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The Small Firms Association has released the findings of
its 7th Annual National Business Survey, which highlights
the twelve most negative factors impacting on the ability
of small businesses to invest, develop, expand and maintain
and create new jobs.
Commenting on the findings, SFA Director, Patricia Callan
said that one of the major features of the Irish economy over
the past five years has been a significant deterioration in
competitiveness and this survey clearly shows that the costs
of doing business in Ireland are rising more rapidly than
in competitor countries.
“As an economy, we forgot how to compete - believing instead
that the Irish economy was indestructible and that the world
owed us a living. We believed that we could pay ourselves
more than anyone else simply by increasing our prices and
that no one would notice. We awarded ourselves wage increases
three times those of our international competitors. We presided
over an inflation rate more than twice the European average.
We were unquestioning over the significant growth in public
spending, falling exchequer receipts, infrastructural problems
in public transport, telecommunications, waste management
and public utilities. All of these are now making Ireland
an expensive and unattractive place to do business.”
She added - “The reality is that Irish small businesses must
now operate in a globalised market-place - which, whilst presenting
opportunities in terms of bigger markets, greater sales and
sourcing opportunities, also brings with it tougher competition
operating from lower cost-base economies.
"In the years ahead, intensified international competition
will impose increased pressures on Irish businesses to perform
to the highest international standards. Irish small firms
now have to compete with companies who have advanced business
models coupled with economies of scale in every aspect of
their business. To be successful in this new world order,
Irish small businesses will have to bring their own cost base
back under control.”
The survey was distributed to a sample 3,500 of the SFA’s
8,000 member companies and 1,090 companies responded. The
companies were drawn from manufacturing, distribution, retail
and services sectors and from a regionally representative
sample - with all parts of the Irish Republic included.
According to Callan - “while labour costs remains the most
significant issue for business, major threats have now emerged
in the burden of inflation, energy costs, skill shortages,
insurance costs and red tape/increasing legislation. 13% of
respondents cited labour costs as their single biggest threat
and 87% as a major business problem. Growth in the economy
has been pushed to levels in excess of its potential and the
result has been an overheated economy with higher wage costs,
high inflation and increased input costs. However, it is now
critical that productivity growth meets these cost increases
in order for businesses to regain lost competitiveness.”
To view Tables outlining the main findings of the survey
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Click Here
Callan continued - "76% of small firms indicated that inflation
is a major business problem. The consistently high inflation
figures (4.7% in May) shows that all sectors of the economy
are under pressure. Small businesses are hurting as they are
facing higher direct input costs - including the increased
cost of purchasing manufactured goods - and many are unable
to pass this cost onto their own business or domestic consumers.
"Our inflation rate is a key component in regaining
lost competitiveness and serious efforts must now be made
by the Government to bring this within acceptable limits.
There must be clear recognition on all sides that labour costs
- as a key component of the small business cost base - must
be restrained.
In relation to energy, Callan said - “Energy costs are cited
as the third largest business cost - with 9.7% of respondents
stating it is their single biggest threat and 66% as a major
business problem. Not alone are energy prices affecting inflation,
but crippling increases in oil, electricity, petrol and gas
costs are directly undermining the entire business community
and, indeed, civil society.
"With the threat of further substantial increases hanging
over us, it is clear that the Government needs to act now
to ensure that we have in place a desperately needed business-friendly
energy policy, which ensures the secure, reliable, efficient
and competitively-priced delivery of energy, which is a key
ingredient for the successful growth of an economy competing
in a global marketplace.”
Commenting on skills shortages, Callan added - “the availability
of skilled labour remains a concern for 9.6% of companies
and this is mirrored by 56% of all firms stating that it is
a major problem for their business. There is now clearly a
mismatch between the skill levels of those workers who are
being made redundant and the positions in which there are
job vacancies - in particular, there is a need to retrain
construction workers to do other skilled jobs in the economy."
Increasing legislation/red tape is listed as a significant
problem for small businesses, with 8.4% of companies citing
it as their No. 1 problem and 40% citing it as a major business
problem. Callan commented - “There needs to be a greater recognition
by Government of the hidden costs of regulation and its overall
impact on competitiveness. In the Report of the Business Regulation
Forum, it was estimated that excessive regulation cost Irish
businesses over €500 million a year. Think of what extra business
activity that €500m could have generated. It has, undoubtedly,
fuelled rising costs."
In conclusion, Callan stated - “the Irish economy is now
in the grasp of a major downturn and the cost of doing business
is still increasing daily, due to a combination of strong
growth in wages, high inflation, high energy costs, skill
shortages and a more onerous regulatory environment. The move
to a high cost, high wage economy must be matched by higher
productivity, improved physical infrastructure and reductions
in input costs from the sheltered sectors of the economy.”
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