Tuesday 15 October 2019

Productivity gap widens between multinationals and local firms

Angel Gurria, secretary-general of the Paris-based OECD
Angel Gurria, secretary-general of the Paris-based OECD

Colm Kelpie

The large productivity gap between Irish-owned businesses and multinationals has widened with home-grown firms held back by weak managerial skills, a global think tank has warned.

Productivity has "stagnated" among local businesses, with the multinational sector in some cases having "crowded-out" domestic businesses, according to the Organisation for Economic Cooperation and Development (OECD). There are also few trade links between the foreign and locally-owned firms, the Paris-based body said.

The OECD said most Irish firms have had declining productivity over the past decade.

"This has largely reflected the poor performance of local firms, with the large productivity gap between foreign-owned and local enterprises having widened," the OECD said, in its latest assessment of the Irish economy.

"The resilience of the Irish economy hinges on unblocking the productivity potential of these local businesses."

This is not the first time that the OECD has raised this issue.

In 2015, chief economist Dr Catherine Mann said the issue was striking, and the trend was not going in the right direction. Three years later, the international body says that the problem is getting worse.

The OECD said aggregate productivity has slowed over the past 15 years. Labour productivity rose by above 4pc in annual average terms between 1994 and 2006, which slowed to below 2.5pc between 2006 and 2014.

It said productivity spillovers can be enhanced by raising the "absorptive capacity of local businesses" and "the capacity of local firms to absorb and implement new technologies is impeded by relatively weak managerial skills".

It added: "This partly reflects the low proportion of workers participating in lifelong learning activities. With burgeoning skill demand, there should be an increase in the share of training funding to those in employment.

"Innovation and the ability for Irish firms to fully utilise new technologies is also weakened by low research and development activities."

The report also said that there are high regulatory barriers to entrepreneurship, including "costly" regulations relating to commercial property and legal services.

Irish Independent

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