03-05

Figure from page 39

Figure from page 39

Department of Enterprise, Trade & Employment

Physicist Niels Bohr said: “prediction is extremely difficult, especially about the future”. The environmental analysis shows that this statement rings very true for the coming strategy period. Ireland’s extensive growth during the nineties was unprecedented, making it difficult therefore to plot its future trajectory. The fact that the current domestic downturn has taken place against a background of exogenous shocks in the global economy makes it even more difficult to make firm predictions. However, strategy is frequently characterised by a need to make significant decisions on the basis of limited information. And uncertainty notwithstanding, the foregoing analysis provides a number of key insights which can serve to drive the Department’s strategy over the next three years. The conclusions arising from this are now set out.

The growth of trade and investment globally has reinforced Ireland’s position as a small open economy (SOE). On the upside, even in the face of shocks, global economic growth has continued and diversified. The corresponding downside is that Ireland faces stiffer competition. Foreign direct investment capital has a growing choice of productive locations, while Irish firms, regardless of ownership, face tough and more diverse competition in retaining and growing their share of export markets.

Figure from page 40

NESC has stated that Ireland must make the transition from being investment driven to being innovation driven. Ireland is no longer a low wage economy and cannot base future success on simply replicating past advantages. As NESC has pointed out, successful economic growth tends to follow a well-established path beginning with competition on simple factors and moving on to the growth of a more sophisticated economic base often via FDI. However as NESC goes on to say, the key growth challenge involves moving from investment to innovation, where the emphasis is on knowledge and skills and the ability to compete using a much wider range of advantages. Meeting this challenge poses a whole range of implications for strategy.