Select Committee on Northern Ireland Affairs Minutes of Evidence

Examination of Witnesses (Questions 60 - 79)



  60. Indeed, it was looking at the figure in which there is the 8 per cent detail about investment into Northern Ireland and comparing it with other regions within the United Kingdom, that it did not look bad at all, and especially if you related the percentages of investment to the population size, and that would seem to be quite fruitful. But there is a table above that, which is about inward investment into Europe, generally, although it alters at different times as far as Northern Ireland is concerned. Is it, when you compare Northern Ireland on a wider basis within Europe, that maybe there is some sort of shortfall compared with countries such as France, for instance?
  (Dr Gorecki) First of all, the UK has been very successful at attracting inward investment, the leading country within the European Union, and so that when you look at Northern Ireland, although it may not have done that well in the early part of the 1990s, it has done reasonably well within a country which is doing very well. And I think that, in Table 3, Northern Ireland's proportion of the European Union population is about 0.4 per cent, so to get something like 2 to 3.5 per cent of the projects which are coming in would seem to be quite a reasonable performance. I think, to answer your question, what you would have to do is look at the share of population or some other measure of size and then compare the projects which each of those countries are getting, in order to come to a judgement; we could do that and send that as a supplementary memorandum, if you would be interested.

  61. That would be useful. So, although you are saying Northern Ireland has done quite well, a lot may depend then upon the nature of the investment that is being talked about and how that leads to future potential growth in Northern Ireland. There is a point in your memorandum where you say that you would have expected it to be four times, in terms of the numbers of jobs that would have arisen from investment, it would be in a background of peace and political stability in Northern Ireland; so that is quite a significant forecast that you are making. Do you feel that that is, therefore, likely to be there within the current situation; if the current situation and the Belfast Agreement are leading to a situation of stability and a lack of violence then would you anticipate, from now, something like that four-fold improvement would take place?
  (Dr Gorecki) That particular estimate arose out of some work the Council did in 1995, trying to look at the impacts of peace and political stability. We took a number of jurisdictions which had not experienced the sort of violence Northern Ireland had, Scotland was one. The numbers we refer to come from a comparison with the Republic of Ireland, and if you used those as comparators then you would have expected substantially more inward investment than actually occurred. So we would expect, based on that, you would get considerably increased inward investment compared with what otherwise would have happened, it may not be four, I think Scotland was two, but it will be substantially more than was the case.

  62. You raised the position as far as the Republic of Ireland is concerned, and in Figure No.1 then, the percentage, these are figures for the island of Ireland plus Britain, together, 32 per cent goes to the Republic of Ireland, which is quite phenomenal. Do you feel that Northern Ireland is sort of disadvantaged in a search for inward investment, in comparison with the Republic, or would the peace process lead to a spread-over of that? Often, people will talk about the development of the Dublin/Belfast corridor as an area of a potential development, both sides of the border?
  (Dr Gorecki) I think there are a number of factors which should mean that Northern Ireland can benefit from the boom in inward investment in the South. First of all, as you point out, under the Belfast Agreement there are a number of mechanisms which are being set in place to try to develop an all-Ireland economy, and there have been a number of initiatives before the Belfast Agreement between industrialists in the North and the South to develop sub-supply networks, and things of this nature, which should increase the attractiveness of the island of Ireland as a whole for inward investment and cause greater spin-offs within all of Ireland. The other factor is that the Southern economy is bigger in capacity, in terms of output, in terms of employment, in terms of its labour market. Dublin house prices, there has been substantial inflation there, and as a result you might start to get some firms locating at least some of their operations in the North, so that we can benefit from some spin-off from the South. So I think those are the two main ways in which Northern Ireland is liable to benefit from the boom in the South.

  63. Are there problems that will need tackling, like the currency differential, the value of the currencies; does that help to create a situation that is of advantage to the Republic?
  (Dr Gorecki) I think that, the currency situation, it depends upon when the firms make decisions; if you look at going through the IDB testimony to the Committee, or various IDB reports, they talk about how a firm coming into Northern Ireland will maybe take two or three years before it actually makes an investment decision, and it is making a decision over the longer term. So the issue, I would have thought, relates to the expectations of an inward investor as to what the likely cost of sterling will be in the next five to ten years. And so if it anticipates, for example, the UK will go into the Euro at a rate substantially below its current rate then that is not liable to affect investment in the near to medium term; but if, in fact, there is an expectation the pound remains high and the UK does not go in the Euro then I would expect that might have an adverse effect on inward investment. So those decisions, I think, are liable to influence any expectations that inward investors have about those, and how they move.

  64. How far would you see possibilities on the island of Ireland of sort of co-ordination on economic matters? We have conducted an investigation into petrol prices and the smuggling that takes place from the Republic to Northern Ireland, and having areas that are so intermixed, and may be more intermixed with the development of the peace process, and yet have their own distinctive taxation policies and social provision, etc., must feed into certain economic differences that operate?
  (Dr Gorecki) In some of those instances, there will be, as you put it, in the case of petrol stations, clearly, it will lead to some movement across the border, in terms of location of some of those facilities; and there are other examples, if you go back in terms of the seventies, when the exchange rate was the other way, in terms of people cross-border shopping. But that is not unique to Ireland, there may be more reaction there, but people go from England across to Calais to purchase various goods and services. So I think it is becoming a more general problem within the European Union, with greater trade and greater movement. I am not sure, necessarily, it is more prevalent within Ireland perhaps than it is within some of these other jurisdictions.

  65. Really, we are looking at this in the context of inward investment, so might inward investment be less shaped by some of these factors than just normal trade that is taking place between areas?
  (Dr Gorecki) Sorry; less shaped?

  66. Inward investment is the topic that we are looking at, and would the inward investment, would the willingness of people to invest in the Republic or in Northern Ireland be less affected by distinctions about taxation rates and social provision than would be the case about just normal trade arrangements?
  (Dr Gorecki) Clearly, if there were uniform sets of rules with respect to employment conditions and other important factors which determine inward investment, that would make it easier for anyone to locate and to carry on business within the island of Ireland. On the other hand, if there are differences, so long as the differences can easily be taken into account, in terms of making transactions, or billing systems, and everything else, it may not be that much of an issue. So the question is, I think, to some degree, an empirical question, but, clearly, to the extent to which you can have similar tax systems, similar employment insurance systems, similar benefit systems, then it will make it much easier to have an island economy, and, after all, the island is only about a population of, what, five million, and it will, I think, make it more attractive for inward investment.
  (Mr Gough) There is evidence too that inward investors are attracted primarily by regional capabilities, in areas such as access to research and development, skills of the workforce and education and training programmes, and there is no reason why there cannot be co-ordinated action across those areas to ensure that both regions have those capabilities developed to a high standard.

  67. Are there certain areas in Northern Ireland that are greater achievers in terms of obtaining inward investment than others? In visits to Derry, I have always been quite impressed by what seems to be the amount of inward investment that has taken place there, I do not know whether that is just a subjective judgement?
  (Dr Gorecki) The inward investment is not spread equally across the 26 district councils within Northern Ireland, certain councils attract much more inward investment so it is much more located in certain areas than it is in other areas. It is not uniform across Northern Ireland.

Mr McGrady

  68. I have a very brief supplementary. It is in respect of the competition which exists in the island of Ireland between the North and the South, and the rather unique situation that is now created there by the Belfast Agreement and the North/South bodies, one of which is dealing with trade and industry, and by the creation of the Council of the Isles. How does the Economic Council see its new role, if it is a new role, in your opinion, to give advice in these sectors of North/South and East/West bodies, and what do you see as unique problems, or areas, that you will have to address in that respect, and how dependent will the new regime of inward investment attraction be on these intergovernmental, interstate bodies?
  (Dr Gorecki) In terms of the bodies themselves, clearly, one of the bodies that you mention, the trade body, presumably can encourage greater co-ordination of the services to attract inward investors on an Ireland basis; it may lead to more efficient administration, in which case the resources can be released for other uses within the public sector in the North and the South. To the degree to which there is competition within these islands, which, in some senses, is destructive, so that too much public money is given to attract inward investors, then there may be some way in which there can be sensible constraints put on those forms of state aids. And there might also be marketing for the whole of these islands, in terms of attracting inward investment, because there might be certain supply logistics, it might also lead to greater co-ordination of some transport issues, which I think are particularly important for Northern Ireland with respect to, say, the A75 and getting facilities in Liverpool and some of these other areas. So I can see, in that sense, that some of these bodies perhaps can lead to some of these issues getting a little higher priority than would otherwise be the case.

Mr Donaldson

  69. Dr Gorecki, I was very interested in your comments about the benefits to Northern Ireland of being part of a single island economy. Having been intimately involved in negotiations on the Agreement, I was not aware that the role of the North/South bodies was to develop an all-Ireland economy; indeed, I have monitored very closely the new trade and investment body which has been established on a North/South basis, and looked at its terms of reference, and cannot find that anywhere within it. So I would like, perhaps, if you could explain in further detail how you have reached the conclusion that the objective of the North/South Ministerial Council, or any of the North/South bodies, is the creation of a single island economy?
  (Dr Gorecki) Perhaps my phraseology was a little inaccurate. What I meant was that the body will encourage greater trade and investment within the island of Ireland, which will contribute towards the development of industries and labour market flows, and other things, on an all-Ireland basis.

  70. Yes, but you did specifically mention an all-Ireland economy. Does the Council have a view as to whether there is greater benefit for Northern Ireland in being part of a single island economy, with a population of about five million, or remaining part of an economy with 57 million?
  (Dr Gorecki) I do not think that the Council sees it as a mutually exclusive choice. I think that, when you have an economy next to you which is growing at something like 8 to 10 per cent, year on year, there are certain advantages to becoming better linked with that economy, in terms of investment, in terms of learning perhaps how you can attract inward investment. But, at the same time, clearly, you are part of a much larger economy, with a population of 60 million, which accounts, I think, for the larger share of inward investment into Northern Ireland, if you count that as inward investment and one has also to remain and take advantage of that. I was not meaning to imply more all-Ireland co-operation is at the expense of co-operation with Great Britain. Trade is not a zero-sum game, trade is a game where everybody can gain.

  71. Would it be fair to summarise your answer then as being, without going into the politics of it, and I assure you it is not the politics that I am interested in here, it is the economic aspect of it, that, in terms of trading and investment, it is a British Isles context, or the islands, if we want to avoid the terminology, it is within the islands that there is the context, rather than simply within the island, or within Northern Ireland itself?
  (Dr Gorecki) Yes, very much so, and a lot of the investment comes from well outside of that; a lot of the inward investment that Northern Ireland gets, as does the Republic, for that matter, comes from the United States and Canada and other places, so it is a much wider environment than just the island of Ireland, yes.

Mr McWalter

  72. Chair, thank you for allowing me just a point of clarification, because, just following your comments to my Honourable Friend, it seemed to me that almost you were perhaps suggesting, and have I got this right, that the current relationship between Northern Ireland's investment position is that, as it were, it breaks the same bread as the rest of Great Britain does, in terms of the general way in which investment decisions work, if you like, it is a co-operative relationship, but that the relationship with the Republic of Ireland is, as it were, crumbs from the table, and that, hence, in order to address the difficulties in inward investment, we have, somehow or other, got to get a co-operative relationship with the Republic as well? Would that summarise, with a metaphor, partly what you were saying, in response to my friend?
  (Dr Gorecki) I think that Northern Ireland competes for inward investment not only with the Republic but also with some GB regions as well; it is not co-operation with the Republic of Ireland and competition and the crumbs from Great Britain.

  73. But, there, you are using the resources of, as it were, Great Britain and its capacity to interest external investors, and so on; so that relationship is, as it were, much less fraught, much more co-operative, even though then, within that, you have still got a little bit of a battle on?
  (Dr Gorecki) Yes; and, clearly, when Northern Ireland wants to attract inward investment from some parts of the United States, for example, where there is a UK Consul, they will use that in order to encourage that investment. But I think that, even before the Belfast Agreement, there were some joint marketing arrangements between Northern Ireland, between the IDA, or Forfa«s, and the IDB, to try to encourage inward investment. So I think there is beginning to be a change in the relationship between the North and the South, so that perhaps the analogy of crumbs from the table might have been appropriate some time ago but I think that is beginning to change now, so it is more co-operative.

  74. Sorry, Chair, but I am just trying to get clear about the differences here, because Mr Donaldson put his finger on some of those points. Is it your aspiration, essentially, to get a relationship which is, while it has a benign competitive dimension, to get the same relationship between Northern Ireland and the Republic of Ireland as broadly exists in this sector between Northern Ireland and the rest of Great Britain, so that, effectively, it is not crumbs from the table, it is breaking the same bread?
  (Mr Gough) I think the aspiration of the Council would be to make Northern Ireland as successful in attracting inward investment as the Republic of Ireland has been. Although we have not done the research ourselves, we have to look at the reasons why they have been successful and why we have been, although successful, less successful.

  75. You have put lots of reasons in the report?
  (Mr Gough) We have listed three or four reasons in the report, and the differences are between Corporation Tax and the grants system in the North; the political instability, obviously, the `troubles' of the last 30 years; and the fact that in the South there has been a period of catching up over this last 20 years. Northern Ireland had an in-flow of inward investment in the 1960s which the Republic of Ireland did not have.

  Chairman: I should have alluded to this earlier. Because we are on running business, we are periodically interrupted by a division. If there are people who wish to vote, and it seems to me there are, I suggest we reconvene at ten minutes past five.

  The Committee suspended from 4.55 pm to 5.10 pm for a division in the House

Mr Beggs

  76. Can I go back to a comment arising from Mr Donaldson's observation. Is there not too much focus on the issue of the difference in Corporation Tax and its attraction to inward investors in the Republic; and has the Council examined the claims of IDB that the package of incentives in Northern Ireland compares more than favourably with the package offered in the South to those investing in the Republic?
  (Dr Gorecki) On the first question, about the Corporation Tax, in some of the work that is referred to in the memorandum that we submitted, we cite evidence there, in survey work that has been done, about what attracts inward investors to come to the British Isles. What comes across there is that the factors that are important are labour availability, skills and grants, or tax regimes, so, in that sense, it is labour, it is skills, it is the research and development base which is important and is going to attract firms to come in, and, indeed, have come into Northern Ireland for those sorts of reasons. So it is these economic fundamentals which are important in attracting inward investment; but I think it would be foolish to deny that a 12 per cent Corporation Tax, which is guaranteed for a long period of time and will change very slowly, is an important attribute when you are competing with other jurisdictions. And, certainly, in talks that have been given by people who have served on some of the economic development boards in the South, they stress very much that this low Corporation Tax, which changes slowly over time, and which is guaranteed to inward investors, is an important factor, in addition to the other factors mentioned in the survey. But you have to have those fundamentals right, particularly if you want to attract inward investment of the sort which is going to have these positive spin-offs to the rest of the economy.

  77. Is a high level of inward investment necessarily beneficial to regional economic development, and is there evidence that inward investors lift the standards of indigenous industry?
  (Dr Gorecki) A high level of inward investment is not necessary for the benefit of the local economy, for a number of reasons. First of all, inward investment into Northern Ireland usually comes with assistance from the state, and, in some instances, the case studies that were looked at by the Northern Ireland Audit Office, when it looked at, I think, six case studies of inward investment in the late eighties and early nineties, it concluded that those inward investments led to a net loss to the UK economy of between £2 million to £10 million or £11 million, and those are mentioned in our memorandum.

Mr McWalter

  78. I am sorry, what amount?
  (Dr Gorecki) I have forgotten the exact number.

Mr Beggs

  79. It may be £14 million?
  (Dr Gorecki) It is referred to it in our memorandum; £1.2 million to £14.7 million, were the estimates. So if you overpay for the investment and you do not do all the proper tests that the Treasury tells you you are supposed to do, then you can end up in that situation. There might also be minimal benefits if the inward investment is, essentially, some sort of enclave within the economy, with very little spin-off to the rest of the economy. The inward investor imports very large proportions of its inputs and exports the vast majority, and has a small employment impact, that, you could argue, would not have much benefit to the economy. Then, the last part of your question referred to, is there evidence that does have benefits, and I think that we cite a number of examples of work done in the United Kingdom and elsewhere, which shows quite clearly that inward investment, particularly in the 1980s and 1990s, can and does have substantial positive effects on the rest of the economy, in terms of employment, technology transfer, diffusion of management methods, and so on.

  Chairman: Having had a long debate on the previous new Clause, we now have had an extremely short debate, and they have now called another division. So I fear we are going to have to forsake you until half-past five.

  The Committee suspended from 5.14 pm to 5.25 pm for a division in the House

  Chairman: I am very conscious that the delays we have had may well have had an impact on the travelling plans of our visitors, and, therefore, not only am I going to start the Committee again, at twenty-five past five, but we will also see if we can accelerate, on our side, in order to accommodate you as far as we can.

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