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Responding to the Independent Review of Economic Policy

Chartered Accountants in Business Annual Lunch

David SterlingDETI Permanent Secretary

10 June 2010

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Overview

CURRENTPOSITION

ECONOMIC STRATEGY

Recession

Economic Prosperity

Jobs

Wealth

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Executive Sub Group

Economic Strategy

Programme for Govt & IREP

Key Themes & Issues

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-3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

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90

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91

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92

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93

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94

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95

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96

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97

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98

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99

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00

20

01

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05

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06

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07

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08

20

09

GD

P (

Qu

art

erl

y %

Ch

an

ge

)The UK economy has faced its longest recession since

records began…

RecessionLast recession almost 20

years ago

GrowthUnbroken economic

growth for 63 quarters

RecessionUK economy contracted

for six quarters

Greater South East44% of UK output is driven by London, South East

and East of England

4

0%

5%

10%

15%

20%

25%

-45% -40% -35% -30% -25% -20% -15% -10% -5% 0%

Change in Output (from sector peak)

Siz

e o

f S

ec

tor

(as

% o

f G

VA

)

Retail

Hotels & Restaurants

Construction

Mining

Manufacturing

Business & Finance

Other ServicesTransport

Energy

LA

RG

ER

SE

CT

OR

LARGER CONTRACTION

ContractionBusiness & Finance, Manufacturing and Construction severely impacted

during downturn

…and the Northern Ireland economy has also been badly impacted…

5

60

65

70

75

80

85

90

95

100

105

110

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

GV

A p

er

Ca

pit

a (

UK

=1

00

)

Prosperity GapNorthern Ireland living standards

have remained around 20% below UK average

Lower Prosperity than NINorth East, Wales

…but low prosperity has been a long term problem…

N Ireland relative to Rep of IrelandGVA per capita was 48% of RoI (2008)

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MAIN REASONS FOR LOWER PROSPERITY

JOBSNot enough people in

employment and too many economically inactive

WEALTHNot enough high value added

employment in the private sector

Low prosperity is due to jobs and wealth creation

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Overview of Labour Market

TOTAL WORKING AGE POPULATION1,097,000

IN EMPLOYMENT740,000

INACTIVE309,000

Want Job 15 %

Sickness 30 %

Student 37 %

Don’t Want 85 %

Family 23 %

Retired 6 %

UNEMPLOYED48,000

Long Term 40 %

Other 60 %

Youth 27 %

Other 73 %

Other 3 %

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500,000

550,000

600,000

650,000

700,000

750,0001

99

4

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Em

plo

ye

e J

ob

s

Job GrowthNI economy added over 177,000 jobs

between 1994 and beginning of recession

Job LossesNI economy has lost 33,500

jobs since March 2008

Northern Ireland was successful at job creation until the downturn…

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-8% -6% -4% -2% 0% 2% 4% 6%

Economic Structure (NI vs GB)

Public Admin

Manufacturing

Health

Construction

Education

Agriculture

Retail

Energy

Transport

(Tourism) Hotels & Restaurants

Mining

Other Services

Financial Services

Business Services

Under RepresentedIncluding high value added business and

financial services

Over RepresentedIncluding public

services and lower value added sectors

…but is under represented in high value added activities…

Output (NI vs GB)

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0

5

10

15

20

25

30

35

40

45

50

No Employees 1-49 50-249 250+

Employee Size Bands

Pro

po

rtio

n o

f T

urn

ov

er

by

Siz

e (

%)

United KingdomNorthern Ireland

Small FirmsNorthern Ireland economy is

dominated by small firms

Large FirmsNorthern

Ireland lacks critical mass

for R&D, exports and investment

18%

29%

…and lacks sufficient large firms to invest in high value activities…

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ECONOMICSTRATEGY

2

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The economy is at the centre of the PfG…

EconomyGrowing a dynamic, innovative economy is

central to achieving all goals in the Programme for Government

RecessionThese priorities remain key to driving

economic growth

PRODUCTIVITY EMPLOYMENT

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1

Restructuring of Economic Policy: 4 Key Areas

The way economic policy is coordinated in NI

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3

4

The way DETI and Invest NI provide assistanceto businesses

The freedom and flexibility Invest NI needs todo its job.

The way policy is developed and monitored.

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1. Restructuring of Economic Policy: The Co-ordination of Economic Policy in NI

Department of the Economy

• Executive has agreed to consider establishing a Dept of the Economy as part of the Strand One Review.

Sub-Committee of the Executive

• First meeting of the Sub-committee took place on 20 May 2010.

Economic Strategy

• Executive sub-committee on the economy to develop draft economic strategy for Northern Ireland by end of 2010.

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2. Restructuring of Economic Policy: DETI and Invest NI Assistance to Industry

Concept of Client Company

Rationalise Programmes

• Invest NI to review the number and breadth of programmes by June 2010.

Shift towards R&D&I

• IG to bring forward recommendations on when and where SFA should be used by June 2010.

• DETI / Invest NI to consider how shift toward R&D&I is further addressed in 2011-14 PfG.

Business Expansions

• IG to consider the potential use of debt instruments in appropriate circumstances.

• Invest NI to develop proposals for a tiered portfolio of support to the wider business base by September 2010.

Venture Capital• Invest NI to continue to intervene where appropriate to support the

development of the venture capital market. • Invest NI to outline its proposed VC strategy going forward.

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3. Restructuring of Economic Policy: Autonomy, Flexibility and Decision-making

Increased Autonomy

• Proposals to increase Invest NI delegated limits agreed in principle.

Economic Appraisal

• A new protocol for handling cases has been agreed.• A new appraisal methodology for R&D projects is being developed

End of Year Funding

• IG currently exploring what greater flexibility might be achievable but unlikely that recommendation can be implemented.

Invest NI Board • Precise role and remit will be reviewed in the context of the work on revising governance arrangements.

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4. Restructuring of Economic Policy: Policy Development and Monitoring

DETI Policy Development

• DETI currently undertaking a review of staffing structures to ensure that resources reflect priority areas. Target for initial proposals - June 2010.

Invest NI Performance

• DETI will oversee the production of the next Invest NI Performance Report - end of 2010/11.

Economic Dev. Body

• The Minister has stood down EDF. A smaller economic advisory group (drawn from business and economics) met for the first time on 28 May.

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A cross-departmental Executive sub-committee on the economy has been established…

EXECUTIVE SUB COMMITTEE ON THE

ECONOMY

Other departments as necessary

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…along with the EAG to strengthen independent economic advice to the ETI Minister

ECONOMICS

Kate BarkerFrances Ruane

SKILLS

Bill McGinnis

BUSINESS

Michael Ryan, CBE Mark Nodder

Alan Armstrong Stephen Kingon

Gerry MallonLorraine Hall

ECONOMIC ADVISORY GROUP (EAG)

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A new economic strategy will build upon existing economic strategies…

INNOVATIONRegional Innovation StrategyMATRIXHigher Education Strategy

INFRASTRUCTURERegional Development StrategyInvestment Strategy for NI

ENTERPRISEDraft Enterprise StrategySocial Economy Strategy

Draft Tourism Strategy

EDUCATION &SKILLSSuccess through Skills 2

FE Means BusinessEssential Skills for Living

STEM StrategySchool Improvement Programme

OTHERAnti-Poverty Strategy

Rural White Paper Sustainable Development

Strategy for NI

EMPLOYMENTProtecting employment in short term

Attracting new jobs through FDIWelfare reform agenda

NEW ECONOMIC STRATEGY FOR NI

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…and will focus on six key themes as drivers of the Executive’s overarching goals

IMPROVING PRODUCTIVIT

Y

INCREASING EMPLOYMENT

1. CONNECTIONS TO THE GLOBAL ECONOMY(attracting inward investment, growing exports)

2. ENCOURAGING BUSINESS GROWTH(entrepreneurship, social economy, green economy,

tourism, access to finance, planning)

3. STIMULATING INNOVATION AND R&D(R&D and absorptive capacity, wider innovation,

business to business / HE / FE collaboration)

4. IMPROVING LEVEL AND RELEVANCE OF SKILLS(literacy, HE, FE, existing workforce, low skilled)

5. ADDRESSING SUB-REGIONAL GROWTH(role of cities, rural economy, housing)

6. DEVELOPING ECONOMIC INFRASTRUCTURE(transport links, energy, telecoms, tourism product)

CR

OS

S C

UT

TIN

G T

HE

ME

S(e

qual

ity,

sust

ain

able

dev

elop

men

t)

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Key Challenges

• Global economic outlook

• Public expenditure cutbacks

• Implementing change

• Gaining consensus on the right economic strategy for Northern Ireland