Posted on Thursday 10 December 2009 by Ulster Business

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Image courtesy of Derek Cullen - Fáilte Ireland.

As globalisation makes the act of doing business throughout the world considerably easier, John Simpson takes a look at the challenges faced by those trading on a more local basis across our own border. He finds investment by both governments will be essential to progress trade with our nearest neighbour in the coming years.

The eastern corridor on this island has long been recognised as a potential source of modern economic development in ways that enhance the prospects for the whole island. For many years this remained an unexploited resource. Recent events have quickened the pace of development along the corridor and, at the same time, have illustrated the continuing, but much diminished, impact of the border on aspects of business, choice of locations, living patterns and taxation. The big achievements stem from the impact of membership of the European Community on trade and movement. A Single European market has been accepted and its impact across borders has been dramatic whether between Newry and Dundalk, Dover and Calais, or Berlin and Warsaw. Removing trade barriers has been important. However, the economics of business location decisions continue to be influenced by other regulatory or political differences. The eastern corridor has attracted and will continue to attract appreciable levels of business investment. The Single Market has opened the way for increased trade. More than that, it has enhanced the ability to move goods and supply services with much less red tape. Cross-border transport movement, formerly subject to extra paperwork and time consuming border documentation checks, is now comparable with domestic movements. Although the impact is not easily quantified, the development of modern road and rail facilities has changed expectations. Motorway standards along with dual carriageway links means that business connections along the eastern corridor are less of an obstacle to development. Improved communications have stimulated the opportunities for linear development affecting Drogheda, Dundalk, Newry and Banbridge. Even the insertion of toll charges to cross the Boyne Bridge or to cross Dublin has proved acceptable.
  • The prospectus for the eastern corridor is impressive.
  • Eight major centres of population.
  • A range of advanced third level educational institutions.
  • Direct access to advanced telecommunications facilities.
  • Modern road infrastructure nearly complete.
  • Five seaports with deep water berths.
  • Three commercial airports with a range of scheduled services.
A business considering a location for a modern knowledge-based enterprise would see in this prospectus many of the qualities to make it attractive. In addition, a little research would confirm that labour costs, across a range of skills, could be expected to be keenly competitive with alternative locations outside Ireland. On that basis, the tempting conclusion is that the eastern corridor has become a homogeneous development zone without a formal designation but with the coherence of cumulative economic advantage. The strengths and opportunities can be readily seen. There are, however, other issues which impact in contrasting ways. There remain a number of features where the policies and actions of the Irish Government and those of either the UK Government (as they apply in Northern Ireland) or the Northern Ireland Executive within delegated authority, contrast or differ. The most conspicuous difference stems from the fluctuations in the exchange rate between the euro and sterling. Recent months have seen the euro strengthen compared to sterling. The cross-border boom in shopping, with customers from the south coming north, has been the result. This type of trade distortion can be painful (for businesses who lose out) and a bonus (for the beneficiaries). Critically, whilst the distortion may last for several months, usually there will ultimately be a correction. How many times in the last decade has cross-border travel and shopping been generated by fluctuating exchange rates affecting petrol prices and leisure breaks and holiday costs. In the second half of 2009, on top of a weaker sterling, the eastern corridor has had to cope with differences in VAT rates and, in January, the UK rates will go up again, taking away some of the pricing advantages to the north. For new business investment, there is a continuing cross-border difference in favour of the south. The 12% corporate tax rate gives eligible firms an advantage in a location south of the border. For the present, the exchange rate differences are working in the opposite direction to the differences in corporate taxation. The VAT differences are significant but less likely to distort business decisions. The list of north-south differences is a long one. In addition to exchange rates, corporate taxation levels and some VAT differences, a location comparison would also need to take account of factors affecting family incomes such as income tax differences, social security provisions and the impact of household rates (or council tax) and water charges. The different mosaic created by the border, first, does not take away from the general economic coherence of the eastern corridor region and, second, is a natural reflection of the differing systems. The test questions for the eastern corridor region are, first, whether any of the differences amount to an unacceptable distortion of economic activity and, second, whether the region might reasonably expect any extra or further actions to enhance the infrastructure? Living with a fluctuating exchange rate can be uncomfortable but until the UK decides to link with the Euro-zone, it is determined as part of a bigger agenda. Similarly, the corporate tax regime can be seen as a serious distortion but, again, the causation comes from higher level decisions on State Aid allowed by the EU. Neither of these distortions is definitely permanent but the most realistic comment is that there is no expiry date stamp on their continuation. In due course, the EU will logically wish to rationalise the scope for State Aid to business and will face pressure to harmonise VAT rates. On these topics the Irish Government is likely to be protective of its current position. The Northern Ireland Executive is not likely to have an influential voice in seeking changes. The best scope to enhance the development of the eastern corridor lies in the infrastructure planning and investment by both Governments. Area planning based on the sensible environmental shape of a linear region with good linkage of urban nodes should be a common goal. Further enhancements of the up-graded roads network should be timetabled. Critically, the evolution of urban lifestyles based on living standards of the next century should underpin the system of town planning. Then, in parallel, the education and training programmes in each of the third level institutions must get to the forefront of the new technologies. There is much to be done. It is worth doing because the preconditions for success can be identified. The uncertainty is whether the institutions are willing to accept their responsibilities.

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