We're most expensive in the eurozone for business
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IRELAND has become the most expensive place to do business in the eurozone.
The country has the highest wages and is losing its share of both exports and foreign direct investment (FDI), the IMF report says.
The IMF says that Irish earnings of around €22,000 a year in 1997 were broadly in line with the euro area average. But a gap of €12,000 has since opened up, as Irish wages soared to €35,000 a year by 2007.
A key factor was "generous increases" in public-sector wages. The recent trend towards wage reductions could bode well for Ireland to regain competitiveness, the IMF said.
It says that both the private sector and the Government had been concerned that the weakening of sterling against the euro was having an adverse impact on Irish exports -- not just to the UK market, but also to others, although sterling has been increasing in value in the past few weeks
The IMF also said that attracting foreign investment will become more difficult because of greater competition and because such investment is greatly affected by a country's recent performance.
Recent Government initiatives, such as incentives to attract high-value FDI inflows, will have to be continued if we are to better our position, as a small island economy dependent on international improvements.
"The transformation from a location for low-cost manufacturing to a centre for high-value-added products and services is ongoing," the report said.
Recently a number of companies, including global consultancy group Accenture and Australian building materials giant James Hardie, have all announced plans to domicile in Ireland for tax purposes.
In discussions with the IMF, the Government said that, while there has been a significant loss in competitiveness, it is optimistic about the future.
"In particular, they (the Government) viewed recent nominal wage cuts as a reflection of Irish labour market flexibility, creating the potential to recover competitiveness," it said.
It added that the Government also pointed out the relative resilience of Irish chemical and pharmaceutical exports in recent quarters.
- Ailish O'Hora
