The Irish Miracle:
Is it Relevant to Colombia?
Agenda
Background
Economic PerformanceSuccess Factors
Lessons Learned and Implications
Industrial Policy
Background
Basic Facts:
Population: 9.2 million (1847) 4.1 million (2005)
Age: Half of population under 25
Size: 70,000 sq. Kms
Labor Force: 1.92 million
Ireland’s place in Europe
Background
Violent, colonial heritage (not independent until 1922)
Nationalist and protectionist economy following independence
Strong, political labor movement
Reliance up to the 1970s on one single sector for exports (agriculture) and one trading partner (UK)
Unclear vision of the country’s future (up to 1970s)
Disadvantaged geographical location (a small island, off an island, not connected to European markets)
Agenda
Background
Economic PerformanceSuccess Factors
Lessons Learned and Implications
Industrial Policy
Background
1. “Furniture for the average Irish dwelling is a luxury; the inhabitants of Tullahobagly, County Donegal, numbering 9,000 had in 1837 only 10 beds, 93 chairs, and 243 stools between them.” -- Census of Ireland, 1841
2. In 1987, Ireland was described as “The poorest of the rich.” -- The Economist
3. In 2004, Ireland is assessed as the only country in the EU with the ability to reach the the same level of wealth as the USA. --US Government Think Tank
Ireland’s economic past
Estimated sectoral shares(%) in exports 1960-2000
29262000
283151990
459371980
446501970
629651960
OtherIndustryAgri-based
GDP per capita: UK, EU Average & Ireland
0
20
40
60
80
100
120
140
160
EU
Av
era
ge
Ireland
UK
EU
Source: AMECO
Selected Data Points5 Year change in total employment (1997-2002)
Ireland: +25.3%
EU Average: 6.6%
UK: 4.5%
Unemployment in 2005: 4. 2%
Economic Performance
Globalization and Openness
Exports as % of GDP 2004: 85%
Imports as % of GDP 2004: 70%
Makes Ireland the most open and globalized economy in the world
Twenty Years to an “Overnight Miracle”
1980s 2004
Unemployment: 17% 4.2%
Inflation: 20%+ 2.5%
Interest Rates: 12%+ 4.9%
National Debt % of GNP: 122% 31%
Marginal Tax Rates: 65% 42%/20%/
Immigration/Emigration: losing univ. grad. 40,000/yr. +
Average growth 1995-2003: 9%
Economic Performance
Agenda
Background
Economic PerformanceSuccess Factors
Lessons Learned and Implications
Industrial Policy
The reasons for success…No single factor – A combination of: Macroeconomic management
EU Membership
Social Partnership Agreements
Industrial Policy
No overnight Success – some factors rooted in decisions taken 20+ years ago
Success Factors
.In the mid 1980’s the Irish Economy
was in appalling condition: Inflation at 20%+ Mass emigration Unemployment at 17% IMF about to take over the country’s
finances Long and costly strikesWe could either sink or swim …..
Social Partnership Agreements Unions: Moderation and Inclusion Government: Address Finance and Tax Employers: Accept Partnership/Social Policies Led to:
-- Improved Industrial Relations Climate -- Public Finances Control -- Shared Analysis -- Inclusion in Policy Formulation
-- Increased take home pay for workers
Industrial Policy
Executed every 3-5 years
Agenda
Background
Economic PerformanceSuccess Factors
Industrial Policy
Lessons Learned and Implications
Vision(The Big Picture)
Strategy(The what needs to be done)
Policy (The how to)
Implementation(The lets get it done)
Empowerment Resources
Ireland as knowledge economy leader, attracting large investments
Make FDI driving force in economy; create local linkages to FDI. TOUGH CHOICESConsensus, macro eco. stability, tax policies, incentives, education, tech. development
Institutional structure, commit serious resources, after care on FDI and constantly move up the added-value chain
Industrial Policy
Enterprise Development Process
1. Total commitment to vision and strategy
2. National consensus on country’s economic future, leading to social pact, long-term stability
3. Significant (and very costly) tax and other incentives, as part of aggressive industrial policy to attract investment
4. Selective, long-term investments in education, IT etc.
5. Macroeconomic stability/pro-business environment
6. Membership of EU (Trade agreements)
7. EU transfers
8. Exogenous factors (e.g., English speaking)
Success Factors
Strategy and Vision
Implementation
Exogenous
FDI as the driving force in economic growth
Industrial Policy
No. of FDIs: 1, 200 firms
FDI Employment: 130,000
FDI Sales: €69.34 bn
FDI Exports: €65.17 bn
Expend. in Ireland: €14.73 bn
Payroll: €5.34 bn
Irish Materials: €4.38 bn
Irish Services: €5.01 bn
Plus €5.0+ bn in Corp. Tax
Enterprise Development Path
+
Global
Market
+
Value Chain
Industrial Policy
Background
Economic PerformancePrincipal Factors
Industrial Policy
Lessons Learned and Implications
Agenda
Irish success is a result of tremendous commitment and vision which was shared and accepted by all
…coupled with good policies, hard work, lots of patience, and many trials and errors
FDI was Ireland’s key for accelerated growth, but it needs a detailed planning and implementation process
There are no “Miracles”, but in 15 years we have achieved the impossible…...
Lessons Learned
. With limited budget it is difficult for
governments to satisfy all requirements Key to increased prosperity is economic
growth Growth comes from increased trade and
investment Increased investment leads to extra
revenues for government Extra revenues allows government to
allocate more to needy causes
Ensure enterprise sector is the engine of economic growth
Jump start with FDI National cohesion and partnership Ensure pro-enterprise regulatory and
competitive environment Government to provide longer-term
strategic direction and vision Develop policies to support vision
Lessons Learned
Basis of Success
Ensuring that the issue of enterprise growth is kept at the top of all government agendas
A strong FDI attraction program, focused on key sectors, high-value low-volume manufacturing (ICT,chemicals, pharmaceuticals), selected services etc.
Constantly being ahead of the curve…...
Lessons Learned
Appropriate Instruments in place
1. Generating the Vision, Strategy, and Commitment -- Emphasis on emerging sectors/technologies/niches2. Creating Consensus and Buy-in
-- Are people willing to make sacrifices for the National good?
-- The future of a country is shaped by people, not the past.
-- Major political issue.3. Moving Beyond Commodities to The Future…….. -- How do you go from current level to Hi Tech and beyond?
-- How do you convince international investors?
-- Don’t wait for perfect solution….it never comes!
Lessons Learned What are the Implications for
Colombia?
To Get Ahead of the Pack!
Go for investment led growth Detailed Enterprise Strategy Focus on niche opportunities Boost investment in key infrastructure Allocate resources to do the Job Clear National priority on facilitating
the enterprise sector