Could our firms expand in the Republic following Brexit?
The news that Almac, one of Northern Ireland's most significant firms, is to expand its operations with a new facility in Dundalk should give pause for thought as to how many more might follow suit and what we can do about it.
Encouragingly, the company reiterated a commitment to maintaining its global headquarters in Craigavon but the move into Dundalk appears to be a sensible hedging strategy that allows the firm to have a continued presence in the European Union in the long-term. It does beg the question - are our inward investment efforts suitably active in aiming to attract Irish companies to move north and protect their access to the UK market?
The Prime Minister may talk about a desire for a 'seamless, frictionless border' after Brexit, but the EU's former head of customs procedures calls those nothing more than 'nice words'. It is increasingly likely that there will be some hardening of the border between NI and the EU (Ireland) and an increased administration burden. A base in the north could be a smart move for a lot of southern companies.
In light of the move by Almac, and the potential for others to follow, I thought it was timely to check in on the manufacturing sector here. It is not that long ago that the economy was reeling from job loss announcements from big manufacturers such as Michelin and JTI. Thankfully we have not had any major job losses recently and there have been some positive announcements such as CDE Global's announcement of 110 new jobs. Have overall prospects improved or worsened? Before considering that, let's remind ourselves how important the sector is to Northern Ireland.
Northern Ireland's manufacturing sector currently employs about 81,000 people directly. Its importance goes far beyond that however.
A recent study by Oxford Economics for Manufacturing NI calculated that when we include supply chain links and supply chains, manufacturing supports a further 129,000 jobs and wages of over £2bn. Manufacturers are also driving our export performance and R&D spending.
With talk of Brexit and hard borders, export performance is of particular interest. Department for the Economy statistics suggest that about one third of NI manufacturing revenue - about £6bn - is generated from sales outside the UK.
This turnover from outside the UK supports around 25,000 of the direct jobs and close to 40,000 of the further jobs in various supply chains. Basically, when manufacturing is doing well, Northern Ireland is doing well. So how is the sector performing? 'Patchy' might be the best way to describe it. Latest statistics from the department show that the sector's employment declined slightly in the first quarter after the Brexit vote but was up on one year previously.
More up-to-date data from the Ulster Bank PMI suggests that manufacturing business activity is reasonably buoyant with a weaker sterling supporting a 19-month high in the rise of new orders. This current positivity suggests a return to employment growth in the sector could be on the cards when the next batch of official figures are released.
Of some concern, however, is that these newer manufacturing jobs aren't of the same high quality of recent losses. Average pay in JTI was over £55,000. That's about twice the NI average and feedback from within the sector suggests recent manufacturing jobs are well short of the levels seen in places like JTI.
Despite the current relatively buoyant statistics, prospects for the sector are set to be extremely difficult in the coming years.
Of the most recent forecasts, EY, who published in December, suggest the sector could lose as many as 4,000 jobs by 2020.
A hard Brexit was cited as the primary reason for this projected decline but there are a range of other challenges facing the sector that, if tackled, could mitigate some of these projected losses. Energy costs for manufacturers are an oft cited drain on competitiveness.
While that issue has been looked at in some detail by the Ministerial Energy & Manufacturing Advisory Group, that report seems to have been left on the shelf up in the Department for the Economy.
Other obvious issues relate to infrastructure, skills availability and access to finance. I wrote in my previous article that 2017 must mark a shift in emphasis from planning to delivery. No sooner was the ink dry when the UK government was launching its Industrial Strategy and our own Economy Minister was launching 'Economy 2030: A Consultation on an Industrial Strategy for Northern Ireland'.
What might this mean for manufacturing? While it does appear to touch all the right points - ie we need to export more, create better infrastructure, improve skills and finance availability etc. There is nothing that jumps out from that strategy that will appear new or novel to the manufacturing sector.
Many will have seen the same ideas packaged up in other strategy documents over the years. One issue that may cause concern is that the approach being suggested by government is one where a few specialist sectors are focused upon.
There will be concern that a policy of focusing on 'winners' could be to the detriment of other important sectors. In these uncertain times, let's cherish our manufacturing base and create the space for it to thrive.
In next week's Economy Watch, we hear from Danske Bank economist Conor Lambe