Taking stock: Gary McDonald
Gary McDonald reviews the current state of the regional economy, boosted by continuing inward investment yet bracing itself for the full impact of spending cuts.
They got there in the end! After decades of direct rule and then a succession of stutters during previous devolved administrations, Stormont is completing its first full four-year term.
And as ministers and MLAs prepare to throw themselves at the mercy of the electorate in May, they’ll doubtless want to claim the plaudits for pushing through various pieces of legislation (much of which will have escaped the wider public gaze).
Yet when they knock on doors in the coming weeks, don’t expect the Northern Ireland economy – and the challenges this region is currently facing – to jump out of the candidates’ manifestos or to be the prime topic for conversation.
For despite the Executive’s stated aim of putting the economy at the centre of its Programme for Government, most will argue that this hasn’t been the case.
Their apathy aside, it’s been the proverbial ‘parson’s egg’ for Northern Ireland’s economy (partly good and partly bad) during an uncertain last 12 months.
Businesses – particularly small firms – have been closing left, right and centre as bankruptcies soar, with the banks
standing accused of having stopped lending (they argue that’s not true). Sectors like construction in particular have been decimated.
But on the plus side, a record number of jobs were created in the period from last April to the end of January, while just shy of 2,500 new business start-ups were supported during the same period.
Invest NI programmes like Propel – which support new export focused, knowledge intensive businesses – have assisted a number of local entrepreneurs to establish and grow businesses based on innovative ideas, products and technology, effectively taking fledgling firms from an armchair dream to fully- functioning, investor-ready businesses.
Yet on the other hand the swathes of jobless people in the North continue to soar. Figures from the Department of Enterprise, Trade and Investment show the number of people claiming unemployment benefit grew by 600 in January alone, bringing the total to 59,100, its highest level since 1998.
Cuts and investment
And then, of course, there is the pending impact of the most challenging budget cuts in living memory still to be faced.
The budget parameters were established by the Comprehensive Spending Review settlement published last October, through which spending through the Barnett formula, which accounts for around 92 per cent of total Northern Ireland public expenditure, is being slashed.
Current budgets will fall by around 7 per cent by 2014-2015 (on 2010-2011 figures) while the capital budget will be cut by around 40 per cent, with the majority of this taking place in the first year.
So where exactly is the overall economic barometer sitting at the moment? In truth, Northern Ireland hasn’t fared too badly in the last year as regards inward investment (and this is without the more advantageous lower corporation tax so many crave).
Between April 2010 and January this year, Invest NI said 6,666 new jobs were created (3,558 locally owned and 3,108 external). That’s around 100 more than in the whole of its previous financial year, when the total was 6,569.
The US – whose business relationship with Northern Ireland almost borders on the incestuous – continues to be the main driver of FDI, and in a six-month spell last year brought well over 1,000 jobs via companies like GE Energy, the New York Stock Exchange, Dow Chemical and the Terex Corporation.
And since Christmas, Northern Ireland has continued to secure a number of significant investment wins, often in competition with other regions including the Irish Republic.
Among them, London-based international law firm Allen & Overy intends to locate as many as 300 jobs to Belfast and is currently in negotiations to lease approximately 4,000 square metres of accommodation in the city.
Global financial markets software firm Fidessa is investing more than £5 million over the next three years to create 100 top-salaried jobs (£25,000-plus) at the Northern Ireland Science Park.
Another software firm, Kana, which specialises in technology used in service management, will bring another 109 high quality jobs to Belfast.
And Schrader Electronics, which employs 850 people and is a global market leader in the design and manufacture of tyre pressure monitoring systems, revealed it was taking on an additional 130 manufacturing posts in Antrim and Carrickfergus as part of a £29 million investment.
Premier location
“American firms continue to look to Northern Ireland as one of the premier locations in the world for inward investment because it offers a unique value proposition not available elsewhere, including a highly talented and motivated workforce, world-class universities, and a supportive business environment,” according to Declan Kelly, the US Economic Envoy to Northern Ireland.
In most instances, Invest NI has part funded these investment projects with large cash injections from the likes of the European Regional Development Fund (ERDF).
But new EU rules on state aid may impact on financial help in the future, and the most recent independent review of economic policy suggested that the region should be moving towards innovation and research and development.
Economy Minister Arlene Foster agreed with this, but said: “I still need selective financial assistance [SFA] as a tool in my box when I am trying to get investors to come to Northern Ireland. Some of the investments we have been able to secure recently were based on the fact that we can give quite generous amounts of SFA.
“From this year the percentage of SFA available will drop considerably, but I will be arguing that, given the recessionary period in which we have been, we will need to continue to have SFA post-2013.”
She added: “If SFA is to slowly go away, we will need to look to other mechanisms to get stand out for this region to ensure that we continue to get the sort of FDI that has come to Northern Ireland over recent months.”
That’s a problem for further down the line. More immediately pressing for the Northern economy will be the implications of the forthcoming budget cuts.
Business advisers PricewaterhouseCoopers fear the budget doesn’t balance and may not be deliverable in its current form, calculating that there is a cumulative shortfall which could exceed £2 billion by 2014-15.
Its senior economist Esmond Birnie says that there is emphasis on paring and cutting – but little real imagination around how service delivery can be improved at lower cost, assets leveraged to create new investment funds and partnerships created to stimulate economic regeneration and social inclusion.
If the North’s economy in general is showing few signs of recovery, the unprecedented public sector spending cuts ahead may make it feel much worse.
So strap yourselves in for a bumpy ride.
