Tough economic times during the early 1980s were highlighted with the recent TV screening of 80s box office hit Trading Places during which Billy Ray Valentine, played by Eddie Murphy, goes from begging on the street to successful commodities broker due to an elaborate bet that sees Louis Winthorpe III, played by Dan Ackroyd, trade places in the opposite direction.
In the tough economic times of today, there has been much talk about some of the things that Northern Ireland might be able to trade to achieve something desirable – for example a reduction in the Block Grant for devolving corporation tax setting powers. There has also been some talk about what economic characteristics we might wish, or not wish, to trade with other economies. In an about-face, following the credit crunch, recession and subsequent economic developments, Northern Ireland’s overwhelming feeling towards the Republic of Ireland is now one of relief, rather than envy.
Not only is Northern Ireland pleased it is not part of the euro zone, it is also fortunate that it doesn’t share the sheer scale of the public finance, housing and labour market challenges facing the South.
However, despite the South’s undoubted problems at present, on closer inspection, there are aspects of our economic performance that we would happily trade. The level of inward investment remains the obvious example. Outside of investment, albeit linked, is the South’s vastly superior export performance which is the main driver of the Republic of Ireland’s economic recovery.
A detailed analysis of Northern Ireland’s official export figures highlights that whilst there have been some recent improvements, underlying performance has been poor. Indeed, we now export 16% less to the EU (outside of RoI and the UK) than we did 10 years ago.
Whilst insider trading of the illegal variety is central to the plot of Trading Places, insider trading of a different, legal kind is hampering Northern Ireland’s manufacturing sales and export performance. The South has been able to achieve a considerable proportion of sales outside of the island of Ireland, but Northern Ireland firms have been concentrating their trade inside the island to a much greater extent.
The Celtic Tiger boom
Over 60% of sales by our SMEs occur within these shores and over half of all SME exports are bound for the Republic of Ireland. This exposure during the Celtic Tiger boom era provided a major boost to our local construction industry and manufacturers, but this over-concentration has proved a liability during leaner times. It is noted that 80% of the exports sales growth obtained during the Celtic Tiger period has now been lost.
Another kind of ‘insider trading’ that will become prominent in the years ahead is all-island tourism, with the Republic of Ireland being the most important tourism market for Northern Ireland after GB. With major tourist events happening in Northern Ireland such as the Titanic centenary celebrations, followed by the Irish Open golf tournament in Portrush, and the Derry-Londonderry City of Culture and All-Ireland Fleadh in 2013, the prospects for visitor numbers from South of the border look somewhat brighter than for exporting the other way.
Major economic opportunities
Indeed, this is one area where we probably wouldn’t want to trade places with the Republic. Whilst its tourism potential has arguably been largely exploited, in Northern Ireland there is the potential for significant tourism growth. We don’t need insider information to realise that this is one of Northern Ireland’s major economic opportunities.
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Post by Richard Ramsey, Chief Economist, Northern Ireland, Ulster Bank Capital Markets