Select Committee on Northern Ireland Affairs Minutes of Evidence


Examination of Witnesses (Questions 120 - 139)

WEDNESDAY 16 FEBRUARY 2000

MR BRYAN JOHNSTON AND MR NIGEL SMYTH

  120. Mr Smyth, you talked about the realisation or the limitations of what you might call the approach of the early 1980's. Are there any definitive studies, either commissioned by the CBI or others, which would act as your turn of reference for this realisation?
  (Mr Smyth) I think there are two. The 1993 Northern Ireland Growth Challenge, set up for the first time, that involved companies in various sectors. There were about ten sectors: textiles, food, tradable services, engineering, etc. We looked at the opportunities in the various sectors and some of them looked at what was happening in other countries. Much more recently there has been the Economic Strategy Review, with the publication of Strategy 2010 almost a year ago. Again, that was on a sectoral basis. Again, coming from that, they have been looking at other companies and at what they have been doing: the textile sector, the trade missions; they have been looking at what has been happening in Denmark, which really had the same problems as Northern Ireland, suffering from overseas low cost competition, where they have been working together on the design side. So there is a fair amount of activity on-going at the moment. The food sector is a classic one. They have actually established a Northern Ireland Food and Drink Association. They are now doing joint purchasing of fuel and insurance and various things. They are looking at the whole supply chain in the food sector. Again, things like textiles and clothing, image problems again. Working together, companies have been able to say, "Look, jointly we need to be able to promote the image of our sector in terms of encouraging people to come into it." There is a fair amount of work which has been undertaken over the last four or five years.

  121. It sounds more enlightened than some CBI areas. The second question is linked to the business about the IDB target for inward investments: that they basically want 75 per cent of new investment to be in TSN, targeting social need areas. To what extent is that realistic? Can that have, as a consequence, some damage on indigenous industries?
  (Mr Smyth) I think the key words you missed out were "or adjacent". Is that in TSN or adjacent to TSN?

  122. That is quite right.
  (Mr Smyth) I think we have been fairly close.

  123. The travel to work areas, so that is close enough, as it were.
  (Mr Smyth) Our view is that the most important thing is that the inward investor gets the location that is best for the inward investor in terms of sustainable competitiveness. We would all like to encourage that to be as close to TSN areas as possible. Sometimes the scale and nature of inward investors may not be appropriate. Indeed, some inward investors are probably not interested in going outside Belfast or wherever. They have a particular view from where they come. We think, at the same time, that it is important to encourage the labour mobility: to ensure that public transport is there; indeed, ensuring there is employability so that those people who are looking for jobs have the right skills, the right attitudes, and can get to the jobs. Again, in terms of targets, the belief of 75 per cent: I think in terms of the annual reports and reading they have been fairly close to those sorts of targets. One would have thought that these organisations setting those targets, that they do expect they can actually achieve them. But there has to be a recognition that it does depend very much on the inward investor and the nature of the investor. Some inward investors are looking for neutral areas and that is why in the centre of Belfast, in Belfast this is fairly technical in terms of the space available for inward investment.
  (Mr Johnston) One of the important things is to slightly differentiate between having to have the inward investment located specifically in the area where there is social need, and the investment available to meet the needs of that particular area. With regard to locating in an area, there is one prime example, which is Fujitsu, which invested in West Belfast. They even secured a labour force from within the area because they said they were not looking for an already skilled workforce. They would train the people. That is welcome in itself because it is bringing additional employment, but it is assembly line work. So there are many ways you can ensure that you get 75 per cent. The overriding point is the type of investment that they attract and the ability of that investment to be located in those areas, because I think those areas are ones where you will not have the greatest technical skills, educational achievement, and management abilities. So there is a difficult task in trying to address the problems in TSN areas and locate the investment there.

  124. You did not cover the points about the harmful effect on indigenous industries. Do you have member coming here and saying, "If Joe Bloggs sets up here I'm finished"?
  (Mr Smyth) I think there is anecdotal information but it is mixed. Certainly, when some of the major companies like Seagate have come into the north west, some of the smaller firms would have said, as far as Cookstown, 30 or 40 miles away, that they would have lost some key technical people. Others would say it was a problem four to five years ago but they like the labour turnover and they are training anyway in their companies. So there is a bit of a mixed picture out there. Certainly in some cases smaller firms have lost some key people. They think it is unfair when some of these large companies are coming in and getting very significant capital grants, etc. The message we have been saying is obviously that if we can trim the grants down, more and more we are heading towards a level playing field. There is a general view of trying to move the wages up, provided the companies themselves are increasing the value of their products. So I think there is a mixed picture. There is some concern that maybe we are over-selling the fact of our skills base. We have a labour market with lots of people coming on to it at very good graduate level but there is probably a weakness around the vocational skills area. There are some concerns that it will bring a lot of people very quickly but the skills base may not be there. So our focus is that we do need to make sure that the skills base is right. I do not think we are at that stage yet but it is certainly one to monitor. So far, people have been generally concerned about the tightness of the skills but they recognise that the more they get in, the more they give critical mass, the better it will be for the sector overall. So they are suffering a bit of pain at the moment. A lot of them recognise this is going to happen. They are going to have to do more training and bring more graduates on themselves.
  (Mr Johnston) I do not think that there are too many companies who have been driven out of business directly because an inward investor came in, but there is the problem that if they are seeking skilled people, those people may well be drawn from local companies and that may well cause them problems. There are instances in which these problems have been caused. It brings one backthen to trying to get a clear focus on those sortsof companies, and the product areas that oneis trying to attract, and trying to ensure thatwithin the educational and vocational training establishments—universities and colleges of further and higher education—that they are anticipating those needs, and reflecting those needs, so that the necessary level of skills is, in fact, achieved.

  125. It is better if you have co-operative competition than if you have dog eat dog?
  (Mr Johnston) Indeed.

Mr Beggs

  126. Are you encouraging your own members to participate in the governing bodies of schools and colleges to ensure that the needs of industry and commerce are brought to the attention of schools and colleges?
  (Mr Johnston) I think the answer is simply yes. I am not quite certain the extent to which there has been a take-up of that.

  127. The question of take-up that would concern me is there is always a difficulty in getting good membership and active participation. In fact it was brought to my attention very recently where a company virtually had to rewrite the courses that were on offer in the university to meet their own needs. It would be important that there is take-up and close co-operation with schools and colleges.
  (Mr Johnston) There is a two-way aspect to this. I think it is also important that the schools and the colleges realise that they can benefit from some people who have an expertise which is outside the traditional educational framework. Let us take the concept of a non-executive director. Some companies believe if he does not know what the company is actually manufacturing and does not understand the processes, he can be of no value to them. That is purely by analogy but I think it is an attitude that needs to be overcome. In addition to the fact that there may not be as big a take-up as one would like, I believe there could be a greater drive from the education establishment to attract such people to them and to realise the benefits that they can bring.
  (Mr Smyth) If I can briefly add, we certainly see business/education links as absolutely vital. We did some work in about 1990 which eventually led to the establishment of the Northern Ireland Business Education Partnership. Over the years that has been developing links and enterprise awareness with secondary schools, and more recently it has been developed to take a broader role with primary and secondary schools and indeed universities. I mentioned earlier the Northern Ireland Growth Challenge, certainly that sector works in all of the various cluster groups and involves somebody from the universities too. I know the universities did change courses as a result of that and they are very responsive to business needs. Finally in the FE sector, where there is probably an inconsistent and a mixed view, there are some very good colleges with some strong business input, while in other colleges it is not so good, it is not so clear and sometimes the courses are not so relevant. We would be very supportive of that. In terms of governors and schools there is no particular formality to come to the CBI to do that. Certainly, one or two colleges have come to us and we would react very positively to that to encourage our members to put forward good people to that, certainly a number of our council members are actively involved in that.

Mr Barnes

  128. When we discuss Northern Ireland affairs it is almost inevitable you reach a stage where we discuss the problems of the border and how the border affects the subject we are examining, so I will do that in connection with investment. It has already been discussed because in response to Mr Donaldson you argued that the taxation regime and investment were more attractive in the Republic than it was in Northern Ireland. What other disadvantages might there be that Northern Ireland has in relation to investment coming into the Republic?
  (Mr Smyth) Taxation is the obvious one. You can then start looking at energy prices—electricity prices are significantly higher in Northern Ireland compared with the rest of the United Kingdom, indeed the Republic has access to natural gas. On the educational side the Republic has been very good on the vocational technical training and Northern Ireland is weak in that. We have just touched on the further education colleges. I think we have lost out with apprentices over the last decade or so, we are actually starting to see more modern apprentices coming through. I think that would be a weakness and that would be seen as a priority in terms of attention, to invest more in vocational, training in Northern Ireland. Dublin is a very cosmopolitan City. From Dublin airport there is a very wide range of international air link services, which are very important. I mentioned call centres earlier, most of their call centres are very much focusing on the European market. There are very strong language skills as well, and that would be a weakness in Northern Ireland.
  (Mr Johnston) One thing which we found on asking people was that the tax rate is up front, that hits them between the eyes, and is extremely attractive to them, even with the prospect of the 12.5 per cent Corporation Tax as from a few years hence. I think there is also the fact of a very close association between the Republic and the United States, which has greatly encouraged investment and has helped promote investment. There has also been a great investment of European funds into the Republic, it has benefited greatly from that. I believe there are so many things it has been able to do with regard to its infrastructure, it educational system which have, amongst others, enabled it to present itself as a very attractive place for inward investment. It has gone assiduously after this investment. At the moment it is promoting itself as the major English speaking European country. That is attractive for inward investment from places like the Far East and the United States.
  (Mr Smyth) If I can briefly mention two other areas looking forward, in research and development they are starting to put very big sums of money through public expenditure into research and development, certainly in the area of e-commerce, where they are making Government money available. Recently the MIT, the media lab, got £75 million investment in very new and very, very high technology in terms of research with private sector investment. They have over the last ten years or so created a key critical mass with some key, very high growth sectors and that literally attracts people in its own right.
  (Mr Johnston) I do think that the way they have set about addressing problems has been significant as well. I did not bring the whole report with me but I have what amounts to a 20 page executive summary of a report on e-commerce, the policy requirements. This is about a 130 page document prepared by the Republic and they certainly realise the ramifications of electronic commerce and the impact that it is going to have on the way that business is done. I know that we actually have in Northern Ireland as a unique entity one of the largest, if not the largest, sellers in Europe through the Internet of videos—a company called Black Star, but it seems to me that their's is a more structured, more focused approach, particularly with regard to e-commerce. Taking up on Mr Donaldson's earlier comment about call centres. Call centres may be a step on the way, but there still may be more growth in that area. I think the relationships which have been developed in the Republic between the Government, business and the labour force have created an environment in which problems have been looked at more in the whole and more structured and definitive policies have come out. That has been a very important basis for their achievements.

  129. It all sounds very pessimistic, it sounds like the Republic has beat you on a whole host of areas on essential development. Are there advantages that Northern Ireland might have, with particular types of projects being attracted towards it rather than towards the Republic? Also, in terms of what you have seen as some of the advantages that sometimes exist in the Republic, do you see developments that would catch up on those happening within Northern Ireland?
  (Mr Johnston) Electronic commerce, I feel in the next few years is going to become, if not all pervasive, very pervasive indeed. They have certainly gone into this in a big way. The fact that on this side of the Atlantic we have embraced this very much less than in the United States and Japan means there are great opportunities still to be gained, and the fact that someone may be first at the starting block does not necessarily mean they are going to win. One of the problems which they are facing, I know at the moment is that they are having to suck in labour from outside. The spectre of over-employment could well be affecting them. They are attracting many graduates from Northern Ireland to the Republic but that in itself may well be counterproductive because of the salary levels there. We would hope that in the near future we may be able therefore to offer an as well qualified, if not better qualified, labour force at a lower cost.

  130. Is this a problem for Northern Ireland? Do you see this as a brain drain?
  (Mr Johnston) I would not put it as boldly as that. There is certainly a flow of skilled labour and trained labour from Northern Ireland to the Republic.
  (Mr Smyth) If I can add, I see it as a brain overflow. In the past Northern Ireland has not been able to create enough opportunities. Currently we have been increasing the level of opportunities and we will attract some people back. Dublin, in particular, is very attractive to young graduates, the salaries are very attractive but bringing up a family in Dublin is now becoming very expensive, maybe those people are going to come back to Northern Ireland with good experience. Dublin, in particular, is suffering severe problems in labour market issues and, indeed, the Government in the Republic will not offer any more incentives to people to invest in the Dublin area, it is going out to the BMW areas, the border, the midlands and the west. Dublin itself hasa very severe infrastructural problems with transport, there are congestion problems there. It is becoming more expensive. In terms of opportunities, I do think there are supply opportunities into these big multinationals. The Republic has run afairly successful linkage programme between multinationals and smaller indigenous companies and we hope that through the new Trade and Business Development Institution that has been set up that there would be opportunities to do that on an Island of Ireland basis. The construction sector are just about to invest in the order of £40 billion over the next five to six years, very significant opportunities for the Northern Ireland construction companies.

  131. All investment projects that are coming in from outside want to be competitive between the Republic and Northern Ireland. Some people when they are judging where they should invest and they are looking towards the Republic might be looking towards a number of other areas that they would be investing in, it might be Great Britain that was the alternative market that they would be seeking to go for.
  (Mr Smyth) I agree entirely. I just happened to have a meeting yesterday and somebody from Eircom gave me their CD—and they are the equivalent of BT in the Republic, they also have AOL—they said skills, the costs basis and the euro. The euro was very important to them. It is a single market on that basis. There is no doubt, yes, they will be looking at other competing regions. Interestingly, a lot of people wanted to set up in the capital but that is now no longer available. The development agencies in the Republic are trying to encourage development in the regions. The real competition in the future will be—they do not particularly want more development in Galway or Cork either, because these are overheating—in some of the more rural areas outside those areas.

  132. Is there any inward investment into the Republic that then has a spin-off into Northern Ireland? Might firms sometime be looking for activities that link in with some subsidiary development in the North?
  (Mr Smyth) Absolutely. On the supply side there would be a number of companies supplying the computer companies. A lot of their growth in Northern Ireland is on the back of the growth in the computer industry, Dell and Compaq, etc in the Republic. We do believe there is more potential for developing that. It is not particularly helped at the moment with the strength of sterling, that is a very major problem at the moment.
  (Mr Johnston) With regard to companies coming into Ireland, many of them tend to see the island as a unit and they would put one major base and the issue is whether they install that major base in the Republic or in Northern Ireland. As Mr Smyth was saying, if you get a major company there which requires to have a logistic chain, a supply chain, even a distribution network, then there are opportunities throughout the island for those based in Northern Ireland to utilise companies in the Republic and the reverse is also applicable. I would just like to say I am not at all pessimistic about things. The issue is the firmness with which we actually grasp the challenges which we face. I do believe that electronic commerce is an issue because there are so many issues which flow from it which, in fact, it happens that the Republic has grasped sooner than we have grasped and it is important that we grasp it with both hands as quickly as possible.

Mr Grogan

  133. In paragraph 16 of your memorandum you make a number of recommendations about the focus of future investment policy. As we heard earlier, a number of these recommendations might also be before other similar bodies throughout the United Kingdom. How do you intend to promote these recommendations? I would be interested, is there anything in your structure, do you think, that gives you an advantage over regional development agencies in the United Kingdom?
  (Mr Smyth) I think on the latter point with an Assembly and a Northern Ireland Minister and going to the United States with the cross-political front, they were able to do a major investment roadshow where they toured at the end of 1998. That goes down extremely well with the investors when they see people from the different traditions working together; on that point that would be very positive. Plus the fact that we think with the minister they can make decisions, we have a sort of "can do" mentality. We have been very encouraged by the fact that the ministers and Assembly members recognise the need to work very closely with the private sector. That is one thing that has evolved over the last five to six years in terms of identifying some of the work in the sector. Prior to 1993 the software sector and the health technology sector were not key targets for the IDB. It was through the work of the Northern Ireland Growth Challenge and the sectors which identified—they looked in the Republic to see the growth that was happening there—they said, "Here in Northern Ireland there is a very small sector to start but with a very significant potential growth". Over the years we have seen that and we have continued to encourage that, the IDB and the people involved in investment, working very closely with the private sector in terms of identifying the opportunities and the sectors where the growth would be. I think to point out an issue, this is now two and half years old, by and large we would feel that the IDB have been moving along this agenda. The unemployment has been coming down. We do need to focus on higher quality jobs. We do need to focus on new technology and linkages with the universities. I think in Northern Ireland we have a lot of potential with the universities—we have two very good vice-chancellors now. The Queen's would say they have been promoting one spin-off a year, we think they should be promoting three spin-offs a year. There is a lot of potential there to be tapped into. That is against the IDB working with the universities in collaboration with the private sector in terms of identifying the potential market and opportunities there. We have an annual meeting formally with IDB, we also meet them informally at other opportunities, and we would be promoting this to them.
  (Mr Johnston) Can I just elaborate on one thing. An issue which I noticed over the last few years is the willingness of Government and government departments to consult prior to the production of reports and issuing policy documents for consultation. The most recent one which we have had the opportunity to comment upon is the one on research and development in universities. I think there is certainly a realisation that there has to be a much closer linkage between business and the universities to try to ensure that the research is a means to an end rather than an end in itself. I believe also there may be opportunities as well. Thinking in terms of research and development, sometimes there are developments made by small businesses and if they had access to larger outside investors who could help them develop the idea and develop it in an indigenous sense, it is not just somebody from outside bringing a new idea in. We may need the investment and skills from outside to ensure that our local initiatives are properly developed. I would certainly like to see investment in that as well. It brings me then to one other point which I think is important to make. We can say we can strengthen existing sectors and clusters, particularly in the high growth sectors, but the important thing is to be able to predict which will be the high growth sectors in the future. We all want to back winners, but those who manage to back more winners than others do their homework. There is the issue of a knowledge base and awareness base, a knowledge of what is going on in the worldwide economy—I am not satisfied that the knowledge available to us of that is sufficient. I also tend to think that we could better monitor what our own small companies are doing to try to ensure that where there is something with wide potential, it could, in fact, be capitalised on for the benefit of the Province.

Mr Beggs

  134. Gentlemen, we are all aware there is a very considerable amount of public money invested in attracting inward investment through IDB. You have already said that you are in regular contact with IDB, what is CBI's assessment of IDB's performance and have you any views as to how IDB's current performance could be further enhanced?
  (Mr Smyth) I think the answer to that is that we were not in a position to undertake a detailed assessment of what they have done. They have come through a number of very difficult years. I think we all accept, with the image that Northern Ireland has, it is going to be very difficult to attract inward investment. I suppose through our contacts they have been moving, they have been shifting, they appear to be responding to what we and others in the industry have told them. What I said previously, I think it is very important that they do link very closely with what is happening in business and get views in terms of where the potential opportunities are, where would investment coming in strengthen sectors, where there are strengths in research and development. In terms of a strategy we outlined, they are very much broadly going down that path. In terms of the sectors they are targeting at the moment, one would not question them other than probably with the automobile components, with the changes we are likely to see in the automobile industry with the Internet, etc and one questions whether that is sustainable for Northern Ireland. The other issues of telecom skills and software, I think there are very, very significant opportunities there. In health technologies there is significant potential. The sectors are broadly right. They have been working more closely with business. They have also taken a more proactive role in terms of going out to speak with companies that are already here to say, "Is there somewhere back at home that your multinational parent is looking at that we can attract into Northern Ireland?" We think that would be important. We have gathered anecdotally, we have not done a detailed assessment.
  (Mr Johnston) Just to try to answer Mr Beggs' question very specifically, the CBI would be in support of the published endeavours of the IDB, the areas which it is targeting. If you wish to get hard information on what actually is being achieved, one has to examine the annual report. Anything else in between tends to be somewhat anecdotal and that relationship tends to have its difficulties. There could well be advantage in, let us say, greater information on the activities of the IDB and in their performance and, perhaps, a greater transparency. As I was alluding to earlier, it would seem to me that there have been government departments, government agencies which have very clearly consulted and there has been a very full input. The important thing is being able to assess the output. We are at a certain disadvantage because, frankly, we know where they are, we know what they are trying to do, but until we see something on the ground we do not know too much about the detail of the successes and the lack of success. I think there could be an advantage in having a greater amount of information.
  (Mr Smyth) One of the many areas where we have suggested they come up with more information, one of many areas, is in the quality of jobs, to try and come out with some indicators which might give you a better idea on how much money has been put in to achieve this role.
  (Mr Johnston) Just to finish up on this point, one thing I have found in other fora is where, in fact, the performance in the Northern Ireland economy has been taken as a proxy for the performance of a specific initiative and one does not know whether, in fact, there is a simple correlation. Success may be in spite of their efforts or failure may not because of their efforts because it is totally outside their control. I think there is an issue over the quality, the quantity and the focus of the information where we have to make the judgment that you would want made.
  (Mr Smyth) Could I add a final point? A report arrived on my desk today from the Northern Ireland Economic Research Centre and they are suggesting that Northern Ireland has done exceedingly well out of projects in computer software. According to an IDB press release Northern Ireland has secured eleven out of thirty-five major new projects announced in the period 1991 to 1997. They are certainly suggesting that Northern Ireland is getting more than its fair share, which is encouraging from a Northern Ireland perspective.

  135. What infrastructure and facility constraints has the CBI Northern Ireland identified that might inhibit the development of inward investment?
  (Mr Smyth) A couple of obvious areas, one is transport and the other one, the big one, is energy costs, both in terms of the price of electricity and the nature of the generating contracts that we were landed with at privatisation which we have been encouraging the Regulator to do something about. There might be some encouraging news in the weeks and months ahead on that. It is also important in terms of access to the natural gas grid, particularly for companies in the auto component sector, Ryobi and Montupet, which are fairly significant energy users and both within the greater Belfast area and have very recently moved on to natural gas. Transport infrastructure is the other. The Westlink, in particular, around Belfast is becoming a potential, significant problem over the next few years. We see that as one major bottleneck in Northern Ireland. Toome bridge is also a problem, there are short-term remedies which were announced last week by the minister, which is encouraging because that is the main link up to the north-west. There are some other investments but as key investments those are the two bottlenecks. Also the other weakness in Northern Ireland is really direct air links. We are very dependent on Heathrow. In the medium-term to long-term, Birmingham and Manchester will have to become more important. At the moment we only have one direct link into Brussels, one flight a day. For international companies targeting the market it is quite a costly and time consuming exercise to be going to many of the markets in Europe, that is a general weakness. It is difficult to know how to address that. We have suggested there should be up-front marketing support or a route development support to try and encourage these routes to develop them. Those are the two obvious areas.

  136. You would make direct representation to Government in addition to responding to consultation documents?
  (Mr Smyth) We would, indeed, absolutely.
  (Mr Johnston) There is the issue of transport within the Province and there is the issue of access and egress. Certainly where, in fact, we wish to attract a company which demands by its very nature that the goods it produces must be physically transported, it is not just a matter of transportation in the Province, it is transportation from the Province to elsewhere. If it is by road transport, then our major route at the moment would be to the south of Scotland at Stranraer, so it raises issues of links within Great Britain. I know there is work being done at the moment, with which CBI is involved, within the east/west corridor across Scotland and the north of England. If we are attracting companies whose products can be, let us say, termed virtual, ones with which the whole transaction can be fulfilled electronically then I believe we have the telephone infrastructure, that is there. There is no doubt where there is a heavy consumption of fuel then the higher the electricity costs are a problem, and one thing which may cause us further difficulty, would be the Climate Change Levy, which can exacerbate that position.
  (Mr Smyth) Just picking up Mr Johnston's comment on the Internet. E-commerce is going to make it more important in terms of logistics and supply chain efficiency and this is, in time, going to get squeezed down more and more. You can reliably get goods, particularly, into Great Britain but also into Europe.

Mr Pound

  137. A very quick question on the back of the Climate Change Levy, CBI here are lobbying robustly, are you part of that programme or is there a separate issue?
  (Mr Smyth) CBI is aware that there is a particular issue in Northern Ireland where we can uniquely, within the United Kingdom, absorb a higher reduction of sulphur emissions. If we get the Climate Change Levy we will not do that, it will have a big impact. CBI nationally is very aware and our Director General raised that with the Chancellor last week.

  138. You made an independent submission.
  (Mr Smyth) It was also picked up in the CBI brief as well. They have the access here that we would not have in Northern Ireland.

Mr Hunter

  139. Three disconnected points, the first is to pick up something Mr Beggs asked about and you commented on, the need for more direct flights to Europe. This is just a small point, I happened to discover recently that the direct flight from Belfast to Amsterdam, I think it is British Midland, has now been cancelled.
  (Mr Johnston) KLM.



 
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