Belfast Telegraph

Paul Gosling: Why even better news than Wrightbus being saved would be a Brexit that doesn't threaten to annihilate our manufacturing sector

Sterling's value has fallen and has been subject to significant volatility, making the pricing of international trade problematic even before exiting the EU on October 31, writes Paul Gosling

Wrightbus workers celebrate as news breaks that a deal is reached in principle for the sale of the company
Wrightbus workers celebrate as news breaks that a deal is reached in principle for the sale of the company

By Paul Gosling

Subject to the "Ts" being crossed and the "Is" being dotted, Wrightbus is to be saved. Lengthy negotiations between Jo Bamford's company, Ryse Hydrogen, and the Wright family appears to have ended with smiles, rather than tears. Bamford said that, while the deal was not yet concluded with the administrators, terms had been agreed in principle with the Wright family.

We will have to wait to see how many of the previously employed 1,200 workers will retain their jobs.

The future, it is hoped, will involve large-scale manufacture of hydrogen-powered buses at the Ballymena factory. Earlier this year, Wrightbus announced contracts for the sale of hydrogen buses to London and Aberdeen. The great benefit of hydrogen engines is that their only emission is water.

Meanwhile, employers' organisation Manufacturing NI expressed fears for the future of many of the small firms that supplied Wrightbus and who are owed large amounts by companies that are part of the Wrights Group. It is likely that the failure of Wrightbus - one of Northern Ireland's largest and most iconic businesses - will be examined carefully in the coming months. (Other significant business failures have led to investigations into their operations by committees of MPs and by the regulator of the accountancy profession.)

One of the questions likely to be asked is whether it was appropriate for the Wrights Group to have made donations - through its parent Cornerstone Group - of £15m in six years to the Green Pastures Church, of which Jeff Wright is the pastor.

But perhaps the most important questions are much broader in nature. Wrightbus cannot be seen in isolation. Ballymena has been hit by the closure of two other large manufacturing companies, Michelin and JTI (formerly Gallaher Tobacco).

In Belfast, Harland & Wolff has been rescued, but there will be nervousness over its future, which could be affected by whether there is approval for the new owner InfraStrata's proposed gas storage facility at Islandmagee.

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Manufacturing has traditionally been very important for Northern Ireland - it was one of the UK's most productive manufacturing regions up to the 1960s, a period in which it outperformed the rest of the UK.

But there was a decline in the 1970s, in part because of the Troubles, but also as a reflection on how the global textiles, clothing and footwear sectors began to change.

By contrast, it was a period in which manufacturing in the Irish Republic increased rapidly. Meanwhile, Northern Ireland's dependence on the public sector increased.

Today, one of the most significant aspects of the Northern Ireland economy is how small its private sector services economy is.

Any reader wanting to understand the character of the Northern Ireland economy is advised to read a new report from Ireland's Economic and Social Research Institute, authored by Seamus McGuinness and Adele Bergin.

While titled The Political Economy of a Northern Ireland Border Poll, it provides a penetrating insight into the state of Northern Ireland's economy. It explains that, while services provided 52% of the Republic's exports, in Northern Ireland the figure was just 18%.

In 2017, more than 70% of Northern Ireland's exports were in manufactured goods. If that seems to contradict the narrative of a decreasing manufacturing sector, what it actually shows is that other sectors have failed to expand sufficiently to replace the decline of manufacturing.

That situation becomes even more stark when comparing Northern Ireland's economy with that of the rest of the UK.

In 2017, over 70% of UK GDP came from the services sector. UK Government statistics for exports present a similar picture - total UK exports in 2017 were £634bn, of which £460bn (72%) were of services.

Northern Ireland's economy presents an inverted picture of that of Great Britain - manufacturing for us is what the services sector is to Britain.

Across the Northern Ireland economy, productivity is a problem - essentially because we don't have sufficient high-value skills in our labour market and we are held back by the sometimes poor-quality infrastructure.

Unite the Union argues that this productivity weakness does not apply to manufacturing. Its official Donal O'Cofaigh says: "The competitiveness gap is not in manufacturing."

Manufacturing productivity in Northern Ireland is 38% higher than that across the economy, according to a report conducted three years ago by Oxford Economics for Manufacturing NI.

This no doubt explains why manufacturing accounts for such a high proportion of our export sales.

Moreover, in the advanced manufacturing sector, productivity is 27% greater than in other parts of manufacturing production.

That is not to say that our manufacturing outperforms Great Britain in terms of productivity; rather that Northern Ireland matches Great Britain's levels, unlike in other parts of the economy where it lags. And bear in mind, too, that the UK as a whole is around 25% below the international average for manufacturing productivity.

This is part of the story why manufacturing here is increasingly struggling against international competition. Energy costs across the UK are high by international standards, points out Stephen Kelly, chief executive of Manufacturing NI. And Northern Ireland's manufacturing has been badly hit by the fall-out from Brexit, with some of the damage inflicted already, whatever the final shape of our departure from the EU.

Some business leaders in Northern Ireland - ironically, including William Wright, the founder of Wrightbus - argued in favour of Brexit. They may have been influenced by the prospect of improved competitiveness from the devaluation of an arguably previously over-valued sterling.

But while the value of sterling has fallen, it has also been subject to significant volatility, making the pricing of international trade difficult. And those exporters selling to countries in the midst of trade wars and regional economic pressures - Wrightbus has exported to Chile, Mexico and Hong Kong in recent months - may be affected by the volatility hitting other currencies, too.

Anyway, what manufacturers have gained in a more competitive currency for exports they have lost from higher input costs. "Not everyone exports, but every one of my members imports," says Kelly. Moreover, that is without considering the threat from Brexit to cross-border production that has been hanging over the agri-food sector, which accounts for £1bn out of the £3bn exports to the Republic and £1.3bn out of £6bn in sales to the EU as a whole.

The even better story for Northern Ireland than the rescue of Wrightbus would be if we find that a Brexit deal can be finalised that eliminates these severe threats to our manufacturing sector.

"This is why we have been going mental on this," explains Kelly. "We are so exposed."

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