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Global trade winds mean we must be vigilant over future job losses

Economy watch

By Neil Gibson

Published 17/11/2015

Neil Gibson
Neil Gibson

The devastating Michelin announcement has provoked a range of questions about the Northern Ireland economy. Is this, on top of the recent JTI closure announcement, a sign of the ongoing demise of Northern Ireland manufacturing? Are energy prices a critical factor in reducing Northern Ireland's competitiveness? Should the government put so much money into large corporates that will ultimately leave? What else could government do for the workers and the area? Has the political instability played a factor in the decision to close the plant? As is often the case the answers are complex and difficult to unpick but there are a few clear points to be made.

It is not the end of manufacturing

The loss of close to 900 jobs at Michelin, on top of a similar number at JTI, is a substantial loss to the NI manufacturing base. The direct losses are equivalent to a reduction of over 2% in industrial employment in the region and supply chain impacts will push this figure higher. The job losses do not yet feature in the official data as the factories do not close until 2017/18 and interestingly the underlying data picture is actually very encouraging. The manufacturing sector is larger in NI than the UK average, accounting for 13.6% of Gross Value Added (GVA) and 10% of employment compared to the UK average of 10% and 8% respectively. In the three years to Q2 2015 the sector has added 6,000 employee jobs (8%) - a much more positive trajectory than the UK equivalent of 1.1% over the same period. The index of production (which includes construction) has risen by nearly 15% since Q3 2009, well above the 2.8% equivalent in the UK as a whole. The manufacturing sector is diverse, with the three largest sub-sectors being food products, metals and transport equipment employing over 40% of the total industrial workforce between them. One thing all elements of the industrial sector have in common is the need to be globally competitive. Whether they sell internationally or locally there is always a rival manufacturer somewhere competing for their trade. That exposure to the global trade winds makes it a challenging market and one in which, sadly, future job losses will be likely though hard to predict. Just as NI's decline in manufacturing over the last 40 years was dominated by the decline in a specific industry, namely textiles, the fall-out will heavily impact the headline industrial data in 2017/18. It will be important to recognise this at the time and not misread the data as a wider statement on the future.

Energy is an ongoing issue

Energy prices were cited as one possible factor in the firm's decision to consolidate its UK operations in Stoke and Dundee. This issue is of critical importance to heavy industry and should remain a policy focus for the Department of Enterprise, Trade and Investment and the regulators. But it is not only energy costs that come into a decision such as this one; labour costs, transport costs and a range of other location and talent based factors all play a part. It is essential as much information and intelligence is gleaned from this loss as is possible. It is critical to understand what made Stoke and Dundee more viable. It is often the case that more can be learnt out of failure than success and knowing what business decisions underpinned the choices made is one valuable task that should be prioritised.

Government can do some things - but not everything

Immediately after a loss like this attention turns to the government - could they, or should they, have done more? Was the money and support offered in the past wasted, can it be clawed back? Whilst it is true government plays an important role it is difficult to see what can be done to truly 'buck the market' and alter global business decisions. Already NI offers significant advantages to industrial employers, either through the generous 30p in the pound rating level or the significant levels of capital support and grants. In addition the region has low household tax levels (both in rates levels and the absence of water charges) which partly in turn facilitate competitive wage rates in many sectors. Manufacturing median wages in Northern Ireland are £23,000 compared to £28,000 in the UK (though this is partly explained by the sub-sectoral composition). It is the case that Michelin enjoyed significant financial support from the public purse over the years and it is correct to look to any clawback that may be applicable but it is dangerous to say this is an example of 'waste'. It is hard to imagine Ballymena would have been better served over the last few decades by not having the plant.

Personal impact acute

Whilst it is possible to be relatively philosophical about the closure in purely economic terms, this is abstract from the real tragedy at the heart of this news - the personal impact. For workers who are about to lose their jobs and for the local labour market, this is a devastating blow at a time when similar scale investments are ultra-competitively fought over in the global market and in short supply. One can only hope that there are industrial investors out there thinking that the talented workforce in JTI and Michelin presents a real investment opportunity but the odds of this happening are sadly very low. A careful assessment of exactly what the combined skills sets are across the JTI and Michelin workforce is required to help understand what they might collectively offer a new investor or how there might be specific retraining programmes or initiatives to help such a significant number of hard working staff.

  • In next week's Economy Watch, we hear from Andrew Webb of Webb Consulting

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