Government must make brave choices on Northern Ireland economy
Punishing cuts to public finances could be the electric shock that puts Northern Ireland’s business sector at the forefront of the local economy.
But business leaders have warned they could also set in motion a slow decline if the government does not make brave choices to help the private sector pick up the slack.
The Belfast Telegraph today launches a three part series entitled Our Future is Our Business, featuring interviews with the key players driving the enterprise agenda.
Currently, the province receives £16bn in funding from Westminster each year, half of which is spent by the Executive, and around 32% of our workforce is employed in the public sector — well above the UK average.
Finance Minister Sammy Wilson has already announced £370m of cuts to the budgets of Stormont departments this year, and more is set to follow, given that UK borrowings have hit a massive £178bn.
“We’ve been fed tranquillisers of public sector subvention and when that’s taken away the withdrawal symptoms will be pretty severe,” said Northern Bank chief executive Gerry Mallon, who started his career as a civil servant.
“There is a growing consensus at Stormont that we need to develop the private sector. But I don’t know that there’s a growing consensus as to how we do it or the pace with which we do it and there’s an increasing tendency to delay decisions that are electorally difficult to handle.
“I fear that what is going to happen after the general election is that Westminster will dictate what we have to do and we’ll be on the back foot.”
The glory days of industries like shipbuilding and textiles are now in Northern Ireland’s past, and a big question still hangs over what will replace it.
Manufacturing only accounts for 15% of our output and 10.5% of jobs, compared with 72% for |services, which contributes 81% of jobs.
Construction has also been hammered by the property slump and cannot be relied upon to be a building block for growth as the economy is realigned.
The issue is not a new one for our politicians.
Speaking in 2006, First Minister Peter Robinson said: “The challenge of changing the nature of the economy is a formidable one when one considers the number of people in Northern Ireland directly and indirectly employed by the public sector. An over-large public sector also acts as a disincentive to the private enterprise which is needed to boost the local economy. At times government is not the solution but is the problem. The role of government is not to create jobs but to create the environment in which the private sector can create them.”
However, the percentage of people employed in the public sector here has increased from 29.9% at the end of 2007, to 31.9% in late 2009.
The wage gap between public and private sector workers has also widened.
DETI figures from November showed average full time weekly earnings were 40% higher in the public sector. Economists tip that to rise to 45% because many companies have frozen or cut salaries in the recession.
Bro McFerran, MD of Allstate NI and NI Chamber of Commerce president believes we have created a culture where people aspire to be civil servants.
“We cannot afford to have this public sector dependent culture any longer because it is stifling any entrepreneurship that is out there.
“Why would you go out on the skinny branches and start taking risks if you can get yourself a job in the civil service for 40 years and then get a 50% final salary pension, which none of us in the private sector has any more.”
He thinks pending cuts to public expenditure could be the “electric shock treatment” needed to get people thinking about whether they could start a viable business.
“We need to drive entrepreneurialism. We need to be teaching it from primary school — I believe kids should leave school with a business plan, not with three A-levels. It should be part of our DNA,” he added.
While there have been changes to the school curriculum to include more business, he believes careers advice also needs to move beyond “safe bet” professions such as doctor, lawyer, accountant or public servant.
A key recommendation of the Barnett Report into Invest Northern Ireland was that it attract more high value and therefore better paying jobs, rather than just call centres and factory type positions.
Invest NI sees the greatest growth potential in high value sectors such as financial services, business services, ICT and life sciences — the parts of the economy that are still creating jobs in the |recession via companies like Almac, Allstate, First Derivatives, Cybersource, and NYSE.
But the agency’s chairman Stephen Kingon believes tough long-term decisions still need to be made by government — a difficult proposition when each department is affiliated with a different political party.
“Some of the building blocks have been put in place but we haven’t yet seen results,” he said.
“To transform the NI economy is a 10-15 year plan. Government planning tends to be in three year cycles but if you’re laying these foundations you have to look at a 10-15 year period and you’ve got to stick with it,” he said.
“There’s no quick fix, you’re not going to do it over a couple of years.
“It has to be a sustained programme. The last Programme for Government put the economy as the number one priority but if you look at the expenditure on economic development it’s actually very small at £150m-£180m out of £16bn public expenditure.
“I think at times you’ve got to make sure the rhetoric of ‘the economy being number one’ is actually matched by some of the resource — financial and human — that you put into it.”