Examination of Witnesses (Questions 60
- 79)
WEDNESDAY 26 JANUARY 2000
DR PAUL
GORECKI AND
MR AIDAN
GOUGH
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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