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Is Ireland really 'the best small country in the world in which to do business'?

These are the bills which are making it hard for owner-operators to compete in the global market.

WE’VE SEEN THE slogans and heard it from the Taoiseach himself - Ireland is the best small country in the world in which to do business, right?

But does that only apply to the big end of town and what costs are dragging down the owner-operators who keep the economy ticking over?

This month as part of TheJournal.ie’s coverage of the small- and medium-enterprise (SME) sector, we are looking at important money matters for these businesses – which together put nearly 70% of private-sector workers in a job and account for about half the nation’s commercial output.

Here’s a handy graph to start with as we look at where most of that money goes:

Costs Source: Forfás

This year’s Forfás report into the cost of doing business in Ireland showed that across all business sizes and sectors, labour expenses were easily the number-one drain on the company purse.

When “location-insensitive costs”, or materials and equipment which had prices set by the global market, are taken out of the equation, businesses on average spent between 54% and 87% of their total costs on staff depending on the industry.

Irish Small and Medium Enterprises Association (ISME) chief executive Mark Fielding said wages were easily the number-one cost for businesses and the government could cut taxes to lift workers take-home pay and reduce the pressure on SMEs from wage rises.

There is much too much emphasis on foreign direct investment in Ireland – I’m not against it, but there needs to be the same amount of interest show to the SME sector now as there is to the multinational sector,” he said.

Despite workers taking a big hit during the  recession, the figures show Irish workers’ average hourly costs remain above the eurozone average – €29 per hour last year, compared to €28.20 across the region and €20.90 in the UK.

Wage Costs Hourly labour costs, 2013 Source: Eurostat

The average worker was still earning less last year than they did in 2007, although there have been marked differences between industries.

Here’s a comparison of how the average cost for workers in construction, whose pay packets have shrunk the most since 2009, have fared compared to those for staff in IT and communications, who have had the biggest increases:

image (1) Source: TheJournal.ie

Property costs are the next-biggest expenses for businesses in most industries, except for manufacturing where transport is the big drain on the company purse.

And when it comes to bricks and mortar, Ireland scores surprisingly low on a global scale – especially when compared to property prices from the boom era, when Ireland ranked among the most expensive places in the world to secure real estate.

Rents for both prime office and retail spaces came in below the eurozone averages last year, although analysts have noted prices ramping up again - as much as 28% in the capital over 12 months as companies starting to be pushed to the city fringes to cut costs.

Transport fuel and utility costs both rate as expensive by European standards with Ireland having the third-highest retail electricity prices for SMEs out of the major EU countries.

Electricity Industrial electricity prices for SMES excluding VAT Source: Forfás

Chambers Ireland policy director Mark O’Mahoney, whose organisation this week headed to Brussels for a EU-wide business conference, said Irish and other European SMEs were feeling the pinch from the higher costs of regulation in the region when compared to many of their Asian and North American competitors.

“I think Ireland is potentially a very competitive place to do business – it is a good example of how a country can turn itself around and we are looking into 2015 pretty positively,” he said.

“But Ireland is still a high-cost economy so it is something we need to be mindful of if we want to keep up. We are a small country and we are competing with the rest of Europe and the world these days.”

READ: Poll: Is your business really any better off after Budget day? >

READ: ‘Uninspiring’ budget continues tax discrimination against self-starters >

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About the author:

Peter Bodkin  / Editor, Fora

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