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What the OECD makes of the Northern Ireland economy

The Organisation for Economic Co-operation and Development (OECD) is one of the leading international economic commentators.

In a report published on 12 October [Note 1] the OECD marked our economic homework for the second time in 18 months. The result was challenging on both occasions.

In July 2016 the OECD, in what was its first study of a regional government, concluded that the Northern Ireland government needed a more joined up approach-  first to identify Northern Ireland’s social and economic goals and then, second, to achieve those goals [Note 2].

In their most recent review of the UK economy, the OECD concluded that low productivity, both in terms of levels and rates of growth, was one of the strategic weaknesses which now challenges the UK. That poor productivity performance in turn was a consequence of comparatively low levels of productivity in each of the UK regions outside of London and South East England.

Thus, an OECD report about the overall UK economy tells us a lot about the state of the Northern Ireland economy. Northern Ireland, after all, has the lowest level of living standards amongst the 12 main UK regions (as measured by gross value added per head of population) and almost the lowest level of labour productivity (as measured by GVA per hour worked, of the 12 UK regions Wales came bottom followed by Northern Ireland).

The OECD also presented data for 10 sectors of the economy (see graph below) and in three of these- ICT, Construction and Administrative and Support Services- Northern Ireland had the lowest productivity level of any of the 12 UK regions.

Source: ONS July 2017, Introducing Industry-by-Region Labour metrics and Productivity.

The OECD considered a range of possible explanations of performance in the low productivity UK regions. Here is how Northern Ireland was positioned:

Explanation of relatively low productivity

Northern Ireland’s position amongst the 12 major UK regions

Intensity of spending on R&D

Third from bottom

Proportional size of financial, IT and professional+ scientific activities

Second from bottom

Spending on transport infrastructure per capita

Lowest

Progression beyond either end of secondary or tertiary education

Lowest

These explanatory factors- lack of innovation activity, relatively small knowledge-based service sectors, less physical and human capital- are being considered as part of the Economic Policy Centre’s research agenda [Note 3].

Most of the OECD’s policy recommendations as to how to improve regional productivity could be applied to Northern Ireland:

  • Develop integrated policy packages based on existing or emerging strengths and the model outlined in the UK’s draft Industrial Strategy (January 2017).
  • Invest in intra- and inter-regional transport links.
  • Continue decentralization including the devolution of fiscal powers.
  • Further support R&D spending and activities.
  • Adapt technical education to business needs at the regional level.

But, of course, such policy development presupposes the existence of an active and effective regional government- hence, an economic reason for the importance of the next phase of the Northern Ireland inter-Party talks which now have a deadline of 30 October.

Notes

  1. OECD 12 October 2017, United Kingdom: Country Review.
  2. OECD July 2016, Implementing Joined-Up Governance for Common Purpose.
  3. See http://www.ulster.ac.uk/business/epc/publications

For example:

Knowledge Economy: Full Report (2015)

Productivity in Northern Ireland (2015)

EAG Competitiveness Summary (2016)

Skills Barometer: Summary Report (2017)

UU Response to the NI Industrial Strategy