Analysis of Manufacturing Growth and Productivity

EXECUTIVE SUMMARY

This report emphasises the strong economic performance of Northern Ireland and the exceptional performance of Ireland during the 1990s. Taken together the Island economy
achieved an economic growth rate of 5.4 per cent per annum, the highest growth rate in the
EU and the second highest in the Organisation for Economic Cooperation and Development (OECD). The report also emphasises the striking openness of both economies, the crucial importance of export competitiveness, and some stark differences in competitiveness, North and South.

The report is based on data drawn from the Southern Census of Industrial Production (CIP) and the Northern Annual Business Inquiry (ABI) which covers the period up to and including the year
2000. (Since the completion of this report new ABI data has been published for 2001, and some
small revisions have been made to the data for 2000).

The report begins with a brief overview of trends in economic growth and structural change in
Northern Ireland and Ireland since 1990. This highlights the more rapid growth and structural change in Ireland’s economy during the 1990s, and the increase in the importance of the industrial sector as a source of wealth creation. Real Gross Domestic Product (GDP) in Ireland
grew by an average of 7.2 per cent per year in 1990-2000, while real Gross National Product
(GNP) grew by 6.3 per cent per year. For Northern Ireland during the 1990s, the pace of structural change was less dramatic although the overall level of growth in the region was
significantly above that in the rest of the United Kingdom (UK) and European Union (EU). In
Northern Ireland real GDP grew at 3.2 per cent per year in 1990-98, which compared favourably
to the average annual growth rate of 2.1 per cent in the UK and 1.8 per cent in the EU during the same period. In general terms therefore, and by European standards, both economies grew
rapidly during the 1990-2000 period.

Focusing on manufacturing industry, however, emphasises the marked differences in development in Northern Ireland and Ireland during the 1990s. In Ireland, the volume of
manufacturing production grew at an exceptional rate of 13.8 per cent per annum in 1991- 2001. In Northern Ireland, the manufacturing growth rate was a good deal lower at 1.9 per cent per annum in 1990-98, although this was still higher than the industrial growth rates of 1.1 per cent per year in the EU and 0.7 per cent per year in the UK in the 1990s. Important structural similarities do exist, however, in that both economies are exceptionally ‘open’ exporting about three-quarters of manufacturing output during the late 1990s. Both have also reduced their dependency on the (relatively slowly growing) UK market during the 1990s.

Although strongly influenced by the composition of manufacturing industry, and particularly the
greater importance of high-tech sectors in Ireland, aggregate indicators derived from the ABI and CIP provide an overall perspective on the competitiveness of manufacturing industry, North and South:

• Average sales per employee in Northern Ireland manufacturing in 2000 amounted to €208,000/£127,000 compared to €385,000/£234,000 in Ireland.
• Average labour productivity (gross value added per employee) in the South (€138,000/£84,000) was more than double that in the North (€60,000/£37,000) in 2000. 
• From 1998-2000 value added as a share of turnover was consistently higher in Ireland (34-36 per cent) than in Northern Ireland (29-33 per cent).
• In 1998-2000 the average wage and salary share of value added was higher in Northern Ireland (47-51 per cent) than in Ireland (18-24 per cent).

This type of analysis also emphasises some large disparities between different sectors - and in some sectors between plants - in Northern Ireland and Ireland. In some sectors these differences in productivity simply reflect the major influence of inward investment. In some other sectors, significant productivity differentials exist but have perhaps less obvious explanations.

Examining the productivity performance of individual manufacturing sectors over the 1998-2000
period allows them to be grouped into three broad categories:

• A group of mature industries, where inward investment has been limited, and productivity levels are broadly similar, North and South. This group includes textiles; wood and wood products; paper, pulp and paper products; rubber and plastics; basic metals; fabricated metal products; machinery and equipment; electrical machinery; motor vehicles and other transport equipment; and recycling.
• Another group of mature industries in which significant differences are observed between Northern and Southern productivity, with the advantage being predominantly with Southern firms. This group includes furniture; clothing; and non-metallic mineral products. Food, drink and tobacco also fall into this group but this may be due to differences in data definitions, North and South, rather than any real difference in productivity performance.
• High-tech industries where inward investment has been a dominant influence and levels of productivity appear significantly higher in Ireland than in Northern Ireland. This group includes printing and the production of recorded media (including software); chemicals and chemical products (including pharmaceuticals); office machinery and equipment; medical, precision and other instruments; and radio, television and communications equipment.

For this latter group of sectors the drivers of high productivity levels are fairly clear: high levels of capital investment, inward knowledge transfer - largely from the US, economies of scale resulting from serving a European or broader market, and a growing international market. More interesting is the question of how, in some mature sectors, notably clothing, furniture and nonmetallic mineral products, Southern firms have been able to establish a productivity lead over their Northern counterparts. For these sectors, in particular, future more detailed comparisons could valuably be undertaken to identify the source of these productivity differences.

This analysis has established the feasibility of North/South comparisons based on the ABI and CIP, and the crucial importance of a sectoral or industry approach. It has also identified those sectors where productivity is similar and radically different, North and South.