I’m often asked about Northern Ireland as an investment location, or about the region as a centre for technology, business services or advanced manufacturing. I tend to reply by pointing to companies like Bombardier, Almac, Wrightbus, Allstate and Dunbia – all worldleading exporters that have invested and then reinvested to deliver greater growth and new markets that support sustainable and profitable employment.
Of course, I am biased. I live here and as Regional Chairman of PwC NI, I have 1,300 highly-qualified and predominately young people, sharing in today’s prosperity, and looking forward to being part of a steadily growing business and continuing to compete in a dynamic global economy. But there are other commentators who don’t live here but who are just as enthusiastic.
Thomas Jefferson said that he liked the dreams of the future better than the history of the past, but one part of past history – which I had the privilege to participate in – was the 2013 Northern Ireland Investment Conference. In his introduction to the 150 potential investors who travelled to Belfast, Prime Minister David Cameron posed four questions to the audience.
- Where is the world’s top city for the technology that drives global stock markets?
- Which country designs, tests or manufactures a quarter of the world’s marine energy devices and produces 40% of the world’s mobile quarrying equipment?
- People flock to London to see the iconic red buses – but where are they actually made?
- Who hosted the World Police and Fire Games, the third largest sports event in the world?
While it was clear from the questions that the answers were either Belfast, Northern Ireland, or some combination of the two, for the rest of the conference I was regularly asked who those companies were and what else was happening in Northern Ireland that the visitors didn’t know about. Some current answers include HBO commissioning successive series of Game of Thrones in Northern Ireland thanks to a huge sound stage that used to be a shipyard paint hall and tax breaks for high-end television production. And only in Northern Ireland could the local economy conjure profit from disaster to create the Titanic Belfast exhibition centre. In the three years since it was opened, it has attracted 1.9 million visitors; 150,000 conference delegates; 100,000 visitors to special exhibitions and generated £105m of additional tourism revenues.
Of course, an investment region is only as good as its people and its people are measured by the skills they can offer. I’m in the knowledge business and that means recruiting young, well-educated and predominately business and technology-literate graduates. With more than half of Northern Ireland’s 1.8 million people under 40, Northern Ireland, with the best-performing education system in the UK, delivers more than 4,000 business graduates every year making recruitment much less challenging than in some much larger developed economies.
It’s factors like skills, training and infrastructure that helps make a region attractive for foreign direct investment (FDI) and, despite its size, Northern Ireland benefits from being part of the UK but also having its own unique offering. When it comes to mobile FDI the UK was the number one European destination in 2014/15 and the world’s third most favoured location after the USA and China. In a year when the global value of FDI flows fell by 11%, OECD estimated that the UK achieved a 50% increase in FDI inflows – around 12% more than in the previous record-breaking year. Currently, the total value of foreign direct investment in the UK is estimated to have passed the £1tn level and, in 2014/15 FDI growth in the UK was the highest amongst the G7 countries – pretty impressive stuff, particularly as Northern Ireland was also the best performing UK region for job creation in 2014/15.
Putting that into some sort of context, according to the 2015 Financial Times FDI report, Ireland – generally accepted as one of the world’s leading FDI destinations – attracted around 4% of all European FDI project values (worth about $5bn), roughly the same as Poland, Turkey, Romania and the Netherlands, while the UK attracted 28%, equivalent to around $35bn.
There are a variety of issues that challenge any potential investor when looking at a new investment location, but one of them is tax. It’s not just about how much tax a business pays, but how complex the tax regime is. Here, again the UK scores and Northern Ireland will soon be able to add to the attractiveness. Currently the UK is one of the world’s most competitive tax regions for business and, according to the latest annual PwC, World Bank Group “Paying Taxes” study, is in 15th place in a league table of 189 countries, worldwide. That’s one place up on the UK’s 2014 ranking and three places up on 2011 when the UK was in the number 18 spot.
At the height of the global financial crisis of 2008-2010, the most common change in countries’ tax regimes was a cut in corporate profits tax – undertaken by 47 countries. But, contrary to some perceptions, the absolute level of profits tax can be less important than taxes on employees, “other” taxes or the complexity of the tax regime itself. In that regard, the UK scores highly, with incentives for R&D and innovation making the country particularly attractive to advanced manufacturing, pharmaceuticals and business services.
Add Northern Ireland’s lower operating costs and available skills and the region’s attractiveness becomes clear. But there’s another incentive on the horizon. From April 2018, the Northern Ireland Executive has been given the power to reduce the headline rate of corporation tax to 12.5% – matching that of the Republic of Ireland. In the UK,corporation tax currently stands at 20% and the rate will drop by a percentage point in 2017, and again the following year, leaving it at 18% by 2020. Under the new Northern Ireland corporation tax (NICT) regime, larger companies based in Northern Ireland will pay the tax on their trading profits. SMEs will have to pay NICT on all qualifying UK trading profits, provided that at least 75% of their employment costs and time are arising in Northern Ireland.
The Economic Policy Centre at Ulster University estimates that NICT could create around 30,000 new jobs by 2033, 9% more than if corporation tax remained at 12.5% – a further boost to economic activity and the region’s attractiveness. Northern Ireland is already an attractive investment location and is becoming more so as a new generation of investors realise the region’s potential and take the advice Mr Cameron gave at that 2013 Investment Conference, “[…] put your money in Northern Ireland and be part of this incredible success story”.
About the author
Paul Terrington is the Regional Chairman of PwC in Northern Ireland. He is also Chairman of the Northern Ireland division of the Institute of Directors.