A revised strategy for Northern Ireland’s Economy

By Eóin Murphy, Michael Scholes, and Aidan Stennett

The Northern Ireland Executive is currently revising its Economic Strategy.  What are the key factors it should take into consideration when carrying out this revision?

The Northern Ireland Executive’s Economic Strategy, published in 2012, sought to improve Northern Ireland’s (NI) competitiveness through a focus on export-led growth. The 2012 Economic Strategy is currently being revised to align it with the outcomes of the forthcoming Programme for Government and to take account of changes in the economy. The revised Economic Strategy is expected to be consulted on before the end of 2016.

The 2012 Economic Strategy

During November 2016, the Research and Information Service (RaISe) carried out a review of the NI economy and of the current economic strategy to assist the Committee for the Economy in its scrutiny of the revised Economic Strategy when published.

RaISe’s analysis found that the 2012 Economic Strategy reflected the broad priorities of the Programme for Government 2011-2015, which focused on re-balancing and rebuilding the NI economy.  Review of that Strategy’s achievements found that by March 2015 at least 155 of those priorities were achieved or partially achieved.  It was not possible, based on the available data, to ascertain whether the remaining targets were subsequently met. Nonetheless, the Strategy’s ‘Progress Against Actions’ report states that a number of actions are ‘on course’ to achieve their specified targets.

The NI Economy

An analysis of a range of NI economic indicators found a number of potential concerns:

• Although the NI economy is growing, its growth rate slowed since the Great Recession, and has not yet returned to its pre-recession peak;
• Low productivity is a persistent and sector-wide issue in NI. As such, NI is a low productivity region, within a country that performs poorly against comparator economies;
• The economy has sub-regional imbalances in total and per capita gross value added;
• Since 1997 the economy has increasingly become service sector orientated;
• Goods exports have more than doubled between 1996 and 2015. However, an analysis of NI’s trade balance suggests that the net impact of this trade has lessened in recent years. In fact, NI has not run a large trade surplus since 2008, meaning the net gain to the economy through export sales has decreased;
• Although the European Union (EU) remains NI’s most significant export market, the relative significance of the market in terms of export value has decreased over time
• NI has a lower business survival rate than the rest of the United Kingdom (UK);
• NI’s employment rate lags behind the UK’s;
• Economic inactivity in NI is significantly higher than that of the UK. This was consistently an issue over the period 1992 to 2016; and,
• NI is ranked 11 out of 12 UK regions when it comes to innovation, despite increased Research & Development (R&D) expenditure by government, business and Higher Education.

The global context

RaISe also examined the broader context in which the 2012 Economic Strategy is to be revised. Notably, the prospects for global economic growth, trade and Foreign Direct Investment (FDI) flows are subdued in the short-to-medium-term. Furthermore, the EU Referendum result has introduced a degree of uncertainty into NI’s trade and FDI position going forward. The impact of this remains unclear and will be predicated on outcome of future negotiations between the UK and the EU. Of particular significance here is NI’s future trading relationship with the Republic of Ireland (RoI), given it is the destination for 37% of NI’s exports.

Economic policy

Since the publication of the 2012 Economic Strategy, research has been undertaken by a number of independent organisations, which has identified important issues when seeking to stimulate future economic growth.

For example, the Organisation of Economic Cooperation and Development (OECD) emphasises inclusive growth, reflecting a growing change in the narrative surrounding how best to achieve economic growth. Both the OECD and the United Nations (UN) identified the need for green sustainable growth, in order to ensure that there are sufficient resources available for future generations and to take advantage of changes in technology.

The need to take into consideration the swiftly changing technological and socio-economic landscape was espoused by the World Economic Forum (WEF) and the Institute of Public Policy Research (IPPR). The WEF highlighted that the rapid changes in technology could act as a disruptive force within the labour market and that governments would need to take steps to ensure that these changes are to the advantage, rather than the disadvantage, of economies. This thinking has fed into economic policy within the UK, most notably Scotland’s incorporation of inclusive growth models into its economic strategy. It is unclear, at this stage, whether the NI Executive will also adopt this type of thinking in the revised Economic Strategy.

Conclusion

Overall, the RaISe analysis of the 2012 Economic Strategy observes that the NI economy has faced a range of challenges in recent years, from the global downturn since the financial crisis in 2007, to the on-going uncertainty generated by the EU Referendum vote in June 2016.

The 2012 Economic Strategy has largely ‘weathered the storm’, with a majority of its actions met, and with new economic drivers introduced, such as the devolution of rate setting powers for Air Passenger Duty and Corporation Tax (due to come into effect in April 2018).

Despite these achievements, there are a number of ongoing concerns (as outlined above) that the revised Economic Strategy may seek to address. These concerns include sub-regional imbalances in growth, a persistent productivity gap with the rest of the UK, a lower net economic impact from exports, high and persistent levels of economic activity and relatively low levels of R&D expenditure when compared with other UK regions.

It is also important to note that the 2012 Economic Strategy is being revised in the aftermath of the EU Referendum. Although the impact of the Referendum remains uncertain, the revision of the 2012 Economic Strategy provides the Executive with an opportunity to adjust economic policy so that it addresses the post-EU economic context.