Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 53 - 59)




  53. We are extremely grateful to you for coming. We apologise for the fact that we have not been absolutely punctual ourselves in inviting you to enter the room. You have probably gathered, from the media, that a fair number of people round the room have been up all night, and therefore our mental processes have not been quite as swift as they would normally be. We will take questions from all Members of the Committee in a moment; we will endeavour to follow a logical order, but the questions, successive questions, may come from different corners of the room. We would, of course, wholly understand if at any stage you wanted to gloss any answer, either subsequent to having given it or, indeed, subsequent to the session, at all, if there was something you wanted to add or something you wanted to correct in evidence you had given, and I hope you, in return, would allow us the freedom to follow up with any questions in writing that, in the aftermath, we decided we should have asked but had not asked. Is there anything you would like to say, beyond the paper you have sent us, before we start embarking on questions?

  (Dr Gorecki) Chairman, I would like to say that we are pleased to be here, to assist the Committee in its deliberations on the issue of inward investment policy in Northern Ireland; and just to say that my name is Paul Gorecki. I am Director of the Northern Ireland Economic Council, and Aidan Gough is Senior Economist with the Council. We are more than pleased to not only answer questions but any follow-up enquiries you may wish to raise with us.

  Chairman: Thank you.

Mr McCabe

  54. The Council published a Report in November 1992, for which I cannot quite work out the numbering order, but it is, strangely enough, called Report No.99; and in that Report the Council called for an extensive review of inward investment policy, preferably by a person or organisation from outside Northern Ireland. I wonder if you could tell me, did the Government act on this recommendation?
  (Dr Gorecki) The Council, you are quite correct, in its Report of November 1992, argued strongly that there should be an independent inquiry into inward investment in Northern Ireland, partly because we felt that the review of industrial policy, which was being conducted at that time, was largely directed at indigenous investment and, to a large degree, excluded inward investment. The Government declined to institute such an inquiry.

  55. Thanks; and there was not any inquiry. Can I ask, what assessment has the Council made of developments in inward investment policy over the period, the seven years, since that Report was published?
  (Dr Gorecki) We have issued a number of reports which have touched in various ways upon inward investment policy; there are two that are perhaps worth mentioning. The first one was an examination of the degree to which industrial policy had been implemented in the 1990s; in Northern Ireland there was something called "Competing in the 1990s" which was released in 1990, and that set the course for industrial policy within Northern Ireland, and we examined the degree to which that had been implemented over that period and we published a report late last year. We looked at inward investment as part of that, the degree to which that had become more important or less important, the degree to which grant rates had declined or not declined; so it was in that context we got to do it, and some of the major results from that report are included in the memorandum. The other instance in which we have looked at inward investment is in a study on regional linkages, the degree to which inward investment had linkages to the local economy, because we felt that was an important way in which the benefits of inward investment could be captured by the wider society within Northern Ireland, in terms of better jobs, better technology. In that report we found there had been a decline in the degree to which inward investment was linked to local firms, from, I think it was, 26 to 20 per cent, over the period 1986 to 1998, in terms of their purchases and the inputs; and we made a series of recommendations about how those linkages could be built upon and strengthened so that there was a bigger return for Northern Ireland for each pound of inward investment it was able to secure.
  (Mr Gough) Perhaps two other reports, which did not deal specifically with inward investment but touched upon the topic, because they were looking at regional development. They are two commissioned reports; one looked at successful regions and the lessons for Northern Ireland, and the other was a report commissioned from John Dunning and others, in the Economists Advisory Group, which looked at competitiveness issues in Northern Ireland. Both of those reports referred to inward investment and its important contribution to regional development particularly for a small peripheral economy like Northern Ireland.

  56. If I were to ask you to summarise, fairly briefly, the objectives of inward investment policy, as far as the Council are concerned, how would you summarise the objectives, what do you think the objectives of inward investment policy should be?
  (Dr Gorecki) The Council takes the view that inward investment policy should be there to assist the realisation of the major goals of industrial policy in Northern Ireland, which is to raise competitiveness, which in turn means raising productivity, the amount of output you get from a given unit of input, and the more you can raise productivity the higher wages you can pay and other aspects of the economy can be improved. So that means that inward investment in that sense can therefore lead to new products being introduced, new processes, new management techniques, from the firms that come in, it can be diffused throughout the economy in their purchasing policies, they can upgrade the capabilities of the local firms within the Northern Ireland economy, they can also train workers, introduce the latest management techniques, and so on. So those are broadly the sorts of ways in which inward investment can complement and assist in achieving higher growth, higher productivity, for the local economy. Because Northern Ireland has only 1.5 million people and clearly it is going to have to draw on the expertise of the rest of the world in terms of many of these characteristics of successful firms, and by bringing them into the economy they can diffuse that knowledge to the local economy.

  57. Thank you. If you had been asked to make some kind of choice, and I appreciate it is not as straightforward as this, but if you had been asked to make some kind of choice between the goals of simply creating jobs, creating employment, on the one hand, and, on the other hand, using inward investment to stimulate and develop indigenous industries, where would you see the priorities lying?
  (Dr Gorecki) I think, partly it will depend upon the state of the economy at the particular time you are talking about; if you are talking about the Northern Ireland economy for much of the seventies and eighties, when unemployment rates were very high, substantially higher than any other region of the UK, maybe 50, 60 per cent higher than the UK average, then, clearly, getting jobs would be a very important priority. If you are talking about the current situation, in the year 2000, where unemployment rates now, relative to the rest of the UK, are lower, where Northern Ireland no longer has the highest level of unemployment of any UK region, in fact, I think the North East has a higher level of unemployment, then I think the priorities begin to shift. And if we have peace and political stability, where not so much public finance has to go into attracting inward investment and the premium, because of political violence, is less, I think, you can start to change the emphasis more towards trying to enhance the indigenous aspect of inward investment, trying to get those sorts of spin-offs. So I think it depends on the sort of macroeconomic situation of the local economy.
  (Mr Gough) I do not think that the two policy goals are necessarily mutually exclusive, in that improving regional competitiveness will generate jobs as well.

  58. Absolutely, I accept that. I do not want to put words in your mouth, but would I be right to assume that, if we were looking at the current situation, you would put quite a high emphasis on developing and stimulating local or indigenous industries, that would be quite a high priority, because you would see the basic case for immediate job creation as being quite as critical as it would have been in the seventies?
  (Dr Gorecki) I think the balance has changed, yes.

Mr Barnes

  59. I will ask a general question, to start with. How effective do you feel that inward investment into Northern Ireland is; what is the Council's assessment?
  (Dr Gorecki) We have presented a number of tables in our memorandum, and I think that if you look at the period of the 1990s, and if you look at the flow of inward investment that was coming over at that period, then Northern Ireland, I think, ranks about fifth in the UK regions and, against the background of political violence, you might regard that as not a bad performance. But, to some degree, those numbers may be misleading, to the extent to which it refers to all inward investment, both new inward investment but also expansions of existing firms that are here. And Northern Ireland's stock of inward investment is much more biased than other parts of the UK towards investment in textiles and clothing and the food-processing industry, I think, during the 1990s, maybe 40 per cent of all inward investment was in those industries, and these tend not to be fast growing industries, and so you would expect that Northern Ireland's share of all inward investment, therefore, would be perhaps a bit lower because of that. So an alternative way of trying to remove that particular bias is just to look at new greenfield inward investment, in other words, firms that are coming in for the first time. When you look at that and you look at some of the numbers that are presented there then the local economy does seem to be doing quite well, in terms of inward investment, both on a European scale and, if you looked at the whole of the British Isles then, I think there is a table where it shows Northern Ireland got 8 per cent of all projects in 1998. But all we are looking at here is just those numbers, we are not coming to a judgement about the effectiveness of policy; there, you would have to start looking at other sorts of variables before you could come to a conclusion about that, we are just looking at the total inward flow of investment.

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