‘Peace Dividend’ for Northern Ireland Economy?

On 15 August 1998, a car filled with a 500 pounds of fertiliser explosive was left outside S.D. Kells’ clothes shop in Lower Market Street in Omagh. At ten past three on a busy Saturday the bomb detonated. Around 220 people were injured and 29 killed in the blast, the heaviest death toll of any single terrorist atrocity during the Troubles.

Fifteen years on from the Omagh bomb, Northern Ireland looks like a very different place. Republicans and loyalists now share power in a devolved government at Stormont. The violence and terror that characterised life in the North for 30 years prior to the Omagh bomb has largely disappeared.

But as Northern Ireland edges towards normality, how has its economy changed? Is business in Northern Ireland in 2013 in better shape than it was in August 1998?

The answer is not as clearcut as Belfast’s glass-and-steel skyline might suggest.

Titanic-Belfast-Operator-2Back in 1998 the unemployment rate in the North stood at 5.1 per cent. During the boom years of the early 2000s it went as low as 3.1 per cent. But according to figures released this week, joblessness in Northern Ireland is currently 7.5 per cent.

‘To an extent not much has changed economically in Northern Ireland,’ says Paul McFlynn, an economic specialist at the Nevin Economic Institute. However, while the dole queues have lengthened, the number of jobs and people in work has grown significantly too.

The numbers of economically inactive in Northern Ireland has fallen from 34.4 per cent in 1998 to around 30 per not. Nevertheless, Northern Ireland still has higher levels of benefits claimants than other regions of the UK. Youth unemployment remains a serious problem, with around one in five young people not in education, employment or training (NEET). Real hourly earnings are today back to their 2003 level.

Like in the rest of Ireland, the north’s housing market witnessed a huge boom and bust in the years following 1998. Between 1997 and 2007, average house prices in Northern Ireland grew by 250 per cent. Since then house prices have fallen by 53 per cent, far outstripping the average 18 per cent drop recorded across the rest of the UK.

Economists at PwC in Belfast warn that it could take a decade for house prices in Northern Ireland to return to their 2007 peak. ‘While some types of property in popular areas of Northern Ireland are demonstrating real recovery, average property prices have some way to go before they are clearly on the turn,’ says PwC Northern Ireland chief economist Dr Esmond Birnie

‘That means real recovery in the property market will be long, difficult and wholly dependent on factors ranging from reduced household debt to more liberal lending policies’.

Dr Birnie, however, does see reasons to be cheerful. Northern Ireland’s manufacturing and construction sectors are reporting increased demand and orders and exports have risen. The latest Northern Ireland Economic Outlook, published by PwC this week, forecasts economic growth of around 0.5 per cent in 2013, possibly rising to 1.5 per cent in 2014, assuming continued steady recovery in the UK and Republic of Ireland.

However, in terms of job creation, exports and forecast economic growth, Northern Ireland is demonstrating the slowest recovery amongst the 12 UK regions, well behind London and the South East, which are expected to grow in 2013 by 1.2% and 1.5%, respectively.

Tourism is one area that has improved considerably since the Good Friday Agreement was signed. Back in 1998, 1.4 million people visited Northern Ireland, spending £217m. In 2012, almost 4 million people spent a night in Northern Ireland, contributing an estimated £683 m to the local economy. Titanic Belfast, which opened last year, had 800,000 visitors in its first twelve months.

Business leaders are hopeful than events such as this summer’s G8 meeting at Lough Erne will encourage investment in Northern Ireland. However, many remain sceptical about this prospect, especially given escalating unrest on the ground, first over the flying of the Union flag over Belfast city hall and, more recently, parading routes.

Northern Ireland remains a very testing retail environment, with around one in four units in Belfast empty, the highest rate in the UK.

‘Fifteen years ago everyone was talking about the ‘peace dividend’, that really hasn’t emerged in any great form,’ says economist Paul McFlynn.

The challenge now, as the block grant from Westminster is reduced annually amid spending cuts in London, is to find a political and economic solution that will work for all of Northern Ireland. ‘You have a situation where you have a political settlement reached in the good times. Now it’s coming into its more mature phase and the money has dried up and you are seeing every crack and fissure starting to emerge,’ McFlynn said.

‘What we need now is a genuine attempt to have some kind of local ownership of the direction of Northern Ireland’s economy.’

A Co-operative Alternative

Despite the successes of the last fifteen years, Northern Ireland remains a deeply divided society. As recent unrest attested, sectarianism is still a major problem, especially in and around the ‘peace walls’ that separate nationalist and unionists communities. These interface areas are characterised by social problems, high unemployment and low levels of economic activity.

An imposing, 800-metre long multi-level corrugated iron barrier divides the loyalist Shankill road and the republican Falls road at Cupar Way, in West Belfast. Tensions often run high, particularly during the summer marching season, but a new initiative is attempting to promote reconciliation and economic growth on both sides of the interface.

Three years ago, Trademark, the anti-sectarian unit of the Irish Congress of Trade Unions, helped to establish the Belfast Cleaning Society, a worker’s co-operative based on the interface at Cuper Way. The co-operative has grown steadily. It won the contract for this month’s Tennent’s Vital concerts in Belfast. Not having an owner taking a profit has allowed the business to undercut competitors while also paying a fair wage. Union Taxis, a cross-community co-operative taxi company, based on the interface is due to open later this year.

The Belfast Cleaning Company is owned and run by eight women who live on both sides of the interface. Cross-community enterprises have proven difficult to sustain but a co-operative is well-placed to manage workplace challenges posed by external political events such as the recent clashes over parading.

‘There have been tensions in the co-op as we have workers from republican and loyalist backgrounds. But the co-op is different because the relationships are vital to its success, and because you don’t want them to break down you have to face up and talk about problems,’ says Stephen Nolan, co-director of Trademark.

‘In most workplaces in Northern Ireland people are taught not to talk about these things.’ A study conducted by Trademark last year found that 44 per cent of private sector employees had experienced sectarian harassment.

Ireland’s tough road back

It doesn’t feel like a country in the grip of a lost decade, writes Peter Geoghegan, but beyond Dublin’s corporate office blocks and crowded city-centre bars lies another Ireland

Last weekend more than 50,000 people – many of them Scottish rugby fans – packed into the Aviva Stadium in Dublin to watch Ireland triumph over Scotland in the Six Nations. Erected on the site of the homely if rather anachronistic Lansdowne Road ground, the Aviva was built, in part, to show off brash, modern Celtic Tiger Ireland to the world.

Unfortunately, by the time then premier Brian Cowen opened the stadium in May 2010, the economy that bankrolled the Aviva was already on the rocks.

Today, the shining corporate offices of Google and Facebook in Dublin’s Docklands and the busy, bright young things in the Irish Financial Services Centre belie the reality that Ireland has yet to “the turn the corner”, to borrow a recurrent phrase of politicians in the lead-up to the banking crash that led the country to the brink of bankruptcy in 2008.

“The 2008 banking crisis was not caused by an outbreak of moral failure or individual weakness,” Irish historian Conor McCabe writes in the concluding chapter of his book Sins of the Father. It was structural and political forces – not “pockets of immorality” – that led to a bust of global proportions.

Subtitled Tracing the decisions that shaped the Irish economy, McCabe’s is a compelling account of the economic failings that dogged Ireland since independence, from the fateful decision to peg the punt to sterling for more than 50 years (a parable worth revisiting for some Scottish Nationalists) to the state-sponsored boom in construction and financial services that underpinned the Celtic Tiger’s ruinous second decade.

As McCabe avers, the response of Ireland’s political classes to the banking crisis has proved as disastrous as the policies that created it. On 30 September, 2008, the Irish government elected to guarantee almost all the liabilities of the state’s six financial institutions. The effect of this decision – which led indirectly to the €85 billion IMF/EU bail-out in November 2010 – are still being felt across just about every sector of Irish life today.

The scale of Ireland’s recession is worth reiterating. In 2009, GNP contracted by 11.9 per cent. In the same year, Gross Domestic Product shrank by over 7 per cent. That year, unemployment climbed above 10 per cent for the first time since 1997.

The vital signs from Ireland’s economy are more positive than they were when the European troika rolled into Dublin 18 months ago to agree the bail-out. Indeed, walking around the capital, Ireland doesn’t feel much like a country in the grip of a lost decade. The on-going boom in IT, particularly in the corporate sector, has ensured that an affluent, young middle class remains. Exports have grown steadily in recent years (although a new report issued by Ulster Bank warns exports will weaken in 2012 and GDP will increase by a paltry 0.4 per cent).

But beyond the corporate office blocks and the crowded city-centre bars lies another Ireland, one that profited little from the boom years and now finds it’s bearing the brunt of the Irish age of austerity.

A cursory glance at Irish unemployment figures bears this out. From the halycon days of the Celtic Tiger and full employment, official statistics have joblessness running at over 13 per cent for more than two years. Among young people and recent graduates, the numbers are even worse: for those under 25, unemployment stands at well over 25 per cent.

Headline unemployment rates mask the return of another facet of Irish life supposedly banished by the Celtic Tiger: emigration. The Economic and Social Research Institute in Dublin estimates that more than 1,000 people are leaving Ireland every week. A report released last year by the National Youth Council of Ireland suggested 70 per cent of young unemployed Irish people believed they would emigrate.

Even the signs of economic life in Ireland are not as positive as they appear at first viewing. The bulk of the growth in Irish exports is attributable to the presence of significant numbers of multinationals who use few if any Irish raw materials.

Attracting large foreign firms to Ireland with a generous tax regime and grants has been, and remains, a mainstay of Irish economic policy. However, the value added by these multinationals to Ireland’s indigenous economy is less clear-cut.

According to McCabe, in 2008, multinationals accounted for a whopping 88 per cent of all Ireland’s merchandise export sales. Yet these same companies provided just 7 per cent of total employment. Despite total sales of almost €110bn, they paid about €2.8bn in corporation tax.

Meanwhile, the detritus of Ireland’s laissez-faire housing policy, encouraged by massive tax breaks from central government during the boom years, is littered across the country’s fabled green fields. The problem is particularly extreme in rural areas in the Midlands: the total number of houses in sparsely populated counties Longford, Cavan, Roscommon and Leitrim increased by 50 per cent between 2002 and 2009. Many of these properties now lie vacant on unfinished estates. According to the 2011 census, 294,000 properties in the state – some 15 per cent of total housing stock – are habitable but vacant.

After three and a half years of austerity budgets, which have cost thousands of jobs, there are signs that the Irish population is growing restive. The €100 “household charge”, introduced in last December’s budget as an interim property tax, has proved unpopular, with very low rates of compliance. A more extensive property tax, due to be introduced in the coming months, could prove even more divisive.

All this is bad news for EU mandarins. Ireland is due to vote in a referendum in May or June on the European Fiscal Compact, designed to stabilise the eurozone by enforcing strict budgetary controls on EU nations. The latest opinon polls, published in the Sunday Business Post, suggest 44 per cent would vote in favour, but 29 per cent remain undecided and support for Sinn Fein, who oppose the treaty, has grown substantially.

Recent opinion polls put the republicans on 25 per cent, behind only Taoiseach Enda Kenny’s Fine Gael. Although coalition partners Fine Gael and Labour still enjoy strong backing – and Mr Kenny is personally very popular – support for opponents of austerity is growing.

Leinster House, where the parliament sits, will hope the EU treaty vote will offer an opportunity to renegotiate with the bail-out lenders. The EU-IMF loan was made at a punitive 5.8 per cent, an interest rate that is crippling growth in the economy. Currently, the Irish government is attempting to reschedule about €31bn of promissory notes for its failed banks.

“What we are looking for is a deal to pay them back over a longer period, possibly at a lesser rate of interest,” deputy finance minister Brian Hayes said yesterday. “I would ask people in fairness to be patient with us on this issue.”

Beyond the corridors of power, the new economic reality has produced some creative responses. Comedian Abie Philbin Bowman – who, fittingly, will be appearing at the Glasgow Comedy Festival this Saturday, St Patrick’s Day – is returning to a tried-and-tested financial model: barter.

“I’m planning a tour of Ireland this summer that runs entirely on barter,” Bowman says. “All my shows are free to the public, and afterwards people are asked to make a donation. If they can’t afford to give money, they can offer me a hot meal or somewhere to stay. In the past, one person offered me juggling lessons, another taught me how to fly-fish. It’s a very different experience and a really interesting way of seeing the country.”

The Aviva isn’t down as a date on the tour, yet.

This article originally appeared in the Scotsman, March 15