Media contributions
1Media contributions
Title "Protocol has caused a lot of economic pain for limited gain, according to the data" Degree of recognition Regional Media name/outlet News Letter Media type Web Country/Territory United Kingdom Date 28/08/24 Description Article in News Letter
Protocol/Windsor Framework Pain without gain: Latest EY data shows decline in inward investment into NI
Dr Esmond Birnie, Senior Economist Ulster University Business School
“The Protocol, modified by the Windsor Framework and most recently by the Safeguarding the Union Agreement, created a “border in the Irish Sea” in the sense that it has increased the cost to businesses of moving goods from GB to Northern Ireland (NI).
Those who would support the current arrangements tend to use one or more of the following three arguments:
- Any costs/frictions at the Irish Sea border are small.
- There is a much bigger benefit in the sense that NI now, uniquely within the UK and Europe, has a privileged “dual market access” to both GB and the EU. Former PM Sunak speaking in February 2023 claimed this would lead to NI becoming the “world’s most exciting economic zone”.
- In any case, even if the first two arguments did not stand the alleged clinching argument is that Brexit was always going to produce disruption. If there are any problems, it is all the fault of those people foolish enough to vote for Brexit!
None of these arguments is sound. There are now undoubtedly substantial costs to the NI and GB private sectors in terms of moving goods from GB to NI. There certainly have been additional costs in terms of public expenditure: in 2021 the UK government spent close to £200m in terms of either administering or mitigating the Protocol etc. The third argument- “you brought it on yourself”- is a particularly weak one.
Let’s deal here with some recent data which speaks particularly to the second argument, the so-called “dual market access” much beloved by former PM Sunak and other supporters of the Protocol/Windsor Framework.
If the access to both the GB market and the EU Single Market was really such a big deal one would have expected to see some evidence in terms of businesses investing more in production facilities in NI. The latest data, provided by the Big Four consultancy firm EY shows quite the opposite. Every year EY publishes an attractiveness survey which presents data on the amounts of Foreign Direct Investment going into the UK and each of the European countries. According to EY (June 2024, Attractiveness Survey 2024) the number of FDI projects moving into NI was actually lower in 2023 compared to 2022: a drop from 26 to 17. Of course, it is possible that the average size (employment, investment value in £) of the 2023 projects was bigger than the value in 2022 but it seems unlikely that any such difference would be enough to compensate for a decline of roughly one-third in the number of projects.
Previous EY data tells a similarly disappointing story (see EY, June 2023, Attractiveness Survey 2023). NI’s share of all the manufacturing FDI projects going into the UK has actually dropped comparing the most recent years with 2019 (and remember the Protocol particularly impacts the movement of goods from GB to NI):
Number of FDI projects in manufacturing coming into each area annually
2019 2020 2021 2022
NI
NI as % of UK 14
10.6% 11
9.8% 11
7.6% 12
6.8%
UK total 132 112 145 175
Source: EY, June 2023, Attractiveness Survey 2023.
In 2020, the last year before the Protocol came into effect, NI was the recipient of about one-tenth of all the manufacturing FDI projects coming into the UK. By 2022, two years into the operation of the Protocol, that share had dropped to only 7%.
Of course, other factors could have intervened to cause this relative decline in terms of inward investment coming into NI. We know, given the recent independent review of the operation of Invest NI that there are issues around the processes used to support industrial development in NI. That said, any such issues would be long run ones, they would have been present in 2019 as in 2022.
It is striking that the marked decline in terms of inward investment into NI corresponded with the operation of the Protocol which was heralded as the springboard to our region becoming some sort of super economic zone or even Europe’s Hong Kong. (The reference to Hong Kong was made at an investment conference in September 2023 by the then Levelling-up Secretary Michael Gove, the Hong Kong reference was, presumably, to Hong Kong’s economic success under the pre-1997 arrangements rather that its now diminished prospects as Beijing tightens its political and economic control over the former British colony.) Despite the claims by the former PM Sunak and, indeed, by US President Biden (for example, during his visit to Belfast in 2023) the alleged long queues of businesses anxious to come to NI have not been translated into hard cash.
The data suggests we have not gained from dual market access. This comes alongside a point I have made before. Under the Protocol we have probably seen trade diversion. Since 2020 the extent to which NI buys goods from the Republic of Ireland has increased much more rapidly than purchases from GB (during 2020-22 the former increased by 36% whereas the latter by only 2%). And some of that probably implies a switch to higher cost suppliers.
In short, rather than the world’s most exciting economic zone the hard evidence is quite a lot of economic pain for little gain”.Producer/Author Esmond Birnie URL https://twitter.com/News_Letter/status/1828734406837608509 Persons Esmond Birnie
Keywords
- Northern Ireland
- Northern Ireland economy
- Northern Ireland Protocol
- Windsor Framework
- Post-Brexit trading relatiionships
- Foreign Direct Investment
- Inward investment
- Trade diversion
- Irish Sea Border
- Trade frictions