Table of Contents
INTRODUCTION TO COMPETITIVENESS AND WHY IT IS IMPORTANT 3
METHODOLOGY 3
ECONOMIC CONTEXT IN NORTHERN IRELAND 4
PILLAR 1: MACRO AND FISCAL INDICATORS 5
GROSS VALUE ADDED 5
FISCAL BALANCE 5
PILLAR 2: THE LABOUR MARKET 6
EMPLOYMENT RATE 6
YOUTH UNEMPLOYMENT RATE 6
PILLAR 3: EDUCATION AND SKILLS 7
PERCENTAGE OF DEGREES PER REGION 7
EARLY LEAVERS FROM EDUCATION AND TRAINING 7
PILLAR 4: WIDER ECONOMIC CONTEXT 8
EVOLUTION OF THE NUMBER OF FIRMS 8
DEPENDENCY RATIOS 8
CONCLUSION AND SIGNIFICANT POLICY CHALLENGES FOR NI TO ADDRESS 9
REFERENCES 10
Gross Value Added has been overly decreasing since 1998. The great recession had a significant impact on the whole United Kingdom as GVA dropped drastically. However, London seemed to experience an easier recovery whereas Northern Ireland struggled until 2012.
NI‘s Gross Value-Added growth seems to be slower to recover than London after the great recession.
In 2000 and 2003, NI attained two peaks at 8% growth compared to the previous year due to the devolution to Northern Ireland in 2000 and to the assembly election in 2003. [5][11]
London and the regions surrounding the English capital show a positive Fiscal Balance and thus a surplus. Wales, Scotland, Yorkshire and Northern Ireland, on the other hand, show a negative fiscal balance and thus a deficit.
NI's fiscal deficit is due to a high level of public spending (highest in the UK).
This negative fiscal balance is also due to a small increase in taxes throughout the years. NI is therefore in a bad position and is not sustainable on its own.
The region needs financial help from the government to work efficiently. Moreover, the fiscal balance since 2010 has only decreased by £437. Other regions such as London have experienced an evolution almost 70 times stronger than Northern Ireland. [14]
Introduction to competitiveness and why it is important
What is competitiveness? Competitiveness is the ability of a firm or a country to maintain or gain market shares facing other enterprises or countries.
Two types of competitivity exist: price competitiveness and structural competitiveness.
The price competitiveness refers to the gain of market shares due to lower prices compared to other firms in the same sector. This competitiveness happens often in a short-term period due to the competitors’ reactions.
The structural competitiveness refers to a “non-price” competitiveness which is demand-led. This type of competitiveness happens when the product proposed by a firm is significantly better than the oppositions’ products. The structural competitiveness stands in a long-term period as firms need more time to invest, innovate and design a competitive product. [9] [10]
The competitiveness of an economic actor refers to the attractivity of its goods and services produced and sold to consumers. Being competitive means securing a stable or increasing amount of market shares. If a firm starts losing market shares, it will lose money and thus will be less competitive. If the market shares loss is too important, the firm can fall in bankruptcy.
Being competitive is nowadays one of the most important signs of well-being for an enterprise. According to Deloitte, in 2016, in France, the most important factor of being competitive, is the Human Capital and the employees’ motivation. [3] [4]
Methodology
This report based on Northern Ireland’s competitiveness will be divided into 4 different pillars. Each pillar will present two variables. Northern Ireland will be the main topic of the report as we need to build a profile overview and compare it to the other UK regions.
Northern Ireland ‘s competitiveness will be determined by macro-fiscal factors, the labour market fluctuations, the education and skills variables, and with a wider and general economic context.
These researches will be analysed using the Excel file “Data Bank”. Graphics and explanation for each variable will be presented.
The first pillar will analyse the GVA, Public Sector Net Fiscal Balance.
The second pillar will study the employment rate and the Unemployment Rate compared to Youth Unemployment rate.
The third pillar will include the degree rate and the Early Leavers evolution.
Finally, the last pillar will be talking about dependency ratios and the number of businesses.
Economic context in Northern Ireland
Northern Ireland is part of the 12 UK regions. It represents 3% of the United Kingdom’s population and NI ’s GDP growth will be computed as the lowest growth rate in 20181 with a 1% growth.
UK’s consumer spending represents 65% of its GDP. Its growth is expected to slow down as it would increase by 1.1% (1.8% in 2017).
Northern Ireland was the most affected region by the Great Recession and is likely to be the most affected region by the Brexit vote. Indeed, NI has an important trade relationship with the Republic of Ireland. 35% of the region’s GDP is made of trade with the Republic of Ireland and the cross-border sales represent a £3 billions revenue. Northern Ireland is also very dependent on migration as the manufacturing sector accounts for 61% of total export and 13% of the workforce comes from migration.
The UK as a whole is a net importer, which means that UK’s trade balance is negative and is dependent other countries. As the United Kingdom decided to leave the European Union, trade taxes will increase. It will especially be an inconvenient for NI as Northern Irish workers did not have any wage increase for more than a decade.
Firms in every sector are mostly worried about the Brexit decisions and more than 96% of them are not prepared and did not make any plans to deal with this decision.
However, Northern Ireland is feeling confident as for 2030 they want “An economy characterised by a sustainable and growing private sector, where a greater number of firms compete in global markets and there is growing employment and prosperity for all” [1][7][13]
The overall Labour Market has not been fluctuating much since 1998 apart from the great recession in 2008. The employment rate was at its minimum in 2010, which means from 2008 and 2010, firms in the United Kingdom did not hire much or new workers due to the inflation and instability on the market.
Northern Ireland experienced a drop starting in 1992 and attaining its minimum in 1994. This decrease had harder consequences on NI than other UK regions. This drop should mostly be due to IRA’s Bombing Attack on Northern Ireland in 1992 (19 September 1992: The bomb attack on the science laboratory).
On the long-term, both the United Kingdom’s and Northern Ireland ’s trendline concerning Employment rate have been increasing by at least four percentage point between 1992 and 2017. Northern Ireland’s employment rate has been experiencing the strongest increase in employment rate with an 11percentage point increase since 1992. [8][2]
Unemployment rate and Youth Unemployment seem to be following roughly the same trend. Both variables increased in 2008-2009.The major change in the unemployment rate happened during the subprime crisis where all the UK regions experienced an increase in unemployment.
However, in 2009, Northern Ireland’s unemployment rate was almost two times higher than London’s unemployment, and was superior the United Kingdom’s rate by ten percentage point. The overall consequences about unemployment in NI were therefore more important than in other UK regions.
On the other hand, on the whole period, Youth Unemployment in NI has been the lowest, compared to the UK’s average. But its growth seems to be stronger than other UK regions in the last years. London is one the region with the highest youth unemployment.
London seems to be the most attracting region for people with degrees. It has the highest percentage of qualified people (45,3%) due to the central business district “the city” and the high number of firms implemented in the capital.
On the other hand, Northern Ireland is attracting a smaller number of people with degrees. Indeed, since 2007, 27.8% of the working population have a degree. This low percentage is due to an important number of low skilled jobs in the region. Unskilled jobs are representing 40% of NI’s labour market.
Workers with degrees are more likely to go to London to work than Northern Ireland.
Consequently, NI also has the highest percentage of people with “no qualification” with 19%. It is almost twice as much as the United Kingdom’s rate (11%). [6]
On the competitivity side, Northern Ireland does not have encouraging data compared to the UK’s average and thus is not attractive for firms asking for high degree abilities.
The fluctuations in the percentage of early leavers from education and training have been mostly equal in all the regions. Indeed, in 2002, when the Education act 2002 had been released, the rate roughly dropped by 7% in every region.
However, in Northern Ireland, the decrease was less steep than in other regions. In 2006, the rate increased drastically as the 2004 Act about the rise of tuition fees came into effect in all the UK. Since 2007, tuition fees kept increasing and early leavers amount kept increasing. [15]
Since the great recession, the UK’s economy slowly recovered but some regions have been struggling. Especially concerning the evolution of the establishment of new firms. Since 2008, NI has still not retrieved the number of firms it had. This fact shows that NI is not very attracting for firms and thus is less competitive than the whole UK. However, the number of firms has slightly been increasing since 2015 and is almost getting back to the original number of firms in 2008.
On the other hand, London struggling period lasted until 2011 but due to the financial sector growth, the number of firms in London rose by 50% between 2011 and 2017.
In overall, the United Kingdom’s number of firms decreased until 2011, started increasing to reach a 23% increase in 2017.
The whole United Kingdom seem to be mostly on the same level regarding dependency ratios. Indeed 10 of the 12 regions have dependency ratios between 58% and 64%.
Since 2010, dependency ratios seem to be increasing. It is mostly due to the increase in the life expectancy. However, London and Scotland seem to have lower dependency ratios. These lower results could be the consequences of a business area, regrouping mostly working population and less inactive people who are living to other regions to be retired and studying, such as the South West. [12]
PILLAR 1: Macro and Fiscal indicators
Gross Value Added
Fiscal Balance
PILLAR 2: The Labour Market
Employment Rate
Unemployment rate and
Youth Unemployment Rate
Pillar 3: Education and Skills
Percentage of Degrees per Region
Early Leavers from Education and Training
Pillar 4: Wider Economic context
Evolution of the Number of Firms
Dependency Ratios
Conclusion and significant policy challenges for NI to address
Competitiveness is one of the most important factors for an economy as being competitive is about being outperforming its competitors in most of the economic indicator. Economists such as Ketels and Porter were talking about competitiveness by referring mostly to productivity. But as we saw in each pillar, productivity is not the only variable affecting competitiveness.
On a large scale, productivity could be simplified as fulfilling two main aspects. The first one: being present in every market where there is competitivity. The second one: gaining market shares over time. Fulfilling these two aspects should increase the country’s competitiveness.
Northern Ireland is, according to PwC, the “weakest region of the UK” and bases its statement by saying that NI is the worst performing region concerning GVA growth. However, on a longer time period as the first graphic shows, NI’s GVA is slowing down but its decrease is slower than the UK’s average decline.
The region could improve its GVA fluctuation by increasing its population’s Human Capital by promoting superior education.
The recent bad GVA performances are mostly due to a low percentage of qualified workers. NI is ranked 11th out the 12 regions concerning the average percentage of degrees and has the highest percentage of non-qualified workers.
In order to improve these statistics, an investigation should be conducted in order to know why the young population do not undertake a degree. This would provide an appropriate solution (Discounts, bursaries, campaign to encourage university enrolment, …).
Due to economic fragility, the unemployment rate has increased more than UK’s average since 2008.
Northern Ireland’s main problem is, in my opinion, the evolution of the number of businesses. Since 2008, the UK region has not gained any new firms, while the UK’s average increased its rate by more than one fifth. However, in the next years, the number of businesses should increase as a 12.5% corporation tax should have been implemented on the 1st of April 2018.
In overall, Northern Ireland has been struggling since the 1950s due to conflict and is very sensitive to macro-economic fluctuations. The Brexit consequences will start affecting NI in a few years depending on the changes it will have to face. Nevertheless, even though the region has been named worst performing UK region, it is slowly improving its economic indicators and is starting to gain competitiveness.