Can Northern Ireland compete?

By James Arnold BBC News Online business reporter

Road to riches, or to ruin?

A journey down the Queens Road in Belfast is a study in economic contrasts.

At one end is the swanky 10,000-seater Odyssey arena, host to ice-skating, show-jumping and the inevitable Westlife; half a mile down the road, a building site is becoming the shiny hub of the province's first science park.

But in between lie almost 200 acres of the most abject post-industrial wasteland you could ever hope not to see.

Some 30,000 people used to work here, mainly at the Harland & Wolff shipyard, once-proud builders of the Titanic; now, perhaps 500 do.

Five years after the Good Friday Agreement effectively brought an end to three decades of sectarian troubles, Northern Ireland is certainly in the throes of a dramatic economic transition.

Trouble is, no one can agree on where that transition is going to lead.

Out with the old...

The business pages of, say, the Belfast Telegraph paint a dismal picture.

Northern Ireland's traditional economy, poised on the twin pillars of heavy metal-bashing and light manufacturing such as textiles, has been in decline for decades and is now crumbling fast.

Northern Ireland versus the UK
	Northern Ireland	UK
Population	1.7 million	58.8 million
Aged under 16	24%	20%
Economic activity rate	71%	79%
GDP per head	£10,060	£13,130
Average weekly household income	£371	£480

Source: Office for National Statistics

Thousands of manufacturing jobs have been cut this year, most recently at textile firm Desmond's, which closed three factories in May and exported the work to Turkey, Sri Lanka and Bangladesh.

Northern Ireland's headline unemployment figure, hovering around the 5% mark, is no higher than the UK average.

But this figure disguises a lot of low-quality, low-paid jobs; in terms of average incomes - as well as quality-of-life measures such as health - Northern Ireland is at or near the bottom of regional league tables.

Worryingly, there is little evidence of a post-ceasefire peace dividend: economic output per head is about 80% of the UK average, more or less where it has been for 30 years; investment, which bounced slightly in the late 1990s, has slumped back in recent years.

... in with the new?

Among the province's policy makers, paradoxically, there is a sense of relentless optimism.

Let the dreary old textile mills go hang, the line goes; Northern Ireland's real future is in cooler, cleaner, more lucrative hi-tech.

We may not be able to compete in metal-bashing, but we can compete in terms of technological expertise

Robert Cooper, Harland & Woolf

This shift is starting to happen: Northern Ireland has produced a string of tolerably successful software and services companies, and is carving out a genuine niche one rung down the evolutionary ladder - call centres and the like.

In May, £38m in government and university money was invested in a new institute of Electronics, Communications and Information Technologies (ECIT), the biggest state-sponsored hi-tech initiative to date.

ECIT is the biggest tenant in the Northern Ireland Science Park, which has a 24-acre site in the rusting heart of the Queens Road area.

Franklin Adair, chairman of the science park, reckons other tenants will start populating the site by September, and says he is already looking at sites in Coleraine and Londonderry.

The science park is the centrepiece of a wholesale transformation of Queens Road - an area now known as Titanic Quarter - into an identikit docklands development, creating shops, offices, leisure facilities and, it is hoped, up to 20,000 jobs.

Shrink to fit

The sense of renewal seems to be infectious. At Harland & Wolff, the last new-built vessel was delivered early this year, and the firm is reinventing itself as a modest contractor, building bridges and mending ships.

Titanic Quarter's mammoth ambitions

In the process, it has gone from a peak of 5,000 workers in the 1980s to about 130 today.

"Nearly everyone in Northern Ireland has a relative who at one point has worked at Harland & Wolff, so there's a lot of emotion and a lot of romanticism," says chief executive Robert Cooper.

"But all we as businessmen can do is deal with the economic realities.

"We may not be able to compete in metal-bashing, but we can compete in terms of our technological expertise."

Measures of success

This sort of renewal is still largely a Belfast phenomenon; outside the capital, and especially in the depressed northwest, dying industries are not being replaced.

There aren't many rich people in Northern Ireland, but there are plenty of comfortable ones

Paul Clarke, Deloitte & Touche

But it is already starting to make just-perceptible differences to the wider economy.

Northern Irish industrial output has far outstripped the UK average in the past few years, with the service sector leading the way.

Paul Clarke, head of the Belfast office of consultants Deloitte & Touche, uses a more abstruse index of business health.

Since consultants, he says, are "promiscuous knowledge workers", the state of their market is a finger-in-the-wind indicator of industrial activity, especially among the sort of high-class industries Northern Ireland wants to attract.

At present, Mr Clarke says, the price of a Northern Irish consultant is roughly half that in London - but while London fees have plunged, Belfast consultants can charge 50% more now than they did five years ago.

Competitive advantages

Now, many think Northern Ireland has the fundamentals to become a fully-fledged hi-tech hotspot.

First among these is the supply of qualified labour.

"We have the youngest population in the UK," says Philip Cassidy, chief executive of The Gem, a sort of upscale call centre that runs client relations for firms such as Amazon.com.

"Educational standards are very high, and that comes across in the quality of the workforce."

Two-thirds of Northern Irish 16 to 19-year-olds are in education or training, twice the proportion in the southeast of England.

Labour costs are still low by UK standards, and especially by comparison with the Republic of Ireland, which has become wildly expensive in recent years.

And industrial policy, long hopelessly muddled in the province, seems to be acquiring more focus; a year ago, for example, five agencies were combined to form Invest NI, a promotional body that even outpunches the Republic in marketing muscle.

Crowded market

Not everyone is convinced.

"There's no doubt that Northern Ireland is a much better place to invest than it was 10 years ago," says Michael Anyadike-Danes, head of the Northern Ireland Economic Research Centre

"Trouble is, the competition has been improving too."

Dozens of regions and countries can boast a highly educated workforce; a good handful have the technological expertise and English-language skills of Northern Ireland.

And, says Paul Clarke, "the Northern Irish may be cheaper than people based in Birmingham, but they are still a lot more expensive than people based in Hyderabad."

Comfort zone

Nor is there much evidence of entrepreneurial dynamism in the province, the legacy, perhaps, of decades of reliance on the state.

The troubles transformed Northern Ireland from a diverse industrial economy into a security-based economy: half the jobs in manufacturing disappeared, replaced by a huge expansion in public administration.

Even now, 31% of the Northern Irish workforce is in the public sector, compared with 23% in the UK as a whole, and the state produces or consumes close to two-thirds of economic output.

Northern Ireland is the only part of the UK where the average wage in public administration is higher than the average wage in manufacturing.

The low cost of living - house prices, for example, are about half the UK average - means that it is possible to live a rather nice life as a Northern Irish civil servant, teacher or student, without any of the risks associated with the private sector.

"The BMW belt is very extensive," says Paul Clarke.

"There aren't many rich people in Northern Ireland, but there are plenty of comfortable ones."

Billion-pound bubble

Most worrying of all, the Northern Irish economy is afloat on a bubble of UK taxpayers' money.

Without counting the roughly £1bn in annual security costs, the province receives about £2bn more a year than it contributes in tax revenue - a transfer known as subvention.

After five years of peace, can Northern Ireland deliver?

No one has yet proposed scrapping or amending the subvention, but the assumption has always been that Northern Ireland should eventually learn to stand on its own fiscal feet.

This, however, will demand some tough political choices: an increase in the province's low rates of tax, perhaps, or privatisation of some of the £22bn-worth of property held by the state - four times as much as in much larger Wales.

Resistance to these sort of moves is fierce: unions are currently threatening to strike over plans to start charging for water.

Ironic, perhaps: Northern Ireland, for so long disadvantaged, may now be held back because it is not disadvantaged enough.