However, the productivity of the workforce is more important than wage costs," adds Power. "Ireland will never achieve and should not try to match Polish or Chinese wage levels. The level of wages here has to be based on productivity."

The recession has already pushed wages in Ireland down over the past year, with ICT salaries for new employees now between 10 and 15 per cent lower, according to Hewlett Packard boss, Martin Murphy.

"Salary decreases are more pronounced for management, finance, administration and graduate positions as more candidates are available for selection," says Murphy. "Graduates have seen a 25 to 30 per cent decrease in salaries. Salaries for new software engineers are typically down by 5 to 10 per cent."

Despite these falls, Irish wage costs still dwarf those of India, Poland, Singapore, Mexico, Thailand and China -- countries which all won more foreign jobs than Ireland did last year.

"There will always be countries who can do basic manufacturing jobs cheaper (than Ireland)," says Murphy. "We need to focus on creating high- value positions here."

SHOP RENT

UP TO FOUR TIMES MORE EXPENSIVE

IN THE Polish capital of Warsaw, it costs €840 a year to rent a square metre of prime shop space. But in Dublin, it costs about €3,525, according to the latest commercial rent report from CB Richard Ellis.

Shop rent in Dublin is about three times what it is in Budapest, Hungary and Stockholm, Sweden. In the Slovak Republic's capital of Bratislava, it costs €204 a year to rent a metre of prime office space -- about half the price you'll pay in Dublin. Even Vienna in Austria, which is renowned for its expensive living, is a cheaper place to rent an office than Dublin.

'Foreign companies are running scared of Ireland. The number of new jobs that foreign employers brought to the country last year was almost half of what it was in 2008'

"Dublin's Grafton Street is the fifth most expensive place in the world for rent," says David Fitzsimons, chief executive of Retail Excellence Ireland. "However, when you factor in the population -- that is the opportunity to trade -- we are the most expensive on the globe. Shop rents continue to rise this year. The most aggressive increases are in developments bound for the National Asset Management Agency (NAMA) where landlords seek aggressive increases in rental yields, thus increasing their Nama valuation."

WASTE CHARGES

AT LEAST 40% MORE EXPENSIVE

Ireland's exorbitant waste disposal costs were highlighted in a report published by the NCC last year. At more than €180 a tonne at the time, waste disposal costs in Dublin were almost five times what they were in Singapore and three times the price of London. And we're still far from cleaning up our act.

"Our waste disposal costs are about 40 per cent higher than the average country in the EU-15," says Delaney.

Local authority charges here are enough to scare away any foreign company. "Local authority charges for capital- intensive industries -- such as pharma, biopharma, and certain ICT and medical devices companies -- can run from hundreds of thousands to a few million euro," says Barry O'Leary, chief executive of the Industrial Development Authority (IDA).

ENERGY COSTS

AT LEAST 30% MORE EXPENSIVE

Although Irish gas and electricity prices have fallen over the past year, our energy costs still need to fall by at least 30 per cent to bring us into line with our EU competitors, according to Power.

The latest Eurostat figures show that electricity prices for businesses are about 33 per cent more expensive than the EU average and about twice that of France, Sweden and Finland. While our gas prices for industry match the EU average, businesses here pay about a fifth more for their gas bills than those in Poland, Estonia, Croatia and Turkey.

"Things like energy, labour and local authority charges are very important for our competitiveness," says O'Leary. "At the very least, we would want to be at the EU average for energy costs."

COST OF LIVING

AT LEAST 24% MORE EXPENSIVE

LAST year, Ireland was the sixth most expensive European country to live in, with consumer prices about 24 per cent dearer than the EU average, according to Ronnie O'Toole, chief economist with National Irish Bank.

Although prices have fallen since, O'Toole believes more needs to be done. "The price falls we have seen are more about depressed demand than improved productivity," says O'Toole.

"Greater competition in a range of locally traded sectors needs to be introduced so that the cost of these services is permanently reduced. Areas which could be reformed include legal services, energy costs, public transport and the cost of the very extensive use of cash and cheques in Ireland."

WHAT ELSE NEEDS

TO BE DONE

THERE are almost 100,000 Irish people working in US firms here -- and it's imperative that we hold on to these jobs if this country is ever to move forward, warned the president of the American Chamber of Commerce, Lionel Alexander, at a lunch last week.

"While we have seen improvements in costs in the past 12 months, it is still too early to say that we have reached a turning point in the trend of lost competitiveness," said Alexander.

"We must see the State reduce its cost base and we must also see more positive regulation to promote competitive markets -- especially in services and distribution."

Friends First's Power believes that to attract more foreign jobs here, "a proper broadband and IT infrastructure, a well-trained and educated workforce, a proper physical infrastructure -- including top-quality road, rail and air access to the regions, affordable housing stock, a properly-functioning banking system and first-class services such as health -- are essential."

Hewlett-Packard's Murphy believes we must also become more self-reliant by creating more indigenous jobs. "We need to have a dual strategy," says Murphy.

"We must continue to get foreign direct investment but we must also create jobs here through indigenous companies and grow our own multinationals."

While new companies coming to Ireland can take advantage of the lower costs that have kicked in over the last year, O'Leary urged companies already here to take other steps to become more competitive. "Existing companies can invest in new technology, training and upskilling," says O'Leary. "On the energy side, they could invest in more energy-efficient equipment. Most global companies are going through various forms of rationalisation at the moment. If you're part of a global company that is reducing its number of plants from 20 to 12 and your plant has one of the highest costs, that's a dangerous place to be."

With 100,000 foreign jobs at stake, that danger should not be underestimated.

Sunday Independent

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