By Conor Lambe, Chief Economist at Danske Bank
For many years, the Northern Ireland economy has faced the challenge of relatively low levels of competitiveness. As such, making improvements in this area has been a central component of several recent government strategies.
The Northern Ireland Economic Strategy, published in 2012, spoke of improving economic competitiveness and this goal was included as an indicator in the 2016 draft Programme for Government. The concept was also central to the draft Industrial Strategy, published in 2017, which contained a vision “to be a globally competitive economy that works for everyone.”
But how competitive is the Northern Ireland economy and is progress being made in this important area?
A useful first step in answering this question is to explain what is meant by the term competitiveness.
One of the most renowned studies relating to this topic is the World Economic Forum’s Global Competitiveness Report. In this analysis, competitiveness is defined as “the set of institutions, policies and factors that determines a country’s level of productivity.”
Another study – the EU Regional Competitiveness Index – states that “regional competitiveness is the ability of a region to offer an attractive and sustainable environment for firms and residents to live and work.”
What is clear from both these definitions is that competitiveness is of vital importance when it comes to building a diverse, outward-looking and high performing economy.
Last month, the 2019 edition of the EU Regional Competitiveness Index was published. This study quantified competitiveness in 268 regions across the European Union, including Northern Ireland.
The index is based on 74 variables that align with 11 pillars of competitiveness: institutions, macroeconomic stability, infrastructure, health, basic education, higher education and lifelong learning, labour market efficiency, market size, technological readiness, business sophistication and innovation.
The study also introduced the notion of ‘peers’, which are the 15 regions closest to the one being considered in terms of GDP per capita. A region’s peers are a group against which its competitiveness can be compared and benchmarked.
To understand more about the competitiveness of the Northern Ireland economy, this study allows comparisons to be drawn over time, against Northern Ireland’s peers, with other regions of the UK and with the Republic of Ireland.
In the 2019 edition of the report, Northern Ireland received a competitiveness score of 60.6 out of 100. This meant it ranked 132nd out of all the regions considered in the study. While Northern Ireland’s score has varied slightly between the various editions of the report, its competiveness position in the 2019 study is not significantly different to when the first edition of the report was published in 2010.
Northern Ireland’s peers include some regions which are quite close to home – such as Merseyside, Derbyshire & Nottinghamshire and East Yorkshire & Northern Lincolnshire – and some that are further afield including Cantabria in Spain, Abruzzo in Italy and Auvergne in France. When compared against regions such as these, the 2019 report shows that Northern Ireland scores similar to its peers on 10 of the 11 competitiveness pillars. The pillar on which Northern Ireland overperforms relative to these other regions is technological readiness. There were no pillars on which the local economy was deemed to be underperforming relative to its peer group.
Across all the regions of the UK, Northern Ireland ranks second from bottom in terms of competitiveness. Only the Highlands and Islands scores lower than Northern Ireland. Unsurprisingly, London and its commuting area is the most competitive region of the United Kingdom.
The overall competitiveness score assigned to Northern Ireland in 2019 is lower than the average for the whole of the UK (81.7) and the Republic of Ireland (67.7).
Analysing Northern Ireland’s competitiveness through these different lenses makes it very clear that there is still significant work to be done in this important area. This conclusion is not out of kilter with that derived from other competitiveness studies carried out in Northern Ireland, such as the Competitiveness Scorecard for NI produced by the Ulster University Economic Policy Centre in 2016 and the Department for the Economy research on Benchmarking Northern Ireland’s Competitiveness Against Small Advanced Economies published in 2017.
Making significant improvements to the competitiveness of an economy is not a simple undertaking and it can take a long time for policies with this aim to achieve the desired results.
Boosting competitiveness requires a multi-pronged effort across government, businesses, educational bodies and other organisations – the high number of indicators, as well as the depth and breadth of the 11 competitiveness pillars, used to compile the EU Regional Competitiveness Index is testament to this.
Another pertinent point included in this, and in other studies regarding policy is that in order to successfully boost a region’s competitiveness, it is necessary to make improvements across a broad range of factors and not just rely on making large gains in a couple of areas.
Low levels of competitiveness are a long-standing issue in Northern Ireland, and in recent years, making improvements in this area has been a key policy priority. However, studies show that there is still much work to be done. If and when the Executive is restored at Stormont, boosting competitiveness needs to retain its spot at the centre of Northern Ireland’s economic policy agenda.
This article was published in The Belfast Telegraph on 12 November 2019.