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Why hasn’t peace given Northern Ireland an economic lift?

The Republic took a long time to benefit economically from independence, while the North has yet to benefit economically from the peace process

It’s perhaps the most disappointing legacy of peace on the island that the North hasn’t profited more economically. Photograph: Dara Mac Dónaill/The Irish Times

Eoin Burke-Kennedy's face
Eoin Burke-Kennedy
Sun Jan 14 2024 - 14:18

Ireland’s North-South wealth divide conspicuously flipped right as the North’s peace process came into being. It would be a gross oversimplification to link the process that led up to the 1998 Belfast Agreement with the South becoming richer than the North.

There was a complex series of factors other than GDP (gross domestic product) feeding into the settlement. Nonetheless, the economic context of political events always warrants inspection.

Before the 1990s, the Republic’s economy was a basket case, characterised by pockets of extreme poverty, elevated levels of unemployment and the perennial sluice gate of emigration.

For most of the 20th century, the independence dividend accruing to the Republic from being outside the UK was political rather than economic. And even this was questioned when revelations of systemic abuse in the State’s Catholic-run childcare system began to emerge.

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For some, the poor performance of the Republic’s economy made the independence project a failure.

This argument has largely gone away. We can argue about the Republic’s relative prosperity: how traditional metrics like GDP exaggerate economic performance; whether the lack of infrastructure or the poor provision of services undermine the State’s status as a rich, developed country, but does anyone really contend that the Republic would be better off inside the UK?

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Between 2019 and 2023, the Republic’s economy created 350,000 jobs, the strongest period of employment growth in the history of the State. The Republic’s gross national income (GNI) per capita is now significantly higher than the UK’s ($79,370 versus $49,420).

Foreign direct investment (FDI) premised on membership of the EU’s single market and a low tax rate has driven a sea-change in the Republic’s economic performance.

[ Irish households will see a real increase in disposable incomes in 2024  ]

Judging by a recent poll carried out by ARINS and The Irish Times, the well-off citizens of the South have never been more preoccupied with the cost implications of a united Ireland. Does wealth drive a status quo bias?

If the South’s independence dividend was a long time coming, the North’s peace dividend – the economic shot in the arm the region should have got from ending three decades of violence – hasn’t come at all.

It’s perhaps the most disappointing legacy of peace on the island that the North hasn’t profited more economically.

The study highlighted Northern Ireland’s overreliance on the public sector, reflective of a less dynamic private sector

In a recent paper published in the Economics Observatory, Queen’s University academics Graham Brownlow, David Jordan and John Turner attempted to quantify the North’s “peace dividend”. While a partial dividend did exist, they concluded it was disappointingly small.

Employment is higher and unemployment is lower than at the height of the Troubles. The North’s low jobless rate is, however, flattered by a high rate of economic inactivity. The study noted that “those not in employment but not seeking work either” was 24.6 per cent (as of January last year) – the highest of any UK region.

[ Republic set to be big winner from new global minimum corporation tax, says OECD ]

On FDI, a touchstone for the Republic, the number of direct inward investment projects funded per year in the North was largely unchanged in the wake of the Belfast Agreement. The study also highlighted Northern Ireland’s overreliance on the public sector, reflective of a less dynamic private sector.

However, the most damning data point was GDP per capita, a measure of productivity, which was 20 per cent lower than the overall UK rate in 1998 and 21 per cent lower two decades later in 2019.

While unemployment is lower and new industries in the North are growing, the study concludes “there has been relatively little progress relative to the UK’s other nations and regions, particularly in productivity, the key driver of better living standards over time”.

At the end of last year, InvestNI, the North’s business development agency, announced the appointment of senior IDA Ireland member Kieran Donoghue as its new chief executive.

As the IDA’s global head of strategy, public policy and international financial services, Donoghue brings, as well as expertise, a big contacts book. Undoubtedly, InvestNI is looking to capitalise on a Brexit dividend, which allows the North to be simultaneously inside and outside of the EU’s single market for goods, while having direct access to the UK’s lucrative consumer market.

This has been a difficult advantage to exploit because of the delicate politics that surround it.

Donoghue has a tricky task ahead of him – not least because the IDA’s success in attracting FDI into the Republic has largely been based on three things the North doesn’t have: a low tax rate; unfettered access to the EU’s single market, and an accommodating, politically settled business environment.

[ Does Jeffrey Donaldson have the political imagination to end the Stormont stalemate? ]

The North is tied into the UK’s relatively high corporation tax rate, 25 per cent (it was 19 per cent), and into London’s regulatory position versus Brussels, which might best be described as fluid. These factors, combined with a stalled powersharing agreement, aren’t particularly strong selling points for InvestNI to pitch with.

Donoghue also slides into an organisation that may not all be on the same page. In 2021, former chief executive Kevin Holland exited unexpectedly. A subsequent review of the agency highlighted “profound divisions” at the top of the organisation and a dysfunctional relationship with the overseeing Democratic Unionist-led Department for the Economy.

Donoghue’s appointment, however, may signal a less politically encumbered, more economically focused approach.

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