2008
Press Release
Inflation and Competitiveness Intrinsically Linked: Exporters Face Loss of Markets Unless Cost Base can be Controlled
Zero inflation in the Public Sector for the next three years could be the key to ensuring that Ireland’s exporting sector will continue to grow and become more competitive in international markets. This was a major point made in a submission that the Irish Exporters Association made to new Taoiseach Brian Cowen.
According to Mr John Whelan, Chief Executive of the Irish Exporters Association (IEA), the Association cannot stress sufficiently the link between inflation and competitiveness. “In this regard, we recommend that Government commit itself to obtaining zero inflation in the public sector for the next three years,” said Mr Whelan. He noted that such a commitment to charges in areas such as energy, waste management, local government, public transport, health and education would go a long way towards underpinning a target of 2% maximum inflation nationally and a resultant similar national increase in the pay talks phase of ‘Towards 2016’.
“All exporters, both in manufacturing and services, agree that there has been a major loss of competitiveness over the past 18 months brought about by turbulence in financial markets and the significant weakening of the Dollar and Sterling against the Euro,” said Mr Whelan. He added that, even if the depreciation of these currencies were to be halted tomorrow, many Irish companies would still face difficult problems because hedging techniques that most have used means that many have yet to feel the full effect of the exchange rate deterioration. “When that happens exporters will experience even further lost of competitiveness and, inevitably, a resultant decline in international sales,” he said.
The currency changes are impacting most heavily on indigenous Irish exporters. They now must compete against US-based companies both in the US and elsewhere who have in the past 18 months developed a 20% currency advantage. The situation is similar vis-à-vis British firms that now have a 17% advantage with the decline in the value of sterling.
“The IEA acknowledges that currency induced cost pressures are outside Government control, but we maintain that there are domestic cost issues that are controllable and which must be tackled as a matter of urgency,” said Mr Whelan. All exporters, large and small alike, are being affected by the continuing rise in local costs – costs that are rising faster in Ireland than in other OECD countries. To illustrate the higher cost inflation facing Irish businesses Mr Whelan instanced a report by Forfás which showed that Irish industrial electricity prices increased by 70% between 2001 and 2007. This rate of increase is almost twice the increase of the EU15 average of 36.4%. In January 2007, industrial electricity prices in Ireland were the second highest in the EU25.
Towards 2016
The IEA as part of the Employers Group, has recently entered into negotiations on a new pay agreement under the partnership agreement ‘Towards 2016’. “We have worked consistently with the social partners on all previous agreements and we look forward to doing so again,” said Mr Whelan. He stressed, however, that this is perhaps the most critical time for exporters in terms of cost competitiveness since national agreements commenced in 1987. He noted that the keys to maintaining our competitive position internationally and continuing to increase national living standards are to raise the level of productivity while keeping costs down. “It would be extremely damaging to export growth prospects if we were to respond to externally generated price increases simply by increasing pay rates to match such increases. We believe that pay costs chasing inflation will not only fail to improve living standards but, instead, lead to widespread job losses as exporters lose their markets.”
The IEA recommends that the current pay talks must ensure that pay increases are not linked to inflation, but to productivity gains. The IEA also urges Government to adopt national inflation targets similar to the Eurozone target rate of 2%. “If Government can approximate zero inflation in the areas where it has control, we believe that a national target of 2% is achievable,” he said.
Mr Whelan continued by saying that some of the loss of international competitiveness can be overcome by efficiencies in moving goods rapidly and reliably throughout Ireland into overseas markets. To this end, the IEA stresses the need for continued investment and rapid delivery of road, port and rail infrastructure. He noted that Government can make a difference in the short term with some innovative thinking. An idea such as toll-free access on a rebate basis to export goods is just one that might be considered.
Mr Whelan concluded by saying that while exporters face considerable challenges they also face opportunities. “These opportunities can only be grasped by engaging in innovation and enhancing productivity. However, we cannot and must not ignore the criticality of regaining cost competitiveness. As it stands today, even the most progressive firms contend that they are running to stand still as improvements in productivity are quickly eroded by high levels of inflation.”
ENDS
For further information, contact;
John Whelan, Irish Exporters Association
Tel: + 353 1 661 2182
Mob: 087 9271243
Email: iea@irishexporters.org
About the Irish Exporters Association (IEA)
The IEA represents the needs of export industry ensuring that the necessary conditions are created and the necessary support is provided to assist companies to maximise their export sales. The IEA draws its membership from every exporting sector, ensuring that the interests of all industries are represented and promoted at the highest level.
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