North's economy floundering

  • 22 March 2006
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A new aid package is due next month to save the North's economy. But many think the economy will never be able to compete with the South while still a part of the United Kingdom. Colm Heatley reports

Next month the British and Irish governments will announce an economic aid package for Northern Ireland, designed to provide a boost to an economy which is suffering from long-term stagnation. Although details have yet to be announced, it is expected that the thrust of the package will focus on boosting the private sector and of increasing harmonisation of businesses North and South. However, no matter what details are contained in the deal it is sure to disappoint the North's politicians, especially the DUP, who are demanding the greatest amount of economic autonomy from the UK of any of Northern Ireland's parties.

Since the Good Friday Agreement was signed almost eight years ago, Northern Ireland's moribund economy has been thrown into sharper focus. DUP Deputy Leader Peter Robinson has called for corporation tax to be slashed from 30 per cent to 10 per cent, under-cutting even the South's generous rate of 12.5 per cent.

It is a hopelessly unrealistic demand and one which the British government, particularly Chancellor Gordon Brown, will not take seriously. To extend that privilege to Northern Ireland the British government would be compromising its entire economic strategy in England, Scotland and Wales. However, the idea that Northern Ireland is being held back because of its inclusion in the United Kingdom and that its economic interests would be better served as part of an all-Ireland economy is starting to crystallise.

The two biggest barriers to the economy are the inability to change corporation tax or to join the Euro and better harmonise business with both the South and continental Europe. While Northern Ireland remains in the UK both those policies will be decided in London.

Northern secretary Peter Hain has said in the past that he wants to see the private sector play an increased role in Northern Ireland. He is also aware that any cuts in public spending could result in an unthinkable downturn in the economy.

Public spending by the British government accounts for 63 per cent of Northern Ireland's GDP. Almost 40 per cent of the workforce are employed in the public sector.

A sudden withdrawal of that lifeline in the absence of a robust private sector would reduce the amount of income and could, quite conceivably, lead to a contraction of private enterprise.

There are few bright spots in the Northern Ireland economy.

Although there are 100 US companies employing more than 20,000 people, that figure does not make up for the more than 100,000 people made redundant from Northern Ireland's manufacturing base which has declined year-on-year since 1970.

Furthermore, the jobs offered are all too often low-skilled jobs, such as in call centres which are notoriously vulnerable to competition from the low wage economies of countries such as China. Even that figure masks the fact that direct foreign investment fell in the 1990s, largely a consequence of the South's success.

When compared to the South's economy the disparity between the two is obvious. In the first two months of 2006 more than 3,000 new businesses were registered in the South, but no figures are available for the North, which is telling in itself. While the South relies on migrant workers to sustain its boom and fill low-skilled jobs, the North is able to create barely 10,000 jobs a year. Last year the South created 100,000 new jobs.

In terms of people engaged in entrepreneurial activity, there are almost four times as many in the South as in the North.

Sinn Féin has called for a harmonisation of the corporation tax rate for North and South. Again that is a hopelessly unrealistic ambition.

The natural ally of Northern Ireland would be the South, from whom it could benefit from an economic overspill.

That is something which even Peter Hain has publicly admitted, much to the annoyance of the DUP.