Forg­ing links with Re­pub­lic

An­drew Webb looks at how man­u­fac­tur­ing can thrive de­spite the threat of Brexit

Belfast Telegraph - Business Telegraph - - Front Page - by An­drew Webb of Webb Ad­vi­sory @an­drewjudewebb

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

The JTI Gal­la­her plant in Bal­ly­mena will be clos­ing per­ma­nently in May

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