Sunday, October 08, 2023
Is Northern Ireland's economy benefiting from 'the best of both worlds'?
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

My regular column is available to subscribers on This is an excerpt. Not to be reproduced without permission.

A few days ago, I made a short visit to Belfast. Unlike the lorries now entering Northern Ireland from the mainland under the new Windsor Framework, I did not have to negotiate red and green lanes. That Brexit created a Northern Ireland problem is not disputed and the new arrangements, which came into effect last Sunday, were an attempt to solve it.

That is one thing that tends to get reported about the province. The other is that it is ungoverned and, apparently, ungovernable. The Northern Ireland executive collapsed in February last year and shows no sign of reassembling, despite strong political pressure to do so ahead of the next general election. A part of the UK in the eye of the Brexit storm and without its devolved administration – a role currently taken by the civil service – would not seem to be in the happiest place.

What greeted me on my visit, however, was a surprising amount of optimism from businesses, and those charged with the task of attracting foreign direct investment, and investment from the rest of the UK, into Northern Ireland. The question is whether we are getting anywhere near the result of a fascinating real-life experiment.

Three years ago, Michael Gove, a prominent Brexiteer, and at the time cabinet office minister, declared that Northern Ireland had “the best of both worlds” because businesses had “access to the European single market, because there's no infrastructure on the Island of Ireland, and at the same time unfettered access to the rest of the UK market." He was trying to sell what was in effect a border in the Irish Sea for goods coming from the mainland and his remarks raised eyebrows, not least because this potential advantage was being denied to the rest of the country as a result of the Brexit he had campaigned for.

It is early days, so how is it working out? There was a time when, perhaps for understandable reasons, Northern Ireland was an unemployment blackspot, with a jobless rate touching 13 per cent 30 years ago. That is no longer the case. The rate now is just 2.7 per cent, which is below the UK average of 4.3 per cent, and finding workers is a bigger issue than finding work, with many firms having to bring workers in from far afield, from places such as the Philippines, to fill the gaps.

Northern Ireland’s low unemployment rate is not an unalloyed good news story though. It is accompanied by the UK’s highest inactivity rate among the 16-64 population, 26.9 per cent. Part of the solution to the province’s labour shortages would appear to lie with getting more of the inactive into work. The 16-64 employment rate, 71.1 per cent, is the lowest in the UK, although it has risen by 1.5 percentage points over the latest 12 months.

What about growth? Timely regional gross domestic product figures are not available, the latest covering the third quarter of last year, so more than 12 months ago. Since then, official GDP figures have been revised higher, so it will be some time before a clear picture emerges.

In their place, Northern Ireland’s Statistics and Research Agency produces a range of figures, for services, the production industries, retailing, the labour market and so on. It also produces a composite economic index which, while it admits are not produced on a “fully equivalent” basis, are intended to follow GDP quite closely.
It suggests that Northern Ireland has enjoyed quite a strong recovery since before the pandemic, with this composite index up by 5.8 per cent in the second quarter of this year on pre-pandemic levels in the final quarter of 2019. This compares with GDP for the UK as a whole, which showed a 1.8 per cent rise.

It is not just the past 2-3 years. PWC recently assessed Northern Ireland’s 10-year productivity performance to be the best of any par in the UK.

There are also new and growing sectors of the economy. When you visit Belfast you are greeted with images from Game of Thrones, with much of the filming of series one to eight occurring in 25 locations around Northern Ireland.

Whether Northern Ireland’s growth shows that its “best of both worlds” situation is working out well can be debated. Whether it reflects the fact that economies before better in the absence of a functioning government is another interesting question.

One thing which is clear, I think, is that Northern Ireland is benefiting from proximity and borderless trade with the booming Irish economy. That comes in two ways. Whichever way you look at the Irish data it is strong. GDP, distorted by the impact of foreign investment and profits declared by foreign-owned firms in the Republic, is up by a real-terms 29 per cent since the final quarter of 2019. Gross value-added is up 31 per cent, and gross national income by 27 per cent. A measure known as modified gross national income, preferred for better reflecting domestic economic activity, rose by 17 per cent between 2019 and 2022.

Being next door to a fast-growing economy helps Northern Ireland directly, but also indirectly. The head of IDA Ireland, whose role it is to attract inward investment, recently admitted that housing shortages, particularly in and around Dublin, is making it more difficult to attract new investment.

Northern Ireland, where the pressure on housing is less intense, is able to step into the breach. Last month Invest Northern Ireland, working with the province’s business department and the Northern Ireland Office, attracted a significant number of potential international investors to an investment summit in Belfast, and was gratified by the response.

None of this should be taken to suggest that Northern Ireland’s economic problems have been solved. Many remain, including that high economic inactivity rate and the fact that, partly reflecting the province’s history, it has the biggest budget deficit per head of any part of the UK.

After a week in which infrastructure has been in the headlines, Northern Ireland has significant infrastructure shortcomings, in transport, water and sewerage and other areas, all of which will have an impact in limiting economic development. It is good news that things have turned a little brighter for a part of the UK economy that has long struggled. There are, however, many challenges to be faced.