Vital for economy to switch focus to private sector

The economy of Northern Ireland has been picking up quite dramatically since the Belfast Agreement. Jobs are becoming more abundant, with the North now attracting more high technology firms than ever.

The recovery is clear as you drive into Belfast. Cranes dot the skyline and the riverbank is a hive of activity with commercial property and shopping developments growing rapidly.

House prices have also risen sharply although they are now flattening out. Many investors from the Republic have been involved in speculation, particularly in apartments close to the river and around City Hall. Between 1995 and 1999 house prices rose by 40.6 per cent, the fastest regional rate in the UK.

Unemployment is below the EU average at between 6 per cent and 7 per cent. The services sector is a major employer, with telecommunications companies such as Nortel Networks setting up back-office operations.

According to the Northern Ireland Economic Council, employment is expected to rise by 3.2 per cent between 2000 and 2009, compared with a UK growth rate of 3 per cent. This should create 37,000 jobs in services, offsetting a loss of 5,000 in manufacturing and 9,000 lost in production. However, unemployment is still expected to remain above the UK average by 2.1 percentage points during the period.

The key concerns for business are familiar in the Republic. Currency and exchange rates are to the fore along with increasing signs of a skills crisis. The strength of sterling has affected Northern Ireland.

However, many of the political parties including the UUP would be sceptical about joining the single European currency on constitutional as well as political grounds, if not economic. However, the resumption of the Assembly has been good for business confidence.

Most commentators agree that devolved rule allows more flexibility but there were disadvantages as well as advantages in being tied to London. They also point out that political stability is a necessary but not sufficient condition to win foreign investment and jobs.

The Northern Irish economy still benefits a good deal from transfers from London to the tune of almost £6 billion sterling last year. But according to officials this is not enough. Scotland, they point out, benefits to a greater extent under the old Barrett formula which distribute gains on a per capita basis. Officials estimate that Scotland gets about 20 per cent more per head than Northern Ireland.

Businessmen such as Sir George Quigley, chairman of Bombardier Shorts and Ulster Bank, say Northern Ireland ought to get special consideration because of the decades of trouble. But there is also strong view, which may yet come to pass, that devolved governments need tax raising power because, without that, there is lack of accountability on spending decisions.

The other problem is of course the abundance of quangos, the legacy of many years of direct rule. According to Mr Esmond Birnie, UUP MLA, former Queen's University economics lecturer and author of several books on the North's economy, many of these are incestuous because of the size of Northern Ireland. As such, they tend to bypass local politicians and hence democratic accountability.

The economy is gradually moving away from its traditional base of heavy manufacturing, although many commentators still criticise the regime for favouring that sector above others. There are now around 100,000 people employed in manufacturing, with around 20,000 in food, drink and tobacco, 15,000 in clothing and 15,000 in textiles. The latter two are being hit hard and, according to Mr Birnie, this can only get worse as traditional buyers such as Marks & Spencer switch supplier to lower cost countries.

The textiles industry has suffered eight major closures in the last year. There are also continuing problems facing Harland and Wolff shipyard. The bad news is offset by jobs announcements from Bombardier and Raytheon.

The public sector still accounts for a large share of GDP at close to 55 per cent compared with 40 per cent for the rest of the UK.

Financial services and business services have produced better results, with around 4,000 new jobs over the last year. Call centres have also been a major source of employment with large investments from Halifax, BT, NTL and Nortel.

Mr Birnie insists that Northern Ireland has to move more towards attracting foreign modern manufacturing and services with a complete change of emphasis to higher productivity more value added goods as the Republic has done. "But the problem with policy is that it is not promoting that change."

According to a review of the economy by PricewaterhouseCoopers, up to 55,000 jobs may be lost over the next five years in textiles and clothing, agriculture and the public sector. There will also be a net increase of around 67,000 in the working age population, many in the older age groups. To move towards average employment rates for the UK, the North will have to create 132,000 jobs or 13,200 a year. In common with the Republic, there are serious concerns about the labour and skills available to meet these targets.

Mr Birnie believes the answer lies in training and education, not only through third-level degrees and certificates but also management training for owners and directors. "We need to create a management culture which thinks strategically," he says.

But he is also critical about the deliverability of the economic plan for the next decade - Strategy 2010 - which is currently being debated in Stormont. This aims to raise Northern Ireland's comparative GDP per head to 90 per cent of the UK average by 2010. Currently, it is around 80 per cent of the UK average, the second lowest region in the UK.

The other problem is the centralisation of taxes. In a low income tax state, this is good news for PAYE taxpayers but it also gives the Assembly no leeway on corporation tax, making competition with the Republic in this area difficult. Civil servants and ministers are lobbying London hard but so far to little avail.

According to the PricewaterhouseCoopers review, the transformation of the economy from one dominated by the public sector to one led by the private sector will take 10 to 15 years and serious changes in education and training will be needed as well as continuing political stability.