In place of strife

Relative peace has been good for Northern Ireland's economy too

BELFAST, like Dublin, has been transformed over the past 15 years. It used to be a bleak, partly bombed-out shell of a Victorian city, festooned with barbed wire and full of nervous soldiers in armoured vehicles. Now its centre is a bustling, lively place full of shops, offices, restaurants and theatres. Beyond the centre, admittedly, lie stark reminders of the province's sectarian tensions, most obviously the ugly graffiti-strewn walls that physically keep apart the divided Protestant and Catholic communities in the west and north. But overall Northern Ireland has changed sharply for the better - just like the republic.

The big difference is that the primary agent of change in Northern Ireland has been not economics but peace. The Irish Republican Army declared a ceasefire in 1994, after a 25-year campaign in which some 3,000 people were killed. That ceasefire has been mostly stuck to. The Good Friday agreement of April 1998 was later approved by referendums in both parts of the island. It led not only to the republic amending its constitution to drop its territorial claims on Northern Ireland but also to the restoration of devolved government at Belfast's Stormont. Sinn Fein, the IRA's political wing, joined in for the first time, with its former chief of staff, Martin McGuinness, somewhat incongruously serving as education minister.

Northern Ireland's devolved government has since been suspended several times, usually because Unionist parties wanted more progress in decommissioning IRA weapons. The most recent suspension, in October 2002, came after a scandal when Sinn Fein was found spying on Northern Ireland Office ministers and other parties at Stormont. Since then, attitudes across the divide have hardened.

In elections in 2003, the Catholic, nationalist vote shifted from the moderate Social and Democratic Labour Party (SDLP) to Sinn Fein, led by Gerry Adams. The Protestant, Unionist vote also moved, from the Ulster Unionists to the harder-line, anti-agreement, Democratic Unionist Party (DUP), led by Ian Paisley. The two (moderate) Nobel peace-prize winners, John Hume of the SDLP and David Trimble of the Ulster Unionists, have been sidelined (and Mr Hume has stood down).

This polarisation towards the extremes helps to explain the failure of the latest attempt to reach agreement on restoration of devolved government, at a summit meeting of the British and Irish governments and Northern Irish political leaders at Leeds Castle last month. But there are grounds for optimism, even for hoping for a total disarmament of the IRA. Nobody involved wants to go backwards to the years of the Troubles, when the IRA (and loyalist paramilitaries) were bombing and killing in both province and mainland. Moreover, it may, oddly, be easier to forge peace in Northern Ireland if the two main protagonists represent the extremes of the sectarian divide.

Economics follows the peace

The unsung hero of the past decade in Northern Ireland has been the economy. Its performance has been a lot less spectacular than that of the Celtic Tiger next door, but Northern Ireland in the 1990s still grew faster than any other region in Britain. Growth has slowed in recent years, but unemployment is down to just over 5%, which puts it in the middle ground among British regions. Few would have predicted a decade ago that what was then the basket-case of the British economy would soon have lower unemployment than London, the west Midlands, the north-east and Scotland.

Yet there are also economic clouds hanging over Northern Ireland. Its manufacturing base continues to shrink, a change that matters more than in the republic because the six counties were always the most heavily industrialised part of the island. The linen, textile and shipbuilding industries are a shadow of their former selves (the cranes at Harland & Wolff, where the Titanic was built, now look down on a science park). Employment in manufacturing has fallen from almost 200,000 two decades ago to under 100,000 now.

Even more serious is the economy's dependence on the public sector. Philip McDonagh, chief economist at PricewaterhouseCoopers in Belfast, reckons that the public sector accounts for some 65% of GDP in Northern Ireland. That share has remained steady even as security and police spending has fallen, because public spending elsewhere has been expanding so fast. But that is unlikely to continue. In any case, the economy needs more private enterprise, and especially more high-technology, high-value-added businesses and, above all, services. Tourism, for instance, is feeble, contributing less than 4% of GDP, compared with about 6% in the republic and 7% in mainland Britain.

Partly because it is so big, the public sector is also inefficient. Schools do better than in mainland Britain, but health care needs rationalising. There are 26 district councils for a population of only 1.7m. Insiders reckon that the number could be shrunk to four or five, though that might be politically tricky. All efforts to trim employment in the civil or public services tend to generate fierce resistance.

Is an all-island economy in the making? One answer is that trade across the border remains underdeveloped. InterTrade Ireland, one of the six cross-border bodies set up after the Good Friday agreement, is trying to foster more. Over the past five years, the value of cross-border trade has doubled in real terms, says Liam Nellis, its chief executive. But one-third of it consists of food and live animals. Obstacles to greater all-island trade include currency, tax and infrastructure differences. Were Britain to join the euro, trade across the border might rise sharply. Yet the biggest problem, says Mr Nellis, is lack of knowledge and of personal contacts.

In the end, though, the fortunes of Northern Ireland depend most of all on a continuation of the peace process. Business surveys since the suspension of Stormont in October 2002 have been getting gloomier. For the most part, government and business are able to work quite happily without the assembly and devolved government. But so long as there is a question-mark over peace, some businessmen and foreign investors will hold back.

Relative peace has been good for Northern Ireland's economy too.

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