The Enterprise Nation? Developing Northern Ireland into an Enterprise Zone

Economic
Wednesday, April 14, 2010

• At the Conservative Party conference in October 2009 Owen Paterson MP, Conservative Shadow Secretary of State for Northern Ireland, announced that should the Conservative Party win the next general election they would look to develop Northern Ireland into a private sector economic ‘enterprise zone’. This paper looks to examine some of the challenges confronting the Northern Irish economy that have precipitated this policy announcement, whilst considering some aspects of what an ‘enterprise zone’ may look like in practice.• The reasons for this policy announcement - designed principally to develop the Northern Irish private sector economy - are multi-faceted. The well documented troubles Northern Ireland has experienced over a number of decades has resulted in economic disruption, leading the province to become heavily dependent on subvention from Westminster, whilst public sector spending accounts for as much as 77.6% of the Northern Irish economy. This is unsustainable in the long-term as we enter an era of retrenchment in public spending. It has also been postulated that economic development can play a role in minimising social and sectarian disruption.• Average salaries in the public sector are higher than in the private sector, with private sector salaries the lowest across the UK. Northern Ireland has high levels of adults without any qualifications, whilst the number of economically inactive adults is critically high. Business start-up rates in the province are modest and levels of young entrepreneurs are lower than the UK or Republic of Ireland average, indicative of an economy not currently primed to promote innovation and entrepreneurship.• Northern Ireland is afflicted by a ‘brain drain’ of talented A-Level and University undergraduates leaving the province with many never returning to the Northern Irish workplace. In addition to this, enrolments in value added Science, Technology, Engineering and Mathematics (STEM) subjects are declining, with STEM subjects not prioritised in Northern Ireland to the same degree as in the UK or Republic of Ireland. These subjects are vital for attracting Foreign Direct Investment (FDI) in critical business sectors. Northern Ireland should look to develop its levels FDI from the USA whilst also capitalising on opportunities present in emerging markets.• The UK government has paid attention to some of these issues, principally in the form of two reports published by Sir David Varney in 2007 and 2008 respectively. However, many of the recommendations made, such as reducing regulation where possible and privatising publically owned assets where appropriate have not been enacted. The contentious issue of a lower preferential rate of corporation tax for the province – rejected by Varney in 2007 - to stimulate FDI and wider private sector growth may need to be revisited, not least given the 6 drastically changed economic landscape since 2007/2008. However, European Union legislation and past precedent may continue to pose problems in this area.• Lessons can be applied to Northern Ireland from the great success of the ‘Celtic Tiger’ years in The Republic of Ireland, where a flexible, open economy responsible for attracting impressive levels of FDI has been developed through a long-term approach to economic development. Understanding this is critical given that Northern Ireland shares a border with The Irish Republic, and as such will be in competition for investment with its nearest neighbour. However, when developing a Northern Irish ‘enterprise zone’, policy makers should also be cognisant of the factors involved in the decline of the ‘Celtic Tiger’.• This paper considers three key topics – corporation tax, education and skills, and transport infrastructure - which present either challenges or issues of contention specific to the development of the Northern Irish economy. As part of this, and the wider research of this paper, leading politicians and economists in Northern Ireland were consulted to gain expert insights in these key areas – and others – that an ‘enterprise zone’ would need to consider for sustainable growth and development to be realised.• Experts in the financial services, information technology and pharmaceutical sectors – three value-added sectors that any ‘enterprise zone’ would wish to boast a substantive presence in – were also consulted. The issues confronting small, indigenous business and entrepreneurs – particularly in the growing green technology sector – have been discussed with insights gained from entrepreneurs in this field. Recommendations have been made based on the insights gleaned from politicians, economists, “big business” and smaller scale entrepreneurs, along with a wider analysis of the challenges faced in the Northern Irish economy.