Why attracting investment and jobs isn't just about low costs
Is it time for a rethink on how we pitch ourselves internationally and how we support our local businesses? Business cost pressures are regularly cited as holding Northern Ireland business back. Indeed, many of us have a keen sense that our electricity costs are higher than our near neighbours and mentioning business rates is a sure fire way to get a room full of business owners fired up.
And with good reason - competitiveness is a key element of a successful economy. Lower costs enable firms to be more price competitive when selling their good and services abroad and make Northern Ireland a more attractive proposition for attracting foreign investment. Given the importance of cost competitiveness, one wonders why a decade has passed since the last comprehensive assessment of the local business cost base carried out by Economic Research Institute of Northern Ireland (ERINI) in 2005, and the latest study published last week by the Department of Enterprise, Trade and Investment (DETI). The report makes interesting reading for economic developers and investment attraction professionals. Of the four main cost areas, the report suggests:
- Labour costs are a key area competitive advantage for Northern Ireland. Private sector wages are shown to be 82% of the UK average, with this gap evident across almost all sectors and occupations, and 86% of the Republic of Ireland. NI can offer skilled labour at a lower cost than all its main rivals in Western Europe and North America but not against many eastern European and other developing economies.
- Energy costs for businesses differ depending on usage but in general, we pay similar prices to elsewhere in the EU, although face higher prices than in the UK and Ireland.
- Property costs are another area where NI can offer much lower prices than elsewhere. For example, rental prices for Grade A office space in Belfast are less than half the price found in other cities such as Manchester, Dublin, Birmingham and Edinburgh.
- Transport costs are relatively competitive in a UK context, but not when compared internationally. Also, our peripheral location requires additional journey time and provides fewer options for travelling and naturally places NI at somewhat of a disadvantage here.
Studies such as this are vitally important in helping us set the course of economic development. From the results of the cost study, it looks like Northern Ireland is relatively competitive compared to our nearest neighbours but the study reiterates what we have known for a while - we can no longer expect to compete globally on costs or on what has been termed the 'low road' of economic development. The 'low road' is typically equated with competition based on low wages, low taxes and significant levels of incentives to attract outside businesses. Sound familiar? We are a corporation tax cut away from a full house.
So what does the 'high road' look like? High Road economic development refers to policies and practices that advance economic vitality, sustainability, and equitable economic opportunity through innovation, productivity improvement, high skill-high wage jobs, environmental responsibility, efficient resource utilisation, productive investment, and strong communities.
On the high road, businesses are attracted not through unconditional incentives, but through a highly skilled workforce, sophisticated infrastructure and competitive (which doesn't have to mean cheap) operating environment. When subsidies are given, they are given with the assumption that the entire community will benefit from the firm's presence in the region. The high road promotes quality, high-wage, high-skill, high value-added jobs over the opposite. A topical example from the high road play book is that companies get supported if they commit to pay a living wage or pay higher than current average salaries - ie they are enhancing what is here.
Can we say that has been the case in NI? To me it does feel like we have spent a fair bit of time, if not always on the low road, certainly weaving between the high and the low. Are there implications from weaving between the two for the economy? Well, it can result in an unfortunate scenario where we find ourselves investing heavily in striving to develop world class talent and infrastructure but not always matching that effort with the job opportunities or investors to match. Is providing £1m in support to bring 250 jobs that pay an average of £16,000 per annum really where we want to be? There are arguments for yes and no. My own view is that there is space for a dual road approach but the policy makers need to have the earnest conversation. As economic developers, we need to revisit our objectives by taking account of our assets, strengths and place in the world before setting the course of our economic strategies.
As our new councils go through the process of developing a series of integrated economic strategies, there is an opportunity set a definite direction, one that competes on the basis of quality, innovation and the intelligence and hard work of our residents.
In next week's Economy Watch, we hear from Neil Gibson from the Ulster University Economic Policy Centre