Getting the economy moving in right direction
The public sector is going to be cut and the private sector needs to grow so how can the economy be rebalanced? We asked five experts for answers
The private sector in the Northern Ireland economy is too small. If the economy had the same size of private sector as the best UK regions, there might be 80,000 more jobs.
Rebalancing the economy is about more than the number of jobs. The existing private sector jobs generate, on average, lower output and incomes than might be hoped. Rebalancing means stimulating businesses that generate higher output per employee.
Why does Northern Ireland have too few high value-added businesses? In contrast, why are we performing successfully as a location for call centres?
Further expansion of the private sector depends on enterprise and profitability. Is the private sector profitable enough to attract new investors with higher productivity jobs? If enterprise decision makers have accurate information, are they more likely to locate in Northern Ireland than elsewhere?
The private sector is generally profitable. Some local businesses earn good returns. Unhappily, much of the private sector relies on lower skills and lower labour costs.
To rebalance the economy, decision makers need to see business opportunities. Enterprising decision makers must be nurtured and encouraged.
Those opportunities are not easily demonstrated at present. Success stories are a strong advertisement. Success can come partly from a business and work ethic that, in turn, must be enhanced by supportive government actions.
Most of these lie within the devolved responsibilities of the Executive by enhancing the skills and qualifications of the people seeking work, enhancing the attractiveness and efficiency of the physical infrastructure, (re-)generating a modern urban environment and demonstrating that Northern Ireland has become a stable society where unacceptable behaviours have ended for good.
Sadly, Northern Ireland cannot boast that these challenges are fully accepted.
The Executive should give them priority and re-orientate its spending priorities. People and businesses here should pay their fair share of rates and rents, water, road and transport charges.
The exception to passing responsibility to the Executive lies in some forms of taxation. The UK Government has promised a major review of corporation tax in the context of new ideas to develop Northern Ireland as an Enterprise Zone.
A change to allow lower corporation tax rates would be welcome, even (Azores-style) as a trade-off against other spending reductions. Lower corporation tax rates alone are no substitute for the productivity, efficiency and other fundamental changes that are necessary.
Joanne Stuart, chairman, Institute of Directors: Some thinking outside the box is needed to produce new ideas
Rebalancing our economy is not a new topic and there has been plenty of debate about the economic and social benefits of having a vibrant and dynamic private sector-led economy. What has changed is that impending cuts have created a burning |platform.
IoD recognises that fully rebalancing our economy will take a generation but we need to start taking steps now to achieve the transformation of our economy.
In this time of reduced public spending there is an opportunity to leverage private sector funds to reduce the gap, but only through public and private sector working together in partnership. A review of all services is required to see if they can be better delivered through the private and social enterprise sectors. Core services should remain in the public sector but strategic consideration needs to be given to what is core.
The forthcoming challenge is so significant that there is a need to develop new models of public private partnership on a wholly different scale.
The Northern Ireland Prison Service is a good example of where strategic engagement with the private sector could help with the funding of capital projects, significantly reduce operating costs and dramatically improve prison performance.
This level of engagement must be strategic and innovative, delivering on one hand, real financial savings, but also better outcomes in the reduction of re-offending which will have a long-term benefit to society. In the short-term, the Executive needs to agree the allocation of the Budget cuts and ensure that they have a minimum impact on the local economy. In addition, we need to continue to finance investment in our infrastructure.
This means reviewing the subsidies that have been implemented. The premise should be that the most vulnerable in our society are protected, but those that can afford to pay should pay.
To support the growth of the private sector, we need to be a business friendly region. Planning, regulation, procurement and skills development all need to be aligned to the vision of creating a balanced economy.
The Northern Ireland Affairs Committee at Westminster is holding an inquiry into the corporation rate for Northern Ireland. This has the potential to encourage growth of indigenous companies and foreign direct investment. This is not the silver bullet for Northern Ireland, but used in a focused way could have a significant impact on our economy.
Our challenge is not about doing the same things at lower costs, but about doing them differently to transform our economy.
Arlene Foster, Enterprise Minister: Developing conditions for future growth is key to the private sector
The recession has only served to highlight the continued importance of the Executive’s Programme for Government goal to develop a more |dynamic economy by growing productivity and increasing employment.
The impact of the global downturn has undoubtedly increased the scale of the economic challenges that lie ahead for the Northern Ireland economy. However, it is important to recognise that companies such as NYSE Technologies, Seagate, and Almac have continued to reinvest in Northern Ireland, along with new investments like the Indian IT firm, L&T. In addition, sectors such as food and drink have demonstrated impressive resilience by increasing sales outside Northern Ireland, and the industry already makes a very substantial contribution to the local economy, with sales of over £3bn. Invest NI has also responded to the needs of businesses facing difficult trading conditions, and provided support through programmes like the short-term aid scheme and the accelerated support fund.
Opportunities also exist to maximise the potential of our tourism sector. An independent study, published earlier this month, confirms that our new tourism strategy is right to be targeting a doubling of tourism revenue by 2020.
In growing the private |sector, we recognise that this needs to be done in an environment where public expenditure will be much tighter, and the levels of consumer expenditure more constrained than in the previous decade. Economic growth must therefore be driven by the private sector, and specifically by company investment. It is only through export-led growth that we can realistically expect to raise living standards and improve the wealth of our people.
The Executive remains focused on growing the economy. I currently chair an Executive sub-group through which key departments are working together to produce a shared strategy. This strategy will have the twin aims of rebuilding and re-balancing the economy, and needs to explore every option to grow the private sector in Northern Ireland. The draft framework for action and priorities will be published for consultation after the summer, and the full strategy will be in place before the end of this financial year.
Alongside the economic strategy, my department and Invest NI are also working together to radically overhaul the economic development agenda, following publication of the Independent Review of Economic Policy, which I commissioned shortly after becoming Enterprise Minister. The UK coalition government will also examine the options for changing the corporation tax rate in Northern Ireland. This is to be welcomed, and the Finance Minister and I will be meeting the Exchequer Secretary to the Treasury in Whitehall this week to discuss this and other economic stimulants to help grow the Northern Ireland economy.
Even during a period of budget cuts, we must retain our focus on developing the conditions to promote private sector growth. This is the engine of recovery.
Neil Gibson, regional director, Oxford Economics: We’ll transform the economy by taking the necessary steps
TRANSFORMING Northern Ireland’s economy will not be easy. The gap with Great Britain in productivity remains worryingly large despite the stated intention of every economic strategy in recent memory. Notable improvements in the proportion of the population in work have been achieved, but largely as a result of now expired booms in retailing and construction, alongside a large and growing public sector.
The steady flow of British taxpayer’s money (estimated at over £7bn net per annum) has negated any real appetite for change. Though most of the money will continue to flow, painful cuts of at the very least £1bn (over 10% of all spending on public services) are coming, and these will change the economic landscape. So with a backdrop of a public purse under pressure, and consumers facing falling incomes as tax rises bite, what can be done to |transform the economy?
A political will to support significant private sector growth:
It often seems difficult for our politicians to grasp that making Northern Ireland less public sector dependent will require radical and visionary plans for commercial sector stimulus.
What we need is for politicians to focus on the urgent necessity for change rather than piece-meal initiatives for change.
Reducing corporation tax to the low level of the Republic:
A move to lower corporation tax, to act as a catalyst to attract new companies to Northern Ireland, could be both an important statement of intent on economic policy and a genuine source of transformation, as it has in the Republic of Ireland.
Reduction in the block grant to pay for such initiative should not blind politicians to the massive upside that might accrue as a result of a reduction of the taxation burden on business.
Public sector reform:
If the cuts are applied strategically, and private sector delivery models considered, a boost to private sector employment could occur.
Better use of local tax system:
At present the domestic and business rates system are not used to incentivise behaviour or maximise potential tax revenues. Domestic rates are capped, preventing bills reflecting the true value of many of the region’s most lavish properties and business rate policy incentivises property being vacant.
Reducing benefit costs:
At present there is little incentive to reduce the cost of benefits (unemployment, sickness, housing etc.) because the money flows directly from Westminster. Devolving responsibility to Northern Ireland might incentivise a fresh look at a system that makes it more desirable not to work than work for many.
Private sector transformation:
Northern Ireland is about to go through painful changes that will cost many jobs, but the funding crisis provides an opportunity to kick start the transformation into the private sector-led economy the region has long aspired to.
Sir Roy McNulty, chairman of Derry regeneration body Ilex: City of Culture win will help Derry to realise its potential
Fibre-optic cable now provides a direct computer link to the USA
WE all know that the current economic climate, together with constrained public sector budgets, mean that Derry-Londonderry must seek new and innovative ways of |attracting investment.
While our economy continues to be heavily reliant on public sector spending and a correspondingly small private sector, analysis conducted by Oxford Economics and PricewaterhouseCoopers highlights significant investment opportunities for the private sector in our city.
Being awarded UK City of Culture 2013 has already proved catalytic. The private sector has been quick to see the many opportunities it presents, by committing to significant investment in advance of 2013 to exploit this status. The tourism sector alone has the potential to quadruple if the necessary infrastructure is put in place. This will increase private sector employment, not just in the area of cultural tourism, but also in sectors such as construction and associated professional services.
The tangible benefits to the city are forecasted employment growth of 2,700 jobs in creative, cultural and tourism sectors by 2020 as the benefits of the title become fully realised. Intangible benefits include the ability to utilise the designation as a unique selling point for inward investment, tourism and in marketing the city nationally and internationally as a ‘must see’ destination.
Intangible benefits also include the new-found local optimism and aspiration that success brings.
Ilex is committed, through its involvement in the development of the regeneration plan for the city, to ensure that the necessary pre-requisites for growth are in place.
These include global connectivity through Project Kelvin, the progression of Derry’s ambitions to be the digital champion of the UK by 2013, building on the strengths of our university and the talent of our people, the realisation of assets of 40 acres at the Fort George and Ebrington sites, and the completion of the Peace Bridge by Easter next year. We are on our way.
Our proactive engagement and partnership with the private sector, public sector, and the community and voluntary sector is fundamental to ensuring that the benefits from this economic growth reach those on the margins.
With the proposed expansion of third level education and the youngest population in the UK, 40% of whom are under 25, the city is poised to transform itself into the |creative and confident city that it can be.