World Economic Forum – The Travel and Tourism Competitiveness Report 2007
~ Summary (Briefing) Document: Ireland’s Competitive Position ~
WEF Report - Summary of Ireland’s Competitive Position
In 2007 Ireland is ranked in 27th place out of 124 benchmarked countries, compared to 26th place in 2005 and 30th place in 2004[1].
The travel and tourism (T&T) competitiveness index is composed of 3 component indices – the regulatory framework index, the business environment and infrastructure index and the human, cultural and natural resources index (see below). The indices have a number of sub-indices: in total there are 13 subindices/pillars and 58 sub-pillars (page 8 details the pillars and sub-pillars within each index). The score on each of the indices is calculated either on the basis of hard, statistical data – such as fuel prices, number of world heritage sites, hotel rooms etc. - or on the basis of the findings of an Executive Opinion Survey conducted by the World Economic Forum (WEF). Of the 58 sub-pillars, 28 are scored on the results of the Executive Opinion Survey and 30 are supported by hard data.
According to the report, Ireland is competitively strong in areas of policy rules and regulations: property rights are well protected, foreign ownership is authorised and there are effective rules governing foreign direct investment. Ireland also rates highly on the human resources sub-pillars of ease of hiring foreign labour (ranked 2nd overall), the quality of the educational system (ranked 6th), secondary education enrolment (ranked 8th) and investment in staff training (ranked 15th). Ireland is seen to have a competitive advantage in tourism infrastructure (number of hotel rooms per head of population, the presence of major car rental companies and ATMs accepting Visa cards) and in the prioritization of travel and tourism (effective marketing and branding activities – ranked 9th, Government prioritisation of the T&T industry – ranked 13th, and T&T fair attendance – ranked 15th).
However these strengths are offset to some degree by weaknesses such as the high price of fuel (ranked a very low 116th) and purchasing power parity (ranked 113th). In terms of these two sub-pillars Ireland has similar scores to Germany, France and the Netherlands, and is ranked higher than the UK. In addition, Ireland has very few World Heritage sites and nationally protected areas, and has the 2nd lowest rated ground transport infrastructure system in the EU original 15.
Comparison with ITIC’s ‘Ireland’s Competitive Position in Tourism’ Report, June 2006
· Competitiveness in both reports is measured across a range of indices/pillars. Cost-competitiveness, while being an important consideration, is only one of the many dimensions of overall competitiveness in both cases.
Business Environment, Cost Competitiveness
· Ireland is highly competitive as an environment for business in both reports. In the WEF report Ireland is ranked 1 and 2 respectively for the absence of restrictions on of foreign ownership and having rules which facilitate foreign direct investment.
· Similarly, the reports agree that Ireland is not a low cost destination; Ireland does, however, have relatively low cost airfares, ticket taxes and airport charges. The ITIC report outlines the significant issue of rising labour costs for the tourism industry in Ireland.
Ireland is ranked 113th and 116th respectively in fuel price levels and its purchasing power parity in the WEF report. The fuel price levels may be somewhat overstated in the WEF report, but even allowing for a correction of 10 cent (Euro) per litre would only raise Ireland’s overall ranking to 109th. However, in terms of fuel prices and purchasing power parity, Ireland’s ranking is similar to that of its prime EU competitors.
· Three items which contribute significantly to Ireland’s competitive weakness in comparison to the rest of the EU countries: are the high VAT rates in the hotel / restaurant sector, the nonrecoverability of VAT as a business expense in restaurants and the increasing local government charges. The WEF report, however, gives Ireland a positive ranking on the extent and effect of taxation (10th overall, based on the Executive Opinion survey). The survey respondents considered the level of taxes in Ireland had little impact on the incentives to work or invest.
Infrastructure
· Both reports highlight the need for further improvements in air access and infrastructure. Despite improvements in recent years Ireland is still ranked relatively poorly in terms of air transport infrastructure – 49th and 37th respectively for airport density and available seat kilometres.
Ground transport infrastructure; particularly roads, is seen as a competitive disadvantage in both reports.
Similarly the reports concur on the relatively low internet usage as being a competitive disadvantage. The WEF ranks Ireland as 37th in terms of internet usage and the ITIC report highlights the fact that Ireland is under-performing against countries with similar GDP per capital in terms of broadband development by a factor of two to three times.
Education, Labour Force
Both reports rate Ireland’s education system highly (Ireland is ranked 6th in terms of the overall quality of the education system). There is also consensus on the relatively low ranking of the primary education system compared to the overall education system.
The ready supply of a labour force and, in particular, the ease of hiring foreign labour are seen as competitive advantages in both reports. The ITIC report highlights the difficulty of staff retention which is not considered in the WEF competitiveness model.
Additional Points
The ITIC report has a focus on tourism innovation and its fundamental causal relationship to competitiveness. This aspect of competitiveness and productivity is ignored in the WEF report.
The WEF report highlights the lack of nationally protected areas and world heritage sites in Ireland as a competitive disadvantage. The ITIC report highlights the need for better protection of Ireland’s primary product which includes cultural heritage, environment and people. Overall the ITIC report maintains that Ireland’s primary attractors remain intact.
· The effectiveness of Ireland’s marketing and branding is ranked highly in both reports. According to the ITIC report Ireland ‘through positive brand values manage(s) to punch well above (its) weight on the global stage’ and the WEF report ranks Ireland as having the 9th most effective tourism marketing and branding activities.
· The WEF report ranks Ireland among the top 25 countries in terms of Government’s prioritisation of sustainable T&T, the stringency of environmental regulation and the clarity/stability of environmental regulations.
· A more accurate measure of tourism openness (tourism expenditure and receipts as a % of gross product) in Ireland would be a comparison of expenditure/receipts to GNP rather than GDP. When compared to GNP tourism openness is 6.7% which marginally improves Ireland’s ranking to 43rd (from 48th).
· Some of the sub-indices in which Ireland is ranked no.1 (a tied position with other countries) relate to improved health and hygiene and the low risk of malaria and yellow fever. These are indeed competitive advantages in a global comparison but would rarely be considered in benchmarking Ireland against its competitor set of Austria, Denmark, France, Germany, Italy, Norway, Sweden and the UK.
· The table below shows the overall rankings of each country in Ireland’s competitor set.
· The table below shows the overall rankings on the Regulatory Framework subindex of each country in Ireland’s competitor set. Although Ireland is ranked 27th in the overall index, the ranking on the regulatory framework index is 14th. Significantly higher than the UK, Sweden and Italy. The main reason for the high ranking is Ireland’s effective/facilitative policy rules and regulations – Ireland is ranked 4th overall in this sub-pillar.
· The table below shows the overall rankings on the Business Environment & Infrastructure Framework subindex of each country in Ireland’s competitor set - Ireland is ranked 26th.
· The table below shows the overall rankings on the Human, Cultural and Natural Resources Framework subindex of each country in Ireland’s competitor set. Ireland is ranked 46th in this index, the lowest in the competitor set. The main reasons for the low ranking are the low scores on the natural and cultural resources and the national tourism perception pillars.
Conclusion
On the whole the rankings in the WEF report do not appear unreasonable and they are generally consistent with the findings of the ITIC report. However, in a number of the key areas in which Ireland is outperformed by its competitive set, the rankings are based on the subjective opinions of the participants in the WEF’s Executive Opinion Survey. The sample size in this survey averages 80 per country, but the details with regard to the Irish sample size and composition are not published.
As identified in both the ITIC and WEF reports Ireland’s main competitive advantages are:
Ø highly competitive environment for business and investment
Ø the education system
Ø ready supply of labour force and the ease of hiring foreign labour
Ø effective marketing and branding activities
Ø the prioritisation of sustainable tourism and travel.
The major disadvantages are:
Ø high cost destination
Ø inadequate air transport, ground transport and internet infrastructure
Ø lack of world heritage sites and nationally protected areas.
In relation to the competitive set (Austria, Denmark, France, Germany, Italy, Norway, Sweden and the UK) Ireland has mixed rankings in the WEF competitive sub-pillars. On the following sub-pillars Ireland is ranked very highly compared to the competitor set:
· the lack of foreign ownership restrictions (Ireland is ranked 1st of the 124 benchmarked countries)
· rules which encourage foreign direct investment (Ireland is ranked 2nd of the 124 benchmarked countries)
· Effective of marketing and branding activities (Ireland is ranked 9th of the 124 benchmarked countries).
· Number of aircraft departures per 1,000 population (Ireland is ranked 4th of the 124 benchmarked countries)
· Low ticket taxes and airport charges (Ireland is ranked 15th of the 124 countries)
· The impact of taxation on incentives to work/invest are low (Ireland is ranked 10th of the 124 countries)
· Quality of the educational system (6th)
· Ease of hiring foreign labour (2nd)
Although Ireland scored very poorly on some of the sub-pillars, e.g.:
· fuel price level
· purchasing power parity
· recommendation to extend business trips
in these indices, Ireland is ranked on a par with many members of its competitor set including Austria, Denmark, France, Germany, Italy, Norway, Sweden and the UK. Finally, it may be noted that the ranking in the WEF index is not necessarily a reflection of performance: revenue from overseas tourism between 2002 and 2005 increased by 11.4% in Switzerland, the highest ranked destination, and 12.8% in Ireland (excluding carrier receipts).
1
[1] 2005 report ranked 117 countries.