Northern Irish businesses are keenly aware of the need to prepare for Britain's imminent departure from the EU, but InterTradeIreland's latest quarterly Business Monitor Report reveals many of them are too busy fighting today's fires to think about the Brexit conflagration to come. The report, which covers the period from January to March 2017, finds evidence that businesses are already having to work extremely hard to hold their own in an intensely competitive business environment.
Although the Northern Irish economy remains buoyant, and consumer confidence is up, the Business Monitor Report found a 50 per cent increase in businesses struggling to survive, up from 12 per cent in the first quarter of 2016 to 18 per cent in the first quarter of 2017. The report identifies rising energy costs, increased overheads and greater supply costs as the main challenges facing businesses in Northern Ireland, along with the arrival of new competitors in the market and a growing skills shortage.
"What we are seeing from the Business Monitor is that while the economy is buoyant, it's an intensely competitive environment, for small businesses in particular," says Aidan Gough, director of strategy and policy at InterTradeIreland.
“We are trying to ensure that small businesses and micro-businesses start planning for whatever new trading relationship emerges. And our big concern is that 98 per cent of businesses across the island, north and south, have not started planning for any situation that could emerge, so we’re trying to get them to start thinking about it, start looking at scenarios, see where it could affect them. What would happen if they lost any of the four freedoms that they now have as part of the single market. Is it an existential threat? – see what level the threat is and plan for it.”
One way to build up the North’s immunity to the impact of Brexit is by bringing more investment into Northern Ireland, finding and opening new routes to trade across all sectors of business, and keeping the existing trade flowing between north and south. It’s taken years to build up a healthy cross-border trade on the island of Ireland – and no one wants to see that wiped out with the stroke of a pen.
“We have a specific role, and that’s cross-border trade and development on this island, and it has been a story of success since the Good Friday agreement. There have been blips caused by the financial and construction crash, around 2007 to 2011. But trade has recovered substantially since then, and on average cross-border trade has been growing at 4 per cent per annum over the last 20 years. About 5,000 businesses in Northern Ireland trade with the south. And two-thirds of our firms’ exports go to the south. It’s a vital market, particularly for small and micro-businesses.
“There’s no doubt the agri-food sector in general is more exposed to changes in the trading relationships that might emerge, and in particular to any return to a default WTO-type tariff regime,” observes Gough.
Bleak picture
Recent media coverage has painted a bleak picture for Irish producers, both north and south, but Gough feels his job is to “try to tune down a lot of the noise and give businesses the facts, where they can start developing different scenarios and start planning”.
It's easy to accentuate the positive, but not so easy to build on those positives. For InterTradeIreland, and for InvestNI, Northern Ireland's regional business development agency, the focus has to be on helping businesses in the North play to their strengths and maximise their competitive edge, whatever way the Brexit hoo-ha shakes out. For Steve Harper, executive director of InvestNI, that means having a plan.
“We’ve just launched our business strategy which takes us ahead into 2021, and it’s really looking at where we as an economic development agency can assist Northern Ireland with its economy,” says Harper. “We’re such a small place that we recognise we can’t be world-class in every single sector, so we have to look at what are our world-class sectors and how we can develop their capacity and maximise external sales outside NI.”
The aerospace industry, agri-food and digital trade and economy are some of the strongest sectors in the North, says Harper, and in recent years the film and television industry has blossomed, thanks to the success of HBO's Game of Thrones series, which is largely filmed in Northern Ireland. This has fed into the tourism industry, with visitors from around the world coming to Northern Ireland to experience Westeros for themselves along with the real-life story of the Titanic Museum. And not too far from Titanic, the new £20 million Belfast Harbour film studios in Giant's Park has recently opened, and this summer will be the location for a major new Superman prequel series, entitled Krypton.
“We’re continuing to encourage our companies to innovate and supporting them with a lot of research and development,” says Harper. “We want to remain totally at the forefront of global expertise, so if you take for instance our materials-handling sector, 40 per cent of the world’s mobile crushing and screening equipment is made in Co Tyrone. It’s a complete world-class cluster there, and we’re actively looking to those companies to continue to innovate and remain at the forefront. That’s the way you’ve got to go on the world stage.”
Northern Ireland is certainly not lacking in the connectivity department, says Harper. "We have the highest-tech superfast broadband out of any region in the UK, and Project Kelvin, which is the fibre-optic link between America and Europe, comes in at Belfast. For our fintech companies, that low latency is critical for platforms that they develop."
That digital dimension is reflected in the Digital DNA business and technology event which has been held annually in Belfast since 2013. It aims to give businesses the skills, knowledge and understanding to implement cutting-edge digital technology into their operations. Attracting traditional businesses and technology professionals, Digital DNA is an eclectic mix of individuals who wish to gain an understanding of the continually changing impact technology has on business and community alike and helps encourage change to make organisations better and more efficient.
"Digital DNA has grown since it launched on the floor of the New York Stock Exchange back in 2013 and 2017 has been a record-breaking year for our team," says Simon Bailie, head of business development with Digital DNA. "With over 2,000 delegates and a huge reaction online, we've been blown away by the support. It's reached audiences across the world and we're really excited to see this growing as we move into 2018. Our partners and exhibitors are talking of huge successes at the event, getting access to potential clients and firming up significant commercial opportunities through new business relationships."
The economic impact of the event itself is also significant, according to Digital DNA managing director Gareth Quinn. "During an uncertain time for Northern Ireland and both its political and economic future, Digital DNA's flagship event has grown exponentially, bringing over £2 million directly to the Northern Ireland economy. This doesn't include the countless business deals initiated and delivered across the two days for over 900 companies. The Tech Nation Report 2017 from Tech City UK cited Northern Ireland contributing over £0.5 billion to the digital economy in the UK and this is indicative of the successes we're seeing at Digital DNA and the increase in investment to the digital sector here."
Northern Ireland’s transport infrastructure is also improving every day, with Belfast’s York Street Interchange set to ease traffic flow in the North’s capital, which already enjoys convenient access to Dublin and London. But not every part of Northern Ireland enjoys easy access to the rest of the world, and in Derry and the north-west, which lacks the road infrastructure in particular, many are worried Brexit will leave the area feeling even more remote from the main drag of trade and commerce. And in a city such as Derry, whose hinterland embraces a large part of the Republic, the prospect of a hard border is particularly unpalatable.
“It’s very difficult being in a cross-border region, and this city is the capital of a cross-border region,” says Sinead McLaughlin, chief executive of Londonderry Chamber of Commerce. “There is an awful lot of movement by people on a daily basis, one way or the other, and on three roads alone there’s 336,000 car journeys per week. That is a very real figure. A lot of people that we would regard as part of our wider population actually live in the Republic.”
Derry’s strengths
McLaughlin points to Derry’s strengths as a place to invest, including low operating costs, a young, highly skilled workforce, “and I would also say the quality of life here is very attractive”.
Thanks to its strong digital connectivity, Derry has attracted a lot of high-tech companies to set up there, including Seagate, Kofax and Learning Pool, but McLaughlin believes that being on the further periphery of Europe is a big drawback, and could be exacerbated by the return of the dreaded border.
“Apart from businesses needing to prepare, the government needs to prepare too,” says McLaughlin. “So for the regions which are going to be affected disproportionately, such as the north-west, then we need to put in some kind of mechanisms and investments that are going to help support the economy going forward. And if that’s connectivity, or road infrastructure, or around education and skills, growing our highly educated workforce that can compete in a knowledge-based economy, these are things that need to actually be done now. There’s no point waiting until March 2019 and starting from scratch. We’ve got to fix our weak infrastructure and ensure that we have an educated workforce that can be adaptable and seek new markets. The clock’s ticking.”
The Chamber has been working hard behind the scenes, doing a lot of lobbying and advocacy to make sure the north-west is not overlooked in the wider picture. Recently, the Chamber took part in a business delegation to Brussels to meet key players and articulate the unique situation that Northern Ireland and the Republic are in. They've also met with prime minister Theresa May to set out their concerns, and McLaughlin met with Washington's Brexit team. "So we're really trying to make sure that the message around protecting that movement of people and the integrity of the Good Friday agreement is intact."
“Brexit is going to happen in some form,” says Steve Harper of InvestNI. “Certainly for us as an investor in Northern Ireland, we are redoubling our efforts to support companies and just make sure they’re ready to export. In terms of an investment profile, it’s been just a year since the vote, but anecdotally, we’ve had more investments in the second half of last year than we’ve ever had. In fact, last year we had 22 brand new investors into Northern Ireland, the highest ever. It’s up 60 per cent.”
And Belfast is not getting the lion’s share of investment, although it may look that way when you’re driving through the city, and dozens of cranes are looming above you as you pass one major development after another. In 2016/2017, 78 per cent of InvestNI offers were to companies outside of Belfast.
“If you look at the north-west, and Derry/Londonderry, it’s getting a lot of interest from investors overseas,” says Harper.
“The vast majority of investors coming to Northern Ireland are not here for market access to the EU or to Britain. They’re coming here as cost centres as opposed to profit centres. So they’re coming here to take advantage of the talent of the people. It’s probably the one thing citizens in NI are proud of – the education system. We are the highest achieving region in the UK both for GCSEs and A-Levels. Every year, the grades from NI outperform everyone else in the UK. In terms of school-leavers going on to higher education, 77 per cent of our school leavers go on to higher education.
“We’ve got two fantastic universities here in NI. And given the fact that we’re a small place, business and government and education are so closely linked, we are able to work together to make sure the flow of graduates coming through is in the sectors and areas that we need to grow our economy.”
Harper points to the Assured Skills programme, funded by the Department of the Economy, which brings investors and universities together through a tailored programme for graduates. The programme has been a huge success, says Harper, with 97 per cent of graduates doing the programme going on to work for the investor.
“Brexit is happening, and it’s a reality we have to deal with. But I’m very optimistic for the future of our businesses in Northern Ireland, and at InvestNI, we will stand ready to help them to invest in R&D and get them into new markets.”
