Why is the North­ern Ire­land econ­omy slow to re­cover?

Belfast Telegraph - Business Telegraph - - Analysis & Company Report - with John Simp­son @bel­tel_busi­ness

In the later months of 2016, the out­put of the North­ern Ire­land econ­omy was 7% be­low the peak value recorded in early 2007, just be­fore the re­cent re­ces­sion be­gan to take ef­fect. In sharp con­trast, late in 2016, out­put for the UK was 8% higher than the pre-re­ces­sion peak. As the Gov­ern­ment statis­ti­cians com­mented: “The UK has had a shorter down­turn with a faster re­cov­ery”.

The con­trast, to North­ern Ire­land’s dis­ad­van­tage, is too large sim­ply to reg­is­ter the dif­fer­ence and move on. In this nine-year pe­riod, the lo­cal econ­omy has lagged the UK per­for­mance in a strik­ingly un­wel­come way. For Gov­ern­ment, busi­ness, em­ploy­ers and em­ploy­ees, there is a need to ask why.

What must be dis­en­tan­gled are rea­sons which point to un­usual cir­cum­stances that are one-off dis­tor­tions and also for other fac­tors which show con­tin­u­ing eco­nomic weak­nesses.

Two fac­tors have tended to over­state the un­der­per­for­mance of the lo­cal econ­omy.

First, the big re­duc­tion in the num­ber of jobs in the public sec­tor as a re­sult of the ‘early leaver’ vol­un­tary exit scheme in 2015-16 means that sta­tis­ti­cally the out­put of the public sec­tor has re­duced. Lower em­ploy­ment is taken as mean­ing lower out­put: if of­fi­cial ser­vices were main­tained then it is a mis­lead­ing state­ment. How­ever, this per­verse ef­fect would af­fect less than 1% in the over­all in­dex.

Se­cond, the North­ern Ire­land start­ing point for the re­ces­sion might be re­garded as an un­usu­ally high level of out­put given the fea­tures that help­fully in­flu­enced the econ­omy in 2007-8.

Even dis­count­ing these two fea­tures, there re­mains an un­wel­come dif­fer­ence for North­ern Ire­land when com­pared to the UK per­for­mance. The same con­clu­sion can be drawn if the com­par­i­son is between North­ern Ire­land and the Re­pub­lic of Ire­land which has shown a no­table re­cov­ery from its re­ces­sion.

The re­cent com­par­a­tive de­vel­op­ments have not been a one-off dis­tor­tion. Although there have been short pe­ri­ods of bet­ter lo­cal growth, the long-term trend shows no sat­is­fac­tory catch-up.

The widen­ing un­der-per­for­mance gap for the NI econ­omy shows that the North­ern Ire­land labour mar­ket has been bet­ter at main­tain­ing in­creased lev­els of em­ploy­ment than at boost­ing earn­ings and out­put to close the gap with GB. Em­ploy­ment numbers have var­ied from year to year and, in gen­eral, have (pro­por­tion­ately) fol­lowed the na­tional trends. In con­trast, although of­fi­cial poli­cies have em­pha­sised train­ing for higher value-added jobs, aver- age earn­ings have stayed close to 80% of the UK com­para­tor. The North­ern Ire­land skills mix may have im­proved slightly but not by enough to suf­fi­ciently in­flu­ence pro­duc­tiv­ity and prof­itabil­ity and hence to im­prove rel­a­tive earn­ings.

Just two weeks ago, Econ­omy Min­is­ter Si­mon Hamil­ton pub­lished ‘Econ­omy 2030’, a con­sul­ta­tion on an Industrial Strat­egy for North­ern Ire­land. He of­fers a wide-rang­ing re­view dis­cussing how the com­pet­i­tive­ness of the lo­cal econ­omy might be in­creased and, in par­al­lel, seeks sources to gen­er­ate in­clu­sive growth for the econ­omy.

Many of the in­di­vid­ual is­sues raised in the con­sul­ta­tion merit fur­ther de­tailed scru­tiny. Pri­or­i­ties are iden­ti­fied which fall within five pil­lars: ac­cel­er­at­ing in­no­va­tion and re­search; en­hanc­ing ed­u­ca­tion, skills and em­ploy­a­bil­ity; driv­ing in­clu­sive sus­tain­able growth; suc­ceed­ing in global mar­kets; and build­ing the best eco­nomic in­fra­struc­ture. Then within each of the pil­lars a spe­cific of pri­or­i­ties is listed: 26 in to­tal.

The min­is­ter has set an ex­ten­sive agenda. At first sight, it is an im­pres­sive and com­pre­hen­sive re­view. Less help­fully, the large num­ber of pri­or­i­ties is for­bid­ding and di­lutes the prospect of tar­geted se­lec­tiv­ity. With so many pri­or­i­ties, the eco­nomic in­her­i­tance is in­ad­e­quate and the nec­es­sary range of ac­tions looks for­bid­ding.

The min­is­ter and his of­fi­cials are less than help­ful in avoid­ing se­lected gra­da­tions for pol­icy de­vel­op­ments. Not ev­ery­thing in the agenda is bro­ken: some de­fi­cien­cies are more man­age­able than oth­ers. The con­sul­ta­tion only serves a use­ful pur­pose if it leads to se­quenced, costed and pri­ori­tised se­ries of ac­tions.

Un­hap­pily, that sets a challenge for more follow-up com­ments.

Ex­ten­sive agenda: Si­mon Hamil­ton

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