The Irish Miracle: Is it Relevant to Colombia?

Agenda Background Economic Performance Success 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 Performance Success 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, 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

GDP per capita: UK, EU Average & Ireland

Selected Data Points 5 Year change in total employment ( )  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 : 9% Economic Performance

Agenda Background Economic Performance Success 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 strikes We 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 Performance Success 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 CHOICES Consensus, 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 Performance Principal 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/niches 2. 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