With the Brexit process gathering pace, there is much focus on the question of how different parts of the European Union as well as different parts of the United Kingdom will manage a transition to new rules, customs arrangements and related administrative matters. The European Union and the United Kingdom will, somehow, ‘meet’ on the island of Ireland. In this context, it is particularly important to understand something about the structure of the Northern Ireland economy. A very recent publication [Structure and Performance of the Northern Ireland Economy, 2014 and 2015] by the Northern Ireland Statistics and Research Agency (NISRA) provides a useful and fresh insight into some of the key aggregates that go to make up total income, expenditure and output in Northern Ireland.
The first point we may note is that, as a regional economy, Northern Ireland remains very open in terms of trade with (a) the rest of the United Kingdom (hereafter Great Britain), (b) the Republic of Ireland, and (c) the rest of the world including the other 26 Member States of the EU. Northern Ireland imports or purchases goods and services close to £25 billion per annum while it exports or sells close to £22 billion (data refer to 2015). The make-up of these flows of goods and services are shown in the Chart, below. What is striking is that the bulk of flows are between Northern Ireland (NI) and Great Britain (GB) with £17.6 billion purchased from GB in 2015 and £11.3 billion sold by NI to GB in the same year. By contrast, only £2.4 billion is purchased by NI from the Republic of Ireland (similar to what is purchased from the rest of the EU) while £3.7 billion is sold to the Republic. These figures clearly show the degree to which the economy of Northern Ireland is heavily integrated into the national UK economy. While the all-island economy of Ireland remains an important source of trade and income for Northern Ireland, it is the East-West link that is crucial. History, politics and border do matter for economies even in the era of globalisation and free trade such as it has been up to recently.
There is an added point that some of the £4.7 billion purchased from outside Ireland and Great Britain (£2.4+£2.3 in Chart 1) is transported as goods across the ‘landbridge’ of Great Britain (or via a port in the Republic of Ireland). Whatever rules are applied to goods, let alone services, the impact of a reconfiguring of the UK’s relationship with the EU and with the rest of the world will have a profound impact on Northern Ireland’s economy. Households will feel and see the difference in relation to choice of products, price of goods and services not to mention of ease of travel, work and study across boundaries.
While detailed sectoral statistical breakdowns of cross-border trade flows are challenging, it is clear that the bulk of purchases from Great Britain is in the form of goods and services purchased by manufacturing within the broad ‘Production’ Sector (in total £13.1 billion is purchased by the Production sector in Northern Ireland out of a total of £17.6 billion across all sectors in Northern Ireland). This indicates the importance of manufacturing supply chains on the East-West axis. (In a separate publication, NISRA have estimated that, for example, two-thirds of goods agri-food goods traded with the Republic by Northern Ireland may be considered as part of a supply chain activity.)
Separate to the above publications, the Northern Ireland Broad Economy Sales and Exports Statistics (BESES) was published last March here and relates to 2016 data. The data show that over 80% of purchases by NI from GB are goods and the rest are services while the proportion for goods is even higher at over 85% for NI purchases from the Republic. In the other direction, around 75% of sales to GB by NI are goods while the corresponding proportion for the Republic is 80% (source is here). These findings reinforce the significance of post-Brexit customs arrangements where the bulk of regional trade relates to goods.
Beyond trade statistics, the most recent NISRA publication provides an overall view of total of income (or expenditure or output) in Northern Ireland. This came to £41.6 billion in 2015. This gives an estimate of £22,450 per head of population in that year – just over three quarters of the corresponding figure for the UK as a whole (£29,008). Contained within total income in Northern Ireland is what statisticians call ‘Compensation of Employees’ which is the total wage bill plus employer contributions to pensions and national insurance.
Any sharp or sudden economic downturns will have a big impact on employment as well as on wages especially in those sectors that may be adversely affected by reconfigured trade rules, costs or delays.
As matters stand, there is a soft border between Northern and Southern Ireland (it says ‘roaming charges’ apply once you cross the border and pharmacies in the North do not recognise some medicines sold in the Republic of Ireland in spite of the fact that we are supposed to be in a single European market as matters stand today). As a British exit from the EU gathers pace, borders will become less soft. It is not a question of whether or not but of how much and when (and where – meaning in the Irish sea or along Irish rivers and ditches).
Finally, a point of interest revealed in the recent NISRA publication is the very low level of investment in Northern Ireland compared to other regions or countries. Gross Capital Formation (i.e. investment) came to £5.6 billion in 2015 or 13.5% of GDP. These figures are of concern for a number of reasons:
- They predate the 2016 referendum on Brexit which opened up uncertainty for investors in the UK but especially in Northern Ireland.
- Any strategy to rebuild and retool the Northern Ireland economy will require sustained and targeted investment in key sectors.
- Investment by Government in transport, health, education and other areas of infrastructure is well below what it needs to be if Northern Ireland is to perform economically.
Visiting motorists from the Republic to Northern Ireland are increasingly surprised by the poor or under-developed state of roads once they cross the border. The reverse was the case 20 years ago. How times have changed and they will change again.