Why would you bother investing in Northern Ireland?

officeRetired Irish Civil Servant Niall MacSuibhne (formerly the Irish Revenue dept) writes about what attracts multinationals to a region

Ernst & Young publishes an annual review of Foreign Direct Investment in Europe and has done so for some years. These “attractiveness reports” as they are quaintly called give a continent wide picture of trends within the FDI sector, including both EU and the rest of Europe, so regularly ignored by commentators.

The bad news for UKNI and those pushing the role of taxation, the rate of Corporation Tax comes  in at just 8th (out of 10) in a list of key location factors. The four main factors mentioned in 2014 review were,

  1. Stability and transparency of political, legal and regulatory environment
  2. The country or region’s domestic market
  3. Potential productivity increase for their company
  4. Labour costs

Northern Ireland wins out under labour costs, but clearly has a problem with the other three factors. If you are interested in serving the wider UK market, why would you locate off shore? Stability and transparency etc., is certainly questionable and the potential productivity increases available by locating to say Belfast are unclear. Even Labour costs while cheap by Irish standards, are considerably higher than those of say Poland. Labour costs may be an issue for manufacturing projects, it is the quality of the local workforce that matters for most projects locating on the island of Ireland. Germany’s lost territories of Silesia & Prussia win hands down and have the direct transport links that enables products to be with customers within hours. A quick squint at the website of Wroclaw, the former German city of Breslau shows what you can attract when you tick all the boxes.  (Wroclaw/Breslau’s university can boast 9 Nobel Prize winners, such as Theodor Mommsen, Philipp Lenard, Eduard Buchner, Paul Ehrlich, Fritz Haber, Friedrich Bergius, Erwin Schrödinger, Otto Stern and Max Born, admittedly mainly Germans.)

Looking at individual cities, Dublin (4,615 jobs) is the third largest recipient of FDI jobs in Europe, beaten only by the Paris Region and Barcelona. The only city comparable to Belfast in the top ten is Freiburg (597 jobs). However it is located in Baden Wurttemberg, with a top class university, 500 years older than Queens, and at the centre of a massive transport infrastructure.

Dublin is clearly a major hub of investment, attracting a substantial number of FDI projects in the ICT sector. Assuming it is Belfast’s intention to go after such projects, why would a company locate there over Cork, Limerick or Galway, which, despite having existing ICT sectors, struggle to compete against Dublin? Cork has Apple, EMC, Amazon, McAfee and VMware   for example and all three locations provide the same wider benefits as Dublin, other than they do not have the concentration of activity that Dublin has. Will Arlene Foster be able to open her handbag and provide the necessary work permits required, as Richard Bruton can do in Dublin? Does Belfast have enough suitable middle class non ghetto housing to provide for an influx of even a thousand foreign families?

Ireland also focuses almost solely on the US, attracting little investment from continental Europe. The majority of FDI in Europe comes of course from other European countries, such as Volkswagen’s huge investment in Poznan.

The estimated cost of the reduction in the CT rate is £200M plus, depending on who you read.  This requires additional profits of £1,600M a year to be generated.  The type of activity required to produce this level of profit would require Belfast to attract many multiples of the job numbers similar cities across Europe attract annually. I am sorry L’Derry Portadown etc., somehow I can’t see why anyone would want to locate anywhere outside of Belfast. No wonder the Belfast Telegraph reported the sale of land at Belfast Docks. That covers the first two years, what then?

Lower taxation is the cherry on top for those making Foreign Investment decisions. The proposed location must meet all the other criteria first.   The NI Executive needs to get everything else in place first before attracting FDI. The proposed cuts to the Education and Training Budget discussed here http://sluggerotoole.com/2014/12/08/department-for-employment-learning-publishes-draft-departmental-savings-plan/ should be a starting point. (It is telling that such articles are viewed far less than those on “tribal issues”.) Serious FDI Investment in Ireland only became a reality after massive investment in education over a very long period and as the E & Y figures show, multinationals are reluctant to move beyond the Pale.

Personally, I remain sceptical about the dependence on FDI. The Irish experience has shown little overall growth in the numbers employed in FDI businesses, though there has been a massive change in the quality of the employment. Textile and similar low paid manufacturing jobs have been replaced by positions requiring Level 8 (Honours degree) and above qualifications.  Locally developed business ideas would seem a more logical and sustainable approach. UKNI traditionally was a manufacturing powerhouse, surely not all of these skills have been lost and it should be possible to build on those remaining businesses.  Moving in this direction from dependence on the block grant to the scraps from someone else’s table is akin to replacing the addict’s long-term dependence on heroin to a similar dependence on methadone.

You can access the 2014 report,    http://www.ey.com/Publication/vwLUAssets/EY-2014-european-attractiveness-survey/$FILE/EY-2014-european-attractiveness-survey.pdf

& the 2013 version, http://www.ey.com/Publication/vwLUAssets/European-Attractiveness-Survey-2013/$FILE/European-Attractiveness-Survey-2013.pdf