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Driving private sector growth is key on this long road to recovery

By John Simpson

Will the private sector lead the recovery from the present recession and is the devolution of corporation tax critical, urgent or necessary?

The corporation tax decisions could be very significant. However, by the time Westminster legislation is approved and, additionally, the European Commission has approved the amended permitted State Aids effective devolution of corporation tax is probably at least two years away.

Steps to generate economic recovery must, for the present, rely on today's policies and institutions. Arlene Foster must use her policy options and a tight budget to gain maximum leverage.

We know that any recovery will not rely on an expanding public sector, as Northern Ireland faces reduced levels of public spending.

The private sector whereas, is a heterogeneous mixture. Parts of the private sector will emerge from recession, possibly slowly, during the months ahead.

Some parts of the private sector will be negatively affected by a loss of public sector business, particularly in the construction industry. Parts of the private sector will also see a fall in personal incomes as real incomes reduce and employment falls. Early signs of recovery will come from businesses that sell goods and services to people and markets outside the province.

Is the competitiveness of local business good enough and is it improving fast enough?

Are the economic development policies and supportive actions from government good enough?

Competitiveness is more a function of the management and organisation in a business than a result of specific government actions. The most common factor for business competitiveness is the labour cost per unit produced. That measure is mainly internally determined. Currently, it should give local firms a strong advantage

The private sector has strengths that can lead the way out of recession. Firstly, local businesses should now have a strengthened cost competitive position. Second, Northern Ireland is now better placed to attract inward investment, FDI, possibly because of the stability of sterling and a stable exchange rate. Third, the deployment of incentives and inducements by Invest NI has been improved .

The Department of Enterprise, Trade and Investment (along with Invest NI) has set revised ambitions for the inward flow of investment in the next four year planning period. Although the DETI budget is squeezed, a small £4m additional increase in 2011-12 on the original budget for Invest NI has been made and the jobs target has been raised from 7,000 to 10,000 in the next four years.

Even before any corporation tax change is introduced, recovery in local businesses and a stronger flow of external investment may combine to reverse the recession in the local economy.

The economic strategy review group, led by Kate Barker, now becomes a critical contributor to offer ideas on enhancing these prospects.


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