Why Northern Ireland needs to up its game on exports

Northern Ireland has a small population, with the second lowest average income per head of any part of the UK.  It also has a weak private sector and an excessive dependence on government spending.  That combination of factors means that our economy can get stronger only if we focus on export sales – to Great Britain, the Republic of Ireland, other European Union member states and to the rest of the world.

This need was recognised by the Northern Ireland Executive in its current Programme for Government for the period 2011 to 2015.  The PfG pledged to increase the value of manufacturing exports by 20% and stated that improving the economy is the number one priority of government.  (Whether that commitment was demonstrated in the pre-Christmas negotiations involving Richard Haass, readers can reach their own conclusions.)

The ultimate objective of the Executive, said the PfG, was to “achieve long term economic growth by improving competitiveness and building a larger and more export-driven private sector”.  An interim target was to raise manufacturing exports by 7% by 2013/14.

At the end of last year, the Department for Enterprise, Trade and Investment published the export figures for 2012/13 which enable us to evaluate progress on these targets.  While there has been an expansion in exports, the improvement has been modest.

Total export values in the 2012/13 year were £16.9bn, a rise of 1.9% over the previous year – below the rate of consumer inflation.  Sales to Great Britain rose by 6.2%, to the Republic of Ireland by 5.3% and to the rest of the world by 2.0% – a disappointing figure, given that this has been a target for both Deti and Invest NI.

Professor Neil Gibson of the University of Ulster suggests that we should not be surprised that exports into the rest of the world have not improved dramatically “if you look at the cohort of firms we have”.  Our private sector exports are dominated by a few very large companies, many of which export into the closest markets.  Inevitably, says Gibson, Northern Ireland’s export strengths mirror the industrial and geographical focal points of our largest companies.

For smaller firms, moving into further afield geographical markets is extremely difficult.  Gibson explains: “That push into the wider world is much more challenging.  You don’t know how to protect your copyright and it is not easy to get there.  There are big risks with those markets.  We simply don’t have enough big firms.”

Richard Ramsey, chief economist at Ulster Bank, says that his main concern is the extent to which the food and drinks sector dominates the export figures.  Here, he suggests, figures are skewed by the weakness of sterling against the euro.  This has assisted Northern Ireland food and drink businesses to export both to the Irish Republic and to Great Britain, with the weak pound improving their competitive position against eurozone companies.

Meanwhile, the manufacturing sector is actually in decline in terms of its export performance.  “In 2012/13, manufacturing firms are exporting 5% less than they were ten years ago,” explains Ramsey, “whereas all other markets have grown.”

Ramsey suggests a complex picture of why Northern Ireland is struggling to improve export performance other than in the food and drinks sector.  For a start, during the boom years in the Republic much of the North’s exports were oriented to the construction sector.  Even now – at a time when there is significant export of construction contracting services to London – our position is weaker than when it was benefiting from the Celtic Tiger.

But the property boom in the South and the North probably had other displacement effects that are now being felt, believes Ramsey.  At the most extreme, some manufacturing businesses saw the property boom as an easy way to get rich quickly and bought large amounts of property they expected would appreciate in value.  Instead, some of these businesses are now carrying substantial losses on their balance sheets, thus constraining future core business activity.  If those businesses had borrowed to invest in their core businesses, many would now be in a position to expand and export.

Nor does Ramsey challenge the concept that finance, skills and entrepreneurship all became focused on the property and construction sector, rather than on those parts of the economy that might otherwise now be in a position to prosper.  The result is further damage to the Northern Ireland economy as a whole.

Examination of the figures showing which companies are apparently most successful as exporters produces some major surprises.  Not least, the composition of the list changed radically in just two years, from 2011 to 2013.  According to statistics published by the Irish Exporters Association, the largest Northern Ireland exporter in 2011 was the obscure Belfast company AAH Pharmaceuticals, while the fourth placed company was another not very well known Belfast business, Edmundson Electrical.  The second largest exporter in 2011 is a company that is much more famous, but also now equally irrelevant in terms of export performance – the Quinn Group.

The most recent statistics for Northern Ireland exports shows – more plausibly – that our largest exporter is Glen Electric (part of Glen Dimplex), followed by the Viridian Group, F.G. Wilson, Moy Park, Dunbia, Bombardier and Almac.

It is surely very significant that there has been a big difference in the make-up of Northern Ireland’s leading exporters in such a short time and it may in part reflect changes in the broader economy.  Esmond Birnie, chief economist for PwC in Northern Ireland, believes it may also indicate that some exporting is of imported manufactured goods, rather than any value added activities in Northern Ireland.

Birnie also warns that the break-down of the figures demonstrate just how difficult it is for our economy to achieve a Northern Ireland Executive goal of expanding into the emerging markets, such as the BRICS (Brazil, Russia, India, China and South Africa) and the MINTs (Mexico, Indonesia, Nigeria and Turkey).  However, suggests Birnie, Northern Ireland does have the products and expertise to export into these markets, as can be seen by the output from Bombardier, Wrightbus and the pharmaceuticals/life sciences industry.

The underlying problem, Birnie argues, is the lack of export focus by Northern Ireland firms.  While there are 65,000 VAT registered businesses here, only about 1,800 are actually engaged in exports, official statistics show.  “Clearly most firms aren’t exporting,” he says.  Instead they have been content to focus on the easiest markets, which are the closest markets.  Birnie urges Deti and Invest NI to provide more support in future to assist our businesses to target those markets that are growing fastest, not least through targeted management training.

Richard Ramsey takes a different view, saying that all exports are good exports.  “It is overly simplistic for Deti and INI to target certain markets,” he says.  “Hitting or missing a particular target does not necessarily represent success or failure.”

The message from Neil Gibson is broadly to lighten up and accept the limitations of our export focus – at least for the present time.  He stresses: “For firms to keep close to the markets that have been strong for them is perfectly sensible.”