Peace dividend doesn't stretch to economics

Study points to gaps between two economies on island, writes Cliff Taylor, Economics Editor

The peace process was put on hold this week, but the announcement yesterday of a major US software company investing in Belfast shows that business continues.

Like the Republic, the North suffered from a fall-off in inward investment over the past couple of years, due to the bursting of the tech industry bubble, and is hoping for some recovery.

However, the Republic's long-standing success in attracting inward investment has left it with a much larger multinational sector, a key difference between the economies of the North and the South identified in a new study from InterTrade Ireland, the all-Ireland trade and business development body.

The peace process has led to talk from time to time of an "all-island economy". The report shows that the exceptional growth rates of the Republic's economy and a better-than-average performance in Northern Ireland have, indeed, led to strong growth figures for the island.

However, it also demonstrates the considerable differences in industrial structure North and South, highlighting the gaps between the two economies.

Taken together the island economy achieved an average economic growth rate of 5.4 per cent per annum during the 1990s, which would represent the highest growth rate in the EU. Much of this was due to the Republic's exceptional GDP growth rate, averaging 7.2 per cent between 1990 and 2000.

Northern Ireland grew at an average rate of 3.2 per cent between 1990 and 1998, above the 2.1 per cent UK average.

The study - A North/South Analysis of Manufacturing Growth and Productivity - highlights the reliance of manufacturing North and South on export markets (counted to include Britain for the North).

However, very significant differences are also clear. In the Republic, the volume of manufacturing production grew at the exceptional rate of 13.8 per cent per annum, between 1991 and 2000. In the North, by comparison, the data for the nearest period for which comparable data is available - 1990-98 - show an annual growth rate of 1.9 per cent, still above the UK average of 0.7 per cent.

The key difference, of course, was the rapid output growth from a small number of multinational-dominated sectors in the Republic. Their presence ensures that the Republic scores higher in terms of sales per employee - €385,000 in 2000 versus €208,000 in the North - and average labour productivity measured by gross value added per employee, which at €138,000 in the Republic is more than double the €60,000 in the North.

Drilling down further into the figures, the InterTrade study identifies three broad categories for comparing industry North and South.

A group of mature industries where productivity levels are broadly similar. These include: textiles; wood and wood products; paper and paper products;rubber and plastics; and a number of engineering sectors.

Another group of mature industries in which there are significant productivity differences between North and South, with the Republic mainly holding the advantage, include: furniture; clothing; non-metallic minerals; and food, drink and tobacco.

High-tech industries, such as software, chemicals and electronics, where higher levels of inward investment into the Republic has had a dramatic influence.

The North/South sectoral gaps show the benefits to be gained from knowledge-sharing and benchmarking, InterTrade Ireland says, but much of the gain from this would accrue to Northern companies, where average productivity is lower.

The study also shows the much higher reliance of the North on the public sector, with public administration and defence accounting for 12.5 per cent of GDP in the North, compared to 3.4 per cent south of the Border.

Developing the private sector is thus a key challenge for the North.

In a recent review of the North's economic prospects, Mr Stephen Kingon, managing partner of PricewaterhouseCoopers in Belfast, points to the low level of business investment and argues that "Northern Ireland's narrow base of internationally competitive companies also restricts the potential of this sector to kick-start the rest of the economy".

The gradual erosion of the larger firms - with heavy manufacturing job losses in recent years - leaves the economy with "a potential crisis in that there are not enough large firms with the capacity to make large-scale business investments".

A leading Northern academic, Mr Mike Smyth of the University of Ulster, argued last week for an all-island approach to industrial development, taking advantage of the Republic's developed foreign industrial base and low corporation tax rate and the North's strength in some indigenous sectors, together with its strong labour supply.

However to date, notwithstanding the political progress of recent years, it has been a case more of competition than co-operation between the two parts of the island in terms of attracting investment projects.