The “slow delivery of infrastructure” is now the chief threat to Ireland’s competitive position but the Government is constrained from addressing it by a pronounced shortage of labour in the economy, the National Competitiveness and Productivity Council (NCPC) has warned.
In it annual “competitiveness challenge” report, the agency said “achieving a significant expansion” in areas such as housing, energy and water infrastructure would “require labour which is not in immediate supply”.
“The Government must be cognisant of these constraints in the planning and prioritisation of key infrastructure projects, while working to ease the degree to which these constrain our potential growth,” it said.
To address capacity constraints in the labour market, the Government should pursue policies that attract and retain international labour; re-engage older males in the labour market; and “seize the opportunities presented by modern methods of construction and the digital transition to boost construction sector productivity”, it advocated.
The council’s report comes in the wake of population statistics this week, showing 141,600 immigrants entered the Republic in the year between April 2022 and April 2023, the most since the years of the Celtic Tiger. It also comes in the wake of several reports warning the Government over the potential inflationary impact of having an expansionary budget when the economy was at full employment.
“If we are to maintain the high standard of living achieved to date, we need greater and more effective investment in our infrastructure at scale, so that Ireland has the capacity to continue to grow sustainably,” the NCPC said.
The swift enactment of the Government’s new planning Bill, which aims to streamline the planning process, will be important “in stepping up the pace of future key infrastructure delivery”, it said.
Reducing the cost of doing business was also key to maintaining competitiveness, the council said.
“While Ireland is a price-taker on most international markets, and as such many drivers of the recent rise in price inflation are outside of domestic control, policy should focus on ensuring reductions in costs that are within our control,” it said.
It highlighted a dwindling level of competition in the banking sector “with only two full-service banks in Ireland”, as a concern.
Business costs were also elevated by high legal costs, it said, calling on the Government to publish an economic analysis on reducing litigation costs commissioned by the Department of Justice.
The council’s report makes 19 recommendations to address competitiveness challenges in four key areas; the cost of doing business; the delivery of infrastructure; the acceleration of energy use and generation in line with the State’s climate targets; and ones aimed at boosting productivity through research and development.
“While low unemployment rates are great news, they indicate our limited capacity to address many outstanding challenges, such as in infrastructure, where Ireland’s international performance is relatively weak,” NCPC chairwoman Frances Ruane said.
“This poor performance reflects low levels of investment in key domestic infrastructure, including housing, by Government and businesses, as we emerged from the 2008 global financial crisis,” she said.
“While the Government has scaled up its capital budgets significantly in recent years, it has faced difficulties in prioritising investments and challenges in delivering on them,” she said.