EMU is a serious issue for the North

Businesses in Northern Ireland are now taking an interest in an increasingly affluent Republic, writes Jim Power UP until quite recently, Northern Ireland's exporters never really regarded the Republic as a major market for their goods, despite its geographical proximity and relative ease of access.

This is changing and many Northern businesses are now starting to sit up and take notice of an increasingly affluent economy which is experiencing booming domestic demand conditions and which clearly offers enormous market potential.

Indeed, some economists and policy makers up North are also starting to examine more closely the economic transformation which the South has experienced and one can detect faint signs of envy at the experience of the "Celtic Tiger".

There are those who are even prepared to admit that the Southern experience over the past decade could be looked at more closely as a model of economic development for the North. This is particularly true in relation to the very successful industrial policy which the IDA has been pursuing.

Reflecting this, the recent evolution of the Northern economy is starting to show marked similarities to the Southern experience over the past decade.

Having come from a position where there was a heavy dependence on the State sector, the economy is now becoming a little more balanced and growth is becoming self-sustaining.

Exports of manufactured goods have grown by almost 20 per cent in each of the last two years. Inward investment is now creating half of the net new jobs every year. There is an increasing focus on education and training, a recognition that the manufacturing base is too small and that indigenous industry needs to be fostered more closely. The defining characteristic though, is the increased emphasis which is being placed on exports, both indigenous and multi-national, and in this regard the South is starting to be considered in a more serious manner than before.

Since 1993, Northern exports to the South have increased by almost 54 per cent rising to £641 million last year, while imports from the South have grown by just 16 per cent, to £818 million. Over that period, the Southern trade surplus has fallen from £284 million to just £177 million, and the general expectation in Northern Ireland is that the surplus will narrow further as Northern export growth continues to outpace the trade flows in the other direction. Small businesses in the North appear to be leading this drive as they outgrow what is a relatively limited local market.

The message now in Belfast is that the Southern market offers great potential and that to ignore it would be a business mistake.

With this growing acceptance of the sales potential in the South, there is also a growing realisation that in just 15 months time, Southern politicians will realise their great ambition and take the pound into the single European currency and that sterling will not be part of it from the beginning at least.

Just as sterling's non-participation is a grave concern for some in this economy, it is also becoming a concern for Northern exporters.

While they have had to live with a volatile relationship between both currencies since 1979, the advent of EMU is seen as something more significant, particularly coming at a time when the potential offered by the Southern market is just starting to be exploited. This development is also a source of anxiety for those involved in tourism. Visitors from South of the border have become a very important source of revenue, particularly since the first cease-fire in 1994.

While the numbers travelling north are obviously very sensitive to the political situation, currency considerations are also quite important.

Sterling's rise against the Irish pound over the past year has had a quite negative impact on tourist numbers this summer. Those involved in the industry are not exactly enthusiastic about the prospect of a total de-coupling of the Irish pound from sterling in 15 months time.

Furthermore, all of those small businesses along the Border which have endured varying degrees of currency turmoil since 1979 are not relishing what could be a serious accentuation of the problem. The bottom line now is that there is increasing attention being paid to EMU in Northern Ireland. The relationship which sterling will have with the euro is obviously the key concern, not alone because of the Southern situation, but also because the Northern economy has substantial trading links with the rest of the EU.

In addition, there is a growing realisation that EMU will have numerous other practical implications for the way in which business is conducted.

Basically, if Northern companies want to transact business with EMU countries in 1999, they will need to have a euro capability. This fact was not really appreciated until recently. It just goes to prove, that nobody will be immune to developments on January 1st, 1999.

Jim Power is chief economist at Bank of Ireland Group Treasury. The views expressed here are personal.