Address Minister Michael Ahern at the Hellenic – American Chamber of Commerce, Thessaloniki

Wednesday 5^th April 2006

Minister, Ambassador, Distinguished Guests, Ladies and Gentlemen

I am delighted to be here in the beautiful and historic city of Thessaloniki, the capital of Macedonia and Northern Greece. A city which can trace its origins back to the time of Alexander the Great and the birth of European civilisation, and where St. Paul first brought the message of Christianity. Thessaloniki is the second city of Greece, a University city, and a city of great cultural heritage. I come from Cork in Ireland which, like Thessaloniki, is a second city, a University city, and last year had the honour of being designated European Capital of Culture. So I think we have a lot in common and I must say, I feel very much at home here, already.

Let me start by thanking Mr. Kostopoulos, President of the Hellenic-American Chamber of Commerce and his colleagues for the opportunity to address you today on the subject of The Irish Economic Development Model. I hope you will find the following overview of the Irish economy interesting, and I am looking forward also to hearing about your own experiences in developing and implementing economic policies here in Greece, a little later on.

My aim today is to try to give you a sense of the Irish economy - how it has developed from being one of the poorer EU economies to one which is now often cited as a role model within the EU, and around the world. In particular, many of the newer Member States look to Ireland as an example of how a nation can utilise EU membership to bring about profound economic and social change.

I would like to begin by outlining our recent economic history. Ireland’s openness to trade has been a key factor in our industrial development now for many years. We began this approach almost 50 years ago when we abandoned economic protectionism, dismantled our trade barriers and focused instead on attracting foreign direct investment into Ireland. At the same time, however, we were conscious of the need to put in place policies to encourage the development of indigenous industry to a point where they could compete in international markets. We launched this process by setting up a Government agency, The Industrial Development Authority, or IDA, in 1950 with a mandate to develop industry in Ireland. In time, this body was sub-divided into separate but linked agencies - IDA Ireland and Enterprise Ireland - with the former being given responsibility for the attraction of Foreign Direct Investment into Ireland and the latter given responsibility for the development of Irish indigenous industry in Ireland.

Ireland’s entry into the then EEC in 1973 heralded a new beginning in regard to our economic development. A few statistics may serve to illustrate how far we have come since then in terms of our trading capacity, and in the diversification of our export markets.

In 1973, Ireland’s total trade in merchandise goods was valued at €1.65 billion.

In 2005, that figure had risen to €144 billion - of which €88 billion were in respect of exports, while €56 billion were imports.

In 1960, 75% of our exports went to Great Britain.

Today, that figure is down to 18% and we export around 63% of our exports to the European Union.

As a result of our success in attracting multi-national enterprises to Ireland, some 65% of our exports are now accounted for by multinationals, and the USA has become our largest export market, taking approximately 20% of our merchandise goods exports.

Another significant development over the years has been the huge growth in services exports which is now estimated at approximately 34% of all exports and valued at around €44 billion.

In per capita terms, Ireland is now one of the top three exporters in the world.

However, the early years of our membership of the EEC were not characterised by success in economic terms. During the 1970’s and 1980’s many of our indigenous Irish companies were forced to close, as a result of inability to deal with European and global competition, and also as a result of recessions caused by external factors, such as the two oil crises around that time. By the mid 1980’s unemployment in Ireland was hovering at 17%, inflation at 11%, and our Debt to GDP ratio was 130%.

Over the past decade, however, Ireland’s economy has been completely transformed. We have reduced unemployment levels by two thirds, doubled our national income and seen Irish living standards rise to being among the highest in the world. Emigration, so long a necessity, has become a choice. Overall, Ireland now has a growing population and net immigration.

According to the OECD, Ireland’s annual rate of GDP growth was more than 8% between 1994 and 2003. In fact, during the late 1990’s GDP growth per annum was running at between 10 and 11%. Forecasts for 2006, suggest continued growth of 5% and this is set to continue for the medium to short term.

The growth in the Irish economy is reflected in the year-by-year increases in national GDP, which in 2004 reached €146 billion. On a per capita basis, this is equivalent to €36,500 per person, the second highest in the EU – after Luxembourg,

We have moved from a country of net emigration in the 1980s to having a total immigration flow into Ireland of 70,000 in the year to April 2005. Employment is increasing rapidly, recently passing the 2 million mark. In 1991 employment was just over one million. This should be seen against the background of a total population of just over four million in 2005, the highest it has been in nearly 150 years.

By any standards, Ireland’s performance has been exceptional. Ireland has consistently topped the 30 member OECD economic growth tables, often by a substantial margin.

I am often asked by media correspondents, what have been the main contributory factors in Ireland’s economic success over the past ten to fifteen years? Broadly, I would say these are as follows:

• A youthful population and rapidly expanding labour supply

• Substantial inward investment inflows

• The strategic deployment of EU Structural and Cohesion funds

• A Social Partnership approach to Economic Development

• An openness to international trade in goods and services

• An emphasis on educational and technological innovation

• Pursuit of pragmatic and innovative government policies

I would now like to look at some of these in a little more detail, if I may:

Firstly, population growth: - Ireland has one of the few growing populations in the EU with 34% of the population projected to be under 25 by the year 2020 compared to an EU average of 25%. In addition, as I have said, immigration to Ireland is now running at about 70,000 persons per annum. Combined with significant increases in the level of female participation in the workforce, it is likely that Ireland’s labour force will continue to expand over the medium to long term.

During the 1960’s, free secondary education for all was provided for the first time. The importance of this latter measure cannot be overstated. When it came to the 1990s, the availability of a young, well educated, English speaking workforce was a critical factor in allowing us to grow our economy.

The European Union has offered us a framework for growth and employment. While our own policies were the primary ingredient for our economic success, there is no doubt that the framework which the European Union provided was critical to us. It allowed Ireland to mediate some of the external forces over which we had little or no control. I would cite as examples, downward pressure on interest rates, lower inflation and the Euro convergence criteria leading to a reduction in our Debt to GDP ratio. EU membership also opened up a market which today consists of over 450 million people.

Ireland has been a major recipient of EU regional funding since it joined the EEC in 1973 when our GDP per capita was 64% of the average of the then 12 Member State EEC. By 2004, our GDP per capita had risen to an estimated 130% of the EU 15 average. Structural and cohesion funds have developed Ireland’s physical and human capital base and thereby helped to establish the necessary conditions for Ireland’s recent economic growth. Up to 2004, Ireland had received a total of €55 billion in transfers from the European Union - €17 billion in structural instruments, €35 billion under the CAP.

Between 1973 and 2004, Structural and Cohesion Funds receipts averaged about 1.3% of Irish GDP, rising to 1.9% between 1987 and 1992. Since 1999, however, receipts from Structural and Cohesion Funds have fallen steeply and now run at under 0.5% of GDP annually. Further declines are in prospect. Ireland will no longer be eligible for the Cohesion Fund or Objective 1 from 2007.

The process of Social Partnership was launched in 1987 and has continued ever since. This has been one of the foundations of Ireland’s economic transformation. The social partnership process, endorsed by every Government, brings together all of the key actors in society: the Government, the employers, the trade unions, the farming sector and the representatives of the civil and voluntary sector. The agreements have helped build a national consensus around economic and social policies, paying rich dividends in terms of employment, growth and social cohesion.

Consistent, pro-business Government policies over the years have been responsible for creating the type of business environment that has attracted significant inward investment in many sectors, particularly in the pharmaceutical, bio-pharmaceutical and Information Communications Technologies sectors. Ireland offers one of the most beneficial corporate tax environments in the world. A rate of 12.5% applies to all corporate trading profits. Ireland consistently outperforms other locations for the best return on investment for US companies.

Our success has, and continues to be, enhanced by the high levels of investment and re-investment by multinational companies. Over 1,050 overseas companies have chosen Ireland as their European base and are involved in a wide range of activities in sectors as diverse as Information Communications Technologies, Biotechnology and globally traded services. Of these, over 600 are US companies, directly employing more than 90,000 people in Ireland – some 5% of the Irish workforce.

Currently, thirteen of the world's top fifteen pharmaceutical companies and twenty five of the top fifty have established a presence here. Exports in the pharma sectors now account for around 40% of total manufacturing exports from Ireland. A key feature of the companies located in Ireland has been their constant re-investment in their businesses here. These companies have prospered in Ireland and are growing both in terms of scale and diversity and in encompassing more business functions, particularly R&D activities. Many of the projects that Ireland has attracted are now becoming strategic global supply plants.

In recent times, Ireland has proven to be one of the most attractive locations particularly for investment in information and communications technology. Over 300 overseas ICT companies develop, market and manufacture a wide range of leading edge products in Ireland. 7 of the world’s top 10 ICT companies have a substantial base in Ireland.

In support of these enterprise development policies, the Irish Government has also been active over the years in legislating for an improved business regulatory environment designed to guarantee equity and fairness in the market place.

A priority for the Government also has been the need to reduce administrative burdens for companies trading in Ireland and to establish appropriate information systems, making use of the latest available technologies, to enable businesses to be aware of and fully compliant with Irish company law.

Examples of these are the establishment of the Competition Authority dealing with monopolies and mergers; the Office of Consumer Affairs dealing with the rights of consumers; a re-constituted Labour Inspectorate to ensure compliance with company law provisions; and in the business-friendly context, the computerisation of the Companies Registration Office and the Office of the Revenue Commissioners, enabling companies to file accounts and tax returns on-line.

I should add that an important catalyst in driving the regulatory reform agenda has been the obligation for Ireland, as an EU Member State, to ensure compliance with EU Directives in this area. EU support has also been an important factor in gaining widespread acceptance by the business community and the public at large of the Government’s introduction of these regulatory measures.

The background I have sketched has provided a very fertile environment for Ireland’s development as a Knowledge Economy. Throughout the last decade, our development as a knowledge economy, in particular, the building up of our research capacity and capability, has contributed to and underpinned our economic success story.

To continue our economic progress, Ireland has placed Research and Development at the heart of its economic development strategy. We are continuing to invest heavily in education, with a particular focus on investment in scientific and technological research. The Government is fully committed to the importance of the knowledge and research agenda. It will launch shortly its Science, Technology and Innovation Strategy 2006 to 2013. The objective of this is to make a quantum leap forward in the area of R&D and to move Ireland to acknowledged leader in this critical area. It will build on the significant advances under our National Development Plan and position Ireland as a key player in the globally competitive marketplace.

The relationship between R&D and employment growth is a clear and compelling one and we are all aware that without a dynamic and forward-looking approach to R&D, our advancing economy could encounter difficulties. Global competition is creating pressure for improvements in efficiency, quality and productivity and there is a growing need to innovate and add value across all aspects of business. These pressures are only going to increase.

Over the 6 year period from 2000 – 2006, the Irish Government - through its dedicated science body, Science Foundation Ireland - will have invested €646 million in academic researchers and research teams who are most likely to generate new knowledge, leading edge technologies, and competitive enterprises.

The Biotechnology sector in particular is recognised as being knowledge intensive. We very much look forward to further examining the opportunities for mutually beneficial collaboration in this area. Both the public and private sector have some way to go to meet the many challenges and targets, but we can and must achieve them if we are serious about our R&D performance and our global position. Investment in R&D will be fundamental to our future competitiveness.

Looking to the future, Ireland will strive to continue building on the strengths that have underpinned our economic growth over the past decade. We must continue investing in education, encouraging and promoting research and development and promoting creativity. Essentially, we recognise that our continued prosperity depends on providing people with the opportunity to develop their skills and allowing full participation in the knowledge age.

Ireland’s success in the coming years will be fundamentally dependent on our ability to create an environment where research and knowledge, high level skills and expertise, high quality infrastructure and business services are combined in that flexible and creative approach for which we have become known.

Many of the priorities for ensuring the continuing success of the Irish economy are also priorities for the Greek economy – we are both aware of the importance of creating knowledge-based economies - and I know that Minister Folias has spoken about this recently in Washington in the US.

I am aware also that Minister Folias would like to see Greece playing a proactive role in the economic development of the Balkan countries and in advancing security, peace and stability in the region. We share these views and welcome this approach. For our part, we in Ireland will continue to work with our partners in the European Union towards the creation of a peaceful, prosperous and unified, yet culturally rich and diverse Europe of the future. Whatever contribution we can make at bilateral or multilateral level in pursuit of these objectives – we will be happy to do so.

Thank you for your kind attention. I hope that my presentation to you this evening will have given you some insight into the background of our recent economic development and that you may have found it useful. I would now like to hand you over to my colleague, Mr. Christos Folias, Deputy Minister for Finance and Economy. And I look forward with interest to the presentations and the discussions to follow.

ENDS

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