The year of pent-up demand and pent-up problems

January 2021 represents more than just the start of a new year. It marks the new post Brexit-era, and it brings us a step closer to a post-Covid era with the ramping up of the vaccine roll out. In some respects, this month therefore marks a turning point for Northern Ireland and our economy, and a time when we should really take stock of where we are and where we are going in the future. 

In doing so, we should reflect on how, during the Covid pandemic, our politicians, public sector, businesses and people at various times showed adaptability, agility and the ability to take very tough decisions. Changes were made that, pre the pandemic, would have been considered decade long projects. In February 2020, who could have foreseen large swathes of the public sector working from home within just a few months. The IT and other efforts required to achieve this in a relatively short timeframe should not be underestimated.

This ability to drive change though has not always been the way in Northern Ireland. If we are honest, change does not come easily and our ability to address long term economic challenges has not been good. When it comes to productivity, infrastructure and competitiveness, we aren’t in much of a different position than we were a decade ago.

You could say that the opportunity the last recession provided to drive necessary change wasn’t taken. The same should not be said when we look back from the future on the present time.

An Ulster University report recently underlined the challenges. It highlighted that as far as competitiveness is concerned, the Northern Ireland economy has witnessed “a slow erosion over the last two decades”.  Worryingly, if policy choices stay the same, this erosion in performance against competitor countries is set to continue during the current decade. Making improvements is not sufficient for relative competitiveness if other countries are improving at a faster pace. 

Competitiveness is important because it ultimately determines standards of living, economic growth, employment and social inclusion, and ultimately personal wellbeing.

The report in question is “The Competitiveness Scorecard for Northern Ireland: A Framework for measuring economic, social and environmental progress”. It was published in December 2020 and produced by the Ulster University’s Economic Policy Centre. The scorecard measures 150 indicators over two decades and benchmarks performance against a range of international competitor economies. Brexit and COVID-19 will impact on many of these indicators and intensify challenges in certain areas.

The report says “NI’s relative competitiveness has eroded over time as other countries have improved more quickly and outpaced NI… There are a number of bright spots – most notably the proportion of electricity generated from renewable sources, which is ahead of all competitor nations. NI’s strong performance, more generally, on wellbeing, technological infrastructure (e.g. telecoms) and environmental sustainability indicators is also positive. However, there are also a range of challenges including outcomes from the education and skills system, persistently low productivity and innovation levels and childcare costs – all of which inhibit NI’s international competitiveness”.

Physical infrastructure is one of Northern Ireland’s strongest areas within the scorecard. However, even in this area, Northern Ireland has long standing weaknesses. Our relatively good performance in areas such as telecoms masks our infrastructure deficit when it comes to the likes of our wastewater and sewage infrastructure. 

NI has the highest coverage of full fibre services in the UK. Gigabit broadband reaches more than half of Northern Ireland homes. According to OFCOM 56% of NI households can now access gigabit-speed broadband.  This provides fast, reliable connections that are fit for the future. Download speeds of 1 Gbit /s is many times faster than the UK’s current average broadband speed (72Mbit /s) and supports the ability to stream, work and study online. NI’s 56% access compares with 42% in Scotland, 25% in England and 19% in Wales. 

However, on the other hand, due to years of under investment, inadequate provision of wastewater infrastructure has increasingly become a barrier to housing development in parts of NI. And while there have been improvements in some areas of transport infrastructure, other key roads projects have been held up by planning delays, procurement delays and legal disputes. Some commentators have dubbed NI the Judicial Review capital of the UK.

One of the biggest challenges is the disconnect between our need to invest in infrastructure and our willingness to pay (e.g. water charges). Our approach in Northern Ireland is almost like wanting Scandinavian style public services whilst having Bermuda style low/no taxation. It is no surprise then that we lag behind Sweden, Norway, Finland and Denmark when it comes to most measures in the report, where they have high levels of taxation and high levels of voter engagement and turnout. Their high public taxation pays for high quality public services, this in turn motivates people to vote and demand a high return for their money. The model works. 

But whilst we don’t have Scandinavian levels of public services, taxation or voter turnout, interestingly, we do have Scandinavian levels of personal wellbeing, where we actually rank number one amongst the OECD countries. However, there are key weaknesses within personal wellbeing, such as higher levels of anxiety and one of the highest suicide rates within competitor countries. Other countries have improved on this over time; Northern Ireland hasn’t. These areas have been compounded by the pandemic and need urgent attention.

The area that the Ulster University report says is causing most concern is education and skills. And again, the pandemic has in many respects compounded the problem. ‘Education and skills’ is the area that has deteriorated most over the last 20 years. That’s because Northern Ireland has been overtaken by competitor countries. Northern Ireland is now below the average for literacy and numeracy for 16–65-year-olds. Northern Ireland students do not appear to have the problem-solving skills of their Scandinavian counterparts. Lifelong learning amongst the adult population also lags well behind our northern European counterparts. Arguably these education and skills challenges are the most important for Northern Ireland to address.

During the lockdowns in the second quarter of 2020 there was pent up demand in certain parts of the economy that was unleashed in the latter half of the year. The renewed lockdown restrictions in Q4 and Q1 2021 will lead to further pent-up demand in other areas including consumer spending which hopefully be unleashed in the months to come. But what the Ulster University report highlights is that we also could have significant pent-up problems as we come out of the pandemic which have been building up over the longer term, which haven’t been addressed, and are becoming a bigger and bigger problem. Northern Ireland has been in the leading group of countries for the roll out of the coronavirus vaccine. There is no vaccine to deal with our economy’s problems. We have to do that ourselves. Northern Ireland needs to get itself into the leading the pack when it comes to reform.

This article appeared in the Irish News Business Insight on 19th January 2021.

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