Northern Ireland Forum

for

Political Dialogue

~~~~~~~~~

REPORT ON EVIDENCE

ABOUT THE PERFORMANCE OF THE

NORTHERN IRELAND ECONOMY

GIVEN TO

STANDING COMMITTEE E

(The Northern Ireland Economy)

~~~~~~~~~

Presented to the Northern Ireland Forum for Political

Dialogue

on 25 July 1997

This report has been prepared by Standing

Committee E for the consideration of the Northern

Ireland Forum for Political Dialogue. Until adopted

by the Forum in accordance with its Rules, this

report may not be reproduced in whole or in part or

used for broadcast purposes.

Note

DRAFT REPORTS

ACKNOWLEDGEMENT

The Committee wishes to express its sincere thanks to

all who gave evidence to it during the course of its

examination of issues relevant to the performance of the

Northern Ireland economy.

CONTENTS

Page

1. BACKGROUND 1

2. ORAL EVIDENCE 2

3. THEMES ARISING FROM EVIDENCE 3

4. IDENTIFICATION OF KEY AREAS 4

5. SUMMARY OF KEY ISSUES 5

6. MINUTES OF EVIDENCE 21

1. BACKGROUND

The Economy Committee (Standing Committee E) of the Northern Ireland

Forum for Political Dialogue was set up on Friday 8 November 1996 with

the following Terms of Reference:-

"To examine issues relevant to the performance of the

Northern Ireland economy and report to the Forum at

periodic intervals."

The Committee began its work of examining issues affecting the

performance of the Northern Ireland economy by identifying issues to

focus on, setting priorities and deciding which experts it might wish to

address it.

1

2. ORAL EVIDENCE

At the outset the Committee considered it important to seek an overview of

the Northern Ireland economy from the Department of Economic

Development and to meet with both sides of industry. The following

organisations were invited to give evidence to the Economy Committee:-

21 November 1996 - Department of Economic Development

28 November 1996 - Confederation of British Industry

- Irish Congress of Trades Unions (Northern

Ireland Committee)

5 December 1996 - Northern Ireland Tourist Board

12 December 1996 - Northern Ireland Growth Challenge

16 January 1997 - Industrial Development Board

23 January 1997 - European Communities Commission

30 January 1997 - Northern Ireland Federation of ACE Schemes

6 February 1997 - Training and Employment Agency

13 February 1997 - Northern Ireland Centre in Europe

20 February 1997 - Northern Ireland Chamber of Commerce

27 February 1997 - Northern Ireland Association of Community

Based Training Organisations

13 March 1997 - Northern Ireland Council for Voluntary Action

2

3. THEMES ARISING FROM EVIDENCE

The Committee discussed briefly each of the following themes arising out

of the evidence provided by the various organisations:-

A. Long-term unemployment (self-reinforcing).

B. Unemployment is not equally spread across NI.

C. High percentage of employment (30%) is in the public sector.

D. Political stability - effect of ceasefires and disturbances.

E. Transport difficulties.

F. Energy costs.

G. Education - skills gap/new technologies.

H. Cross-border trade gap.

I. Consensual/co-ordinated economic management.

J. Importance of services sector in advanced economies.

K. Comparative Studies.

L. Number of administrative/executive layers.

M. European dimension.

N. Competitiveness.

O. Voluntary sector.

3

4. IDENTIFICATION OF KEY AREAS

The Committee agreed that all of these themes are worthy of consideration

but in an effort to prioritise identified the following as key areas:-

(a) long-term unemployment/new technology/skills gap;

(b) number of administrative/executive layers required for Northern

Ireland;

(c) transport difficulties;

(d) cross-border co-operation;

(e) European dimension; and

(f) energy costs.

4

5. SUMMARY OF KEY ISSUES

The following is a summary of the key issues arising from the evidence

given to the Economy Committee to date. This summary does not

represent the position of the Committee but that of the evidence submitted

by the various organisations.

A. Long-Term Unemployment (Self-Reinforcing)

1. The unemployment situation in Northern Ireland remains

substantially worse than the whole of the UK. In recent times

short-term unemployment has more or less equalised with the

rest of the UK but long-term unemployment is still at least

double.

2. Northern Ireland has the highest level of unemployment of all

the regions of the United Kingdom but the movement and

direction are always pretty much in line.

3. Recently the gap has been narrowing and unemployment in

Northern Ireland has been converging on the Great Britain

level. Despite a good employment creation record and

migration, the pressure of numbers of people is still too great to

prevent high unemployment. Over half of the unemployed in

Northern Ireland are long-term unemployed. This structure of

unemployment is now quite different from the structure in the

rest of the United Kingdom.

5

4. Of the jobs created by assistance from IDB or LEDU as few as

one in five go to the unemployed and the proportion that go to

the long-term unemployed is significantly lower.

5. When employers are demanding increased skills, some people

who have less skills or less education are finding it quite

difficult to get jobs. Young, unskilled males are being affected

more than women.

6. The benefit trap and the unemployment trap is more severe in

Northern Ireland than elsewhere in the UK. There is a higher

dependency level which makes overall benefit payments higher.

This makes it more difficult to move out of unemployment and

the longer people stay unemployed the less attractive they are

to employers. Benefits should be refocused. One of the

reasons the long-term unemployment problem is so intractable

is that the benefit system militates against people 'taking the

plunge' to come off benefits and take a job. The longer

unemployed, the less chance there is of getting back into work,

and the more chance there is that that will cause health

problems, political problems and social problems in local

communities.

7. Long-term unemployment is, therefore, self-reinforcing. Once

people get into long-term unemployment it is very difficult to

get back into employment even if an economy is booming.

The booming economy in Northern Ireland relative to Great

6

Britain in the last number of years has reduced short-term

unemployment to the GB level but long-term unemployment

remains high.

B. Unemployment Is Not Equally Spread Across NI

8. Unemployment is not equally spread across Northern Ireland.

The numbers and percentages of unemployed claimants in

travel to work and District Council areas are set out at

Annex A.

C. High Percentage of Employment (30%) is in the Public Sector

9. About 30% of Northern Ireland's employment is in the public

sector, mostly in services. There is not much public sector

production adding wealth to the economy. In Great Britain

employment in the public sector is only 20%.

D. Political Stability - Effect Of Cease-Fires And Disturbances

10. Economic growth did pre-date the ceasefires for reasons that

are quite complex but include improved competitiveness,

improvement in unit wage cost and higher subsidies. In

manufacturing, vertical and horizontal linkages are increasingly

important and in a difficult security situation opportunities are

7

fewer because people do not want to travel to Northern

Ireland.

11. Community relations affects economic growth. Inward

investment from eg tourism is obviously at risk from that

non-economic factor. Disturbances during last summer are

forecast by the Northern Ireland Tourist Board to have a

downward effect on tourism figures of the order of 11% in

total visitors, 25% in holiday visitors and 6% in revenue.

12. Ironically the violence helped unemployment because people

migrated. Under more peaceful conditions the economy would

grow and the private/public sector balance would be likely to

change.

13. The political background and the state of Northern Ireland in

terms of peace or otherwise has a significant influence not just

on whether investors and tourists wish to come in but whether

people will make links with other companies.

14. Political stability and the reduction of uncertainty would have

an enormous impact on our economy, not just on inward

investment, which a lot of people focus on, but on the

confidence that local enterprises need to have to invest in their

businesses and on the confidence that their customers overseas

need to invest in them.

8

15. The actual costs of violence and instability and funding for law

and order are enormous. The prize we all want to see is

political stability. Unless we have political stability in Northern

Ireland, we are not going to make progress in tackling

long-term unemployment and developing a successful

economy. We need a form of political stability which has the

maximum amount of community support.

16. Recognising the good work District Councils can do and if the

political parties in Northern Ireland come to a settlement that

enjoys consent across the population legislative power should

be restored to Northern Ireland.

17. The enormous potential of Northern Ireland can only be

realised if we have peace. During the period of the IRA

cease-fire, interest in Northern Ireland really took off.

18. In terms of the cease-fire period and its effect on the economy,

one of the interesting and unexpected things that happened in

business terms was that businessmen discovered that it was

actually a lot easier to export when the cease-fire was on.

19. Survey work indicated that few people expected the cease-fire

to have an impact but in the event they discovered that for

purchasers and buyers of Northern Ireland goods, political

stability and political certainty were very important.

9

20. Political stability needs to be achieved to restore business

confidence in respect of medium and long-term prospects.

10

E. Transport Difficulties

21. The population here is not big enough to justify direct air

connections with European capitals. We can get leisure traffic

but they are not paying adequate fares and business traffic

remains the basis of sustaining routes on a year-round basis.

22. Transport costs tend to place Northern Ireland firms at a

disadvantage. The CBI has found transport costs to be

particularly high and has been quite critical of the lack of an

integrated transportational strategy and investment with

particular reference to the West Link.

23. Despite the fact that the Government has signed up for

European vehicle weights (40 tonne limit), weights are being

held down to 38 tonnes gross.

F. Energy Costs

24. The DED indicated to the Committee that electricity costs are

higher in Northern Ireland than in Great Britain and very heavy

users of electricity, where electricity is a big part of their costs,

would rather have costs closer to the GB average. However,

for very many companies energy costs are quite a small part,

something between one and two per cent of their overall costs.

11

25. Energy costs here are something like 20% or 25% above Great

Britain and the Republic of Ireland. Generation costs are the

key to delivering competitive energy costs.

26. One of the best ways to minimise costs is likely to be greater

interconnection with the Republic of Ireland.

27. The fact that our energy costs are so much higher than those

in the rest of the UK has a negative impact on both indigenous

business and inward investment.

G. Education - Skills Gap/New Technologies

28. Because the education system in Northern Ireland is

university-based the whole focus is on the academic, rather

than the vocational. We need to develop a much closer link

between schools, further and higher education colleges and

industry. There is a two-tier education system in this country

that concentrates on those who have the academic abilities.

29. There is a need for partnership between employers who have

jobs and know exactly what is required and local further

education colleges and training establishments.

30. Although there has been a significant reduction in the level of

low achievement it is still significantly higher than in the rest of

12

the UK. Employers need to inform the education and training

systems what they actually require from them.

31. A skilled and flexible work-force is essential, flexible not just in

capability but in the ability to work as required. Core skills are

absolutely fundamental in the way of: communication,

working with others and numeracy. In certain areas there is a

shortage of people with the right attitude and core skills.

H. Cross-Border Trade Gap

32. Cross-border trade has doubled in the last four years, resulting

in 2,500 jobs being developed each side of the border.

Growing the economy for the whole of Ireland is in everyone's

interest.

33. Northern Ireland is part of the United Kingdom and realistically

and pragmatically has to work within that dimension but that

should not deny us the opportunity to develop trading and

economic linkages elsewhere.

34. Northern Ireland has a significant trade imbalance with the

Republic of Ireland. Over the last few years that trade

imbalance has been decreasing. A significant gap has been

identified in the area of North/South trade which could lead to

the creation of 5,000 jobs.

13

35. There has been development in terms of North/South

co-operation in tourism from which Northern Ireland stands to

gain more than the Republic does. Since 70% of visitors to

Northern Ireland come from or via the Republic it makes very

good commercial sense to advertise the island of Ireland jointly

with the Republic.

36. Over the last 3 years manufacturing sales to the Republic have

increased by 45% and Northern Ireland Economic Research

Council figures indicate that a doubling of trade with the South

could generate 7,500 jobs North and South.

I. Consensual/Co-Ordinated Economic Management

37. A system of social partnership operates in the Republic of

Ireland where the trade unions, the employers, the Government

and the farmers work out their common objectives and

interests. They share the national cake and in that consensual

model a situation exists whereby jobs come in and the

economy prospers.

38. The Government has a catalytic role - a leadership role - and

part of that is drawing the social partners together and

establishing a public/private sector partnership with very clear

objectives on taxation, wages and on how to get the proper

interaction between benefits and taxation levels.

14

39. The Danish economy is also based on consensual management.

15

J. Importance of Services Sector in Advanced Economies

40. We need to recognise the importance of services which are

becoming more important in advanced economies. The

provision of services has to be much more of a focus than it

has tended to be in the past. Services in Northern Ireland are

much more in the public sector than they are in Great Britain.

Northern Ireland should be setting some ambitious longer-term

targets as they are doing in the Republic of Ireland.

K. Comparative Studies

41. The economic performance of the Republic of Ireland is

currently considerably better than that of Northern Ireland

except that despite improvements in GDP, employment,

manufacturing etc unemployment has risen by 26% in the last

five years. Solutions that work in certain places cannot always

be easily transplanted to other situations.

42. Studies carried out by NIERC show that the growth rate of

small firms in Northern Ireland has exceeded that of similar

firms in Leicestershire and in the Republic of Ireland.

43. In Scotland and the Republic of Ireland tourism contributes

5%-7% of GDP. An equivalent figure in Northern Ireland

would produce an additional £500 million in tourism revenue

each year and an additional 20,000 jobs.

16

44. Over the last five years total industrial production went up by

13% in Northern Ireland, in the United Kingdom by just less

than 6% and within the European Union as a whole by only

3.6%.

45. Manufacturing output over the period 1991 to 1996 in Northern

Ireland went up by over 15% compared with just over 5% in

the United Kingdom.

L. Number of Administrative/Executive Layers

46. Mr W Tosh of the Confederation of British Industry expressed

concern to the Committee that "the economic strategy for the

Province is not sufficiently integrated" and added that "the Civil

Service and civil servants drive everything from fairly isolated

positions". An assembly would be important because through a

mechanism such as that we could have some local lobbying to

affect our regional strategy. We need an inclusive,

broadly-supported entity here, which would have at the top of

its agenda the strategy for the economic development of

Northern Ireland.

47. The Province is administered by those who have interests that

are diluted, because of their constituency and association.

Businessmen want to see a local institution created to deliver

ownership back into our hands. The CBI is in favour of a local

17

democratic institution which would pull together all the local

interest groups and develop the local economy.

48. The 1973 reorganisation of local government set up fairly

distinctive, separate, and nearly uncontrollable departments.

Northern Ireland needs a high degree of local involvement and

control.

M. European Dimension

49. Northern Ireland is peripheral in the sense that it is on the edge

of Europe thereby creating a distance problem and also in the

sense that it is away from the central areas where new ideas

and new products tend to be generated more easily.

50. One of the big problems we face during the next number of

years is the whole question of European Monetary Union. We

have to consider very carefully the implications of what

happens in a situation where the Republic of Ireland may go in

and the United Kingdom, of which we are a part, stays out.

Northern Ireland is going to be in an interesting position.

51. If you look at the single currency from the standpoint of

individual companies it is possible to make a very powerful

case for it because it means that companies will be able to

export within the currency area without having to worry about

exchange rate risk. On the other hand, if you get a number of

18

weak players joining the single currency area, interest rates

would tend to be higher and the benefit to business would be

that much less.

52. Aid from the European Union has undoubtedly played an

important part in the relatively good performance of Northern

Ireland. It has had an impact on the economy through

increased investment, better infrastructure and employment.

53. In 1999 there will be a full review of European Union funding

for the regions and there is no telling whether or not Northern

Ireland will continue to fall into Objective 1 status. Should

poorer countries like Romania, Hungary, Poland, Estonia and

Lithuania join the EU, the fund will be dissipated eastwards.

54. European money comes to Northern Ireland from several

sources. The main source is through the Single Programming

Document which covers a six-year period running to the end

of 1999. Northern Ireland has been given high priority

(Objective 1 status). The money is to promote economic and

social cohesion.

55. The Special Support Programme for Peace and Reconciliation

shows Europe's commitment to Northern Ireland to try and

promote social inclusion and cross-community development.

19

56. Programmes like INTERREG, which promotes cross-border

co-operation, URBAN, which promotes urban regeneration,

and LEADER, which is for rural development also contribute to

the Northern Ireland economy. It is important that Northern

Ireland as a region is represented and puts forward its own

ideas for future funding.

57. There are a number of issues coming up on the European

agenda which people in Northern Ireland need to be aware of

including:- enlargement, monetary union and the future

development of the Inter-Governmental Conference (IGC).

N. Competitiveness

58. Over the last five years the performance of the Northern

Ireland economy has been very good relative to the United

Kingdom as a whole. Manufacturing here has grown at twice

the rate and employment has gone up by 5.5%, whereas in the

same period it has declined in the rest of the UK. Unit labour

costs in Northern Ireland have now come down to below those

in Great Britain partly due to adjustments in wages and partly to

adjustments in productivity. This gives us some competitive

advantage against the rest of the United Kingdom.

59. A big part of the approach of the Department of Economic

Development is now to help Northern Ireland companies to

20

become internationally competitive. Basically DED wants to

improve the competitiveness of the economy.

60. There is an increasingly competitive world in manufacturing,

and the sort of new competition that has become so important

is in terms of inter-firm linkages.

61. The focus of the Confederation of British Industry has been on

competitiveness and growth. This led to the formation of

Growth Challenge. In giving evidence to the Committee

Mr W Tosh of the CBI said, "the Growth Challenge is a very

complex exercise employing over 500 people looking at how to

advance Northern Ireland's competitiveness and growth".

O. Voluntary Sector

62. As part of a European requirement each member state must

classify and quantify the role of the voluntary sector in its

country's economy.

63. The voluntary sector in Northern Ireland is made up of around

4,000 organisations and has an estimated turnover of £480

million. In Northern Ireland only 0.2% of income comes in the

form of support from business whereas in the UK this figure is

5.3%.

21

64. There are over 30,000 paid workers, which accounts for 5%

of the paid workforce in Northern Ireland. The sector also

benefits from 65,000 volunteers. There is a high concentration

of part-time and female workers.

65. Northern Ireland has a thriving voluntary sector that is involved

in many different areas of work contributing significantly to the

economy and employing a significant number of people.

66. The highest concentration of voluntary groups is in Belfast and

the lowest in County Fermanagh.

22

6. MINUTES OF EVIDENCE

Minutes of the evidence given to the Economy Committee by the

organisations listed in section 2 is available on request.

23

ANNEX B

MEMBERSHIP OF

STANDING COMMITTEE E

(THE NORTHERN IRELAND ECONOMY)

Ulster Unionist Party - Mr D Nesbitt - Chairman

Mr R Stoker

Mr J Clarke

Mrs M Steele

Democratic Unionist Party - Mr St C McAlister - Vice-Chairman

Mr S Wilson

Rev E Smyth

Mr M Carrick

Alliance Party - Mr S Neeson

Mr S McBride

*Mr P Osborne

UK Unionist Party - Mr C Wilson

*Mr P Roche

NI Women's Coalition - Ms M McWilliams

*Ms N Heaton

Labour - Mr M Curran

*Mr W White

Ulster Democratic Party - Mr G McMichael

*Mr D Adams

Progressive Unionist Party - Mr H Smyth

*Mr B Hutchinson

*attend the Committee on behalf of the party under Rule 14(4)(a) of the

Forum Rules of Procedure

• Report on Evidence about the Performance of the Northern Ireland Economy given to Standing Committee E (introduced on 1997-07-25 10:02:00 - CREATE_FROM - e829213) [This document] [view current proposal at this moment]
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