North counting cost of riots

Carissa Casey:

When the full cost of last week's riots is counted, the North may find its coffers are a little less full than in recent years.

After decades of generous public spending, the North's budget - due next month - is expected to show the first slowdown in public spending growth in decades. With public expenditure accounting for 67 per cent of the North's GDP, any change in spending is inevitably significant.

Indeed, according to some sources, it demonstrates the first attempt by the British exchequer to wean the North off its dependency on the public coffers. This comes after a year of slackening economic activity and weakening consumer confidence in the face of political uncertainty.

The two bright spots on the economic horizon - a small recovery in the level of foreign direct investment (FDI) and increasing numbers of foreign tourists over the last few years - are both likely to have been damaged by last week's riots.

The level of FDI in the North has floundered in a difficult market since its peak of stg£530 million in 1997/1998.

Last year, the level recovered slightly to stg£195 million.

But Invest Northern Ireland, which is responsible for attracting FDI, has been embroiled in controversy since the summer, amid claims that it spent its entire stg£150 million budget for the 2005/2006 period in the first two months of the financial year.

Invest Northern Ireland denied the overspending, but admitted some activities have had to be scaled back.

According to a spokesman, pressures on public funding have generally increased and the agency's budget is now focused on “those projects and programmes that add most value to Northern Ireland's economy and that demonstrate a significant degree of innovation'‘.

Media coverage of rioters back on the streets of Belfast will do little to help the North's image as a good place to do business. “Should the events of the past few days prove to be short-lived, they are not expected to have a significant impact on economic development in the long term,” said the Invest Northern Ireland spokesman.

The tourism sector is also trying to calm fears of negative repercussions from last week's events. Last year, more than two million tourists visited the North, spending stg£406 million.

According to Malachy Finnegan of the Northern Ireland Tourist Board, indications for this year were “very good'‘.

While there was not much movement in terms of visitor numbers, revenue growth was ahead of the previous year and he remained reasonably upbeat on the prospects for the rest of the year.

However, the overall economic picture is not encouraging. The Economic Outlook for Northern Ireland, published by First Trust Bank last week, makes for depressing reading, especially since it was written before the riots.

It forecasts slower economic growth and a rise in unemployment. According to the writer, Michael Smyth of the School of Economics at the University of Ulster, the recent rioting is only likely to make a bad situation worse.

Smyth believes the outlook for the North's economy is less favourable than for years. “As economic growth in Britain falters and growth of public expenditure becomes more constrained, it is inevitable that the level of economic activity will be affected,” he said.

However, the region will benefit from a planned stg£16 billion investment in infrastructure under the British government's investment strategy for Northern Ireland. But according to Smyth, much of this investment will simply bring infrastructure up to a level it needs to be at anyway.

Smyth is not alone in his pessimism. In June, a business confidence survey by the Confederation of British Industry showed a sharp fall in confidence in the North's economy among local businesses.

However, it is unlikely the British government will be deterred from its plans to tighten spending across the board.

Government spending in the North exceeds locally-collected revenue by some stg£6 billion each year.

The North's 11 government departments face increasing budget scrutiny, and civil service numbers are to be cut.

Householders will probably feel the pinch from higher rates. Perhaps this unpleasant dose of fiscal reality carries a political message - it may be time for the North's politicians to start running their own affairs.

Unionist lie will come back to bite

Loyalists cruise nationalist areas looking for Catholics

This is real deprivation