Belfast Telegraph

Outdated policies are impacting on the private sector

By John Simpson

Colin Walsh, the chairman of the CBI in Northern Ireland, spoke strongly last week about the critical links in this country between the consequences of the continuing unresolved budget tensions and the economy. He hit hard when he said that "unless we find a resolution, and soon, I fear that the very foundations of the platform of peace and prosperity that all of us worked so hard over the last two decades to achieve, are under threat".

He listed some key messages. The business community wants: (1) locally elected representatives making decisions; (2) our elected leaders living within their means, and (3) a focus on creating tens of thousands of new jobs, including a reduction in corporation tax.

In addition, he rejected any notion that Northern Ireland should be immune from the constraints in public expenditure which are to be seen across the rest of Europe and the UK.

This strong voice from the local CBI comes alongside two contrasting descriptions of the economy.

In the last week, evidence was used to show that the Northern Ireland economy was not growing as much as other regions. But on the other hand, evidence drawn from the experience of Invest NI chief executive Alastair Hamilton and the new Enterprise Minister Jonathan Bell pointed to the unexpectedly good performance of the private sector in 2014-15. The contrasts offer a critical insight into the lessons that might be learnt.

Speaking to an audience of senior personnel attending a CBI function, Alastair Hamilton and Jonathan Bell were able to point to the recent exceptionally good performance of Invest NI in striking successful deals with many businesses.

There were some unusual one-off factors affecting last year, but that does not detract from these welcome achievements.

A contrasting picture emerged from a separate university event, just two days earlier, led by five economists, where the evidence was of a range of government actions where too many public policies have been either inadequate, underfunded or poorly targeted.

Reconciling these perspectives merits careful analysis.

In two recent years, private sector businesses have enjoyed a useful, but not dramatic, profits recovery. Critically, fewer businesses have been trading at a loss, and the number of business failures has been much lower than during the recession. Indeed, it is possible that local businesses generally have enjoyed significantly improved profit margins.

While the improved performance of local businesses is welcome and has boosted private sector employment and helped to reduce the amount of unemployment, that is still less than would be the ambition of a stronger economy. Indeed, Northern Ireland's economic inactivity rates show that many more jobs would be welcome.

In addition to that, the recent fall in real incomes - and the widening gap with other UK regions - points to a complex series of questions on poorer productivity.

There also seems to be a continuing reliance by many businesses here on relatively low labour costs.

Northern Ireland needs to instil and re-enforce the drive to develop businesses with higher value added per employee, reflecting higher productivity. In parallel, the business environment and the costs of doing business need to be improved.

There is no surprise in the identification of weaknesses in the provision of the main infrastructure services in the sense of capital assets such as roads, buildings and utilities, as well as the human infrastructure of people with better and more relevant educational and training.

The local economy is improving, but too slowly, and with too little of the growth supporting infrastructure.

Colin Walsh, speaking for the CBI, made a suggestion that should find resonance with the UK Treasury. He asks local political leaders, with support from London, to "look innovatively at [new] funding mechanisms to support a major infrastructure investment programme" with funds from the UK, Ireland and the EU. That is a proposal that might be used as a deal breaker.

Belfast Telegraph