Manufacturing is a growing contributor to the economy in Northern Ireland. And while similarities with the rest of the UK sector certainly exist, legislative and regulatory changes in recent years have highlighted certain unique differences. The Manufacturer caught up with Stephen Kelly, Chief Executive of Manufacturing NI to find out more.
Manufacturing NI was formed in 2003 in response to the planned removal of the Industrial Derating Policy, which stated that manufacturing businesses were exempt from paying any business rates on their properties. These extra costs that would have been applied to businesses saw factory owners come together with the trade union movement to launch a campaign to challenge this potential policy change.
In 2007, the Northern Ireland Executive called a halt to those bills being introduced. The then finance minister introduced the Industrial Derating Cap, which meant that manufacturing businesses would only pay 30% of their business rates.
Since then, Manufacturing NI has been involved in protecting that position, as well as engaging with manufacturers around the cost of doing business e.g., energy prices, and increasingly, within the labour space.
The Brexit announcement of 2016 had the potential for a very profound impact on the country. As such the organisation was heavily engaged with the issue, which resulted in the acceptance of special arrangements for Northern Ireland; originally called the Northern Ireland Protocol, which has since been improved with The Windsor Framework.
Manufacturing NI led the country’s 5,000-strong manufacturing community through the COVID crisis and to this day continues to represent manufacturers on an individual basis with issues or concerns that they may have.
What does the landscape of manufacturing within Northern Ireland currently look like?
SK: It’s important to note that our manufacturing community is significantly stronger in Northern Ireland than it is across the rest of the UK. We make a bigger contribution to jobs, Gross Value Added (GVA), exports and our research and development spend. So, manufacturing is a significantly larger part of the Northern Ireland economy.
To add some context, manufacturing currently represents less than ten per cent of the UK economy, compared to 16% here. Through direct jobs, and those that are wholly supported in the economy, around one in four families in Northern Ireland are dependent upon a manufacturing job; equating to approximately 251,000 people.
In the past we would have been wellknown for large scale manufacturing, with tens of thousands of people being employed in the manufacture of ocean liners, for example. For the most part, those very large manufacturers no longer exist here and we tend to be an SME-based manufacturing economy.
That being said, we do still have a number of larger manufacturers (more than 250 employees) and they’re still critically important to us. Even though they only represent one per cent of manufacturing businesses, they account for half of all the turnover and jobs. So they’re significant players nonetheless.
Our areas of strength would be the food sector; despite only being a nation of two million people we feed around ten million across the UK and Europe. We’re also big in the area of machinery for materials handling, and in construction materials.
The Tottenham Hotspur Stadium, for instance, was entirely manufactured here in Northern Ireland; with almost 10,000 individual pieces of precast concrete – each one different from the other – the roof structure and all the steels. We also have a significant presence in the aerospace sector and a strong supply chain into other parts of the UK and European economies.
Why is Northern Ireland’s manufacturing sector growing at a faster rate than the rest of the UK?
There are two reasons for this. Firstly, we continue to have a deeper appreciation for our manufacturing community than the rest of the UK government system. Over the years, much of the UK’s economic model shifted away from making things, and leaned more towards financial services, etc.
However, by nature, most of our manufacturing businesses here are in rural communities, not our cities. And those people are used to making things and engineering is part of their DNA. Culturally we’re in a different place to the rest of the UK and because of that, we have a greater appreciation of the needs of our manufacturing community.
Secondly, we have undoubtedly benefitted from the UK’s decision to leave the European Union. The only region of the UK where manufacturing exports to the EU continue to grow is here in Northern Ireland because European buyers still want to be part of the UK supply chain.
They appreciate the quality that UK manufacturing can offer, so what is to England, Scotland and Wales’ detriment is to our benefit; particularly the protocol that was agreed upon which provides opportunities for two key sectors – manufacturing and distribution – and our manufacturers are capitalising on that. We’re also used to exporting.
Not only do we live on an island but from where I’m sitting right now in Northern Ireland’s second largest city, I’m only half a mile from the border with the Republic of Ireland, and therefore, the European Union. That proximity means that many of our manufacturers are used to exporting, buying and selling in foreign currencies, and dealing with different legal regimes.
As a result, 80-85% of our manufacturers sell externally. The Republic of Ireland is a simple and convenient export location, and from there, Northern Ireland manufacturers have built confidence that they can grow and export to other parts of the European Union and beyond.
What are the key challenges facing manufacturing companies within Northern Ireland?
It’s much the same as the rest of the UK on one level, which is essentially the cost of doing business, particularly with regard to energy prices. The UK is the most expensive energy market in the world and Northern Ireland is just marginally below that. We are large energy users and as a result, expensive energy prices have had a big impact on us.
The UK’s decision to leave the EU and take control of its migration regime has not been in the interests of our makers when it comes to the availability of labour. We need skilled people who are productive. In every decade prior to this one, there has been large net growth in the number of new people available for work in Northern Ireland. In this current decade, only 200 new people per year have been available in our labour market (over and above what it was in the previous year), and that’s not enough.
You can’t grow your manufacturing community or the economy unless you have people. The UK’s migration is very successful in attracting people to the UK, but it’s not very successful in attracting workers. We are victims of that just as much as manufacturers elsewhere in the UK.
However, what I would add is that due to our proximity to the Irish Republic, the EU is only a short drive away, so our labour market has a very specific dynamic that isn’t visible in the rest of the UK.
And then the sad truth of course is the world is at war. There’s conflict in both Europe and the Middle East, tensions in the Far East and there’s likely to be further unease between the US and China. This has been a destabilising factor, which has resulted in a downturn in global markets for some of the things that we do well in Northern Ireland, particularly within the sectors of materials handling, transport and agricultural equipment.
Interest rates continue to be elevated and that’s a problem across the UK. We sell lots of capital – machinery, construction equipment, materials, etc. Those businesses that are considering large capital investments have been reluctant because the cost of borrowing is so expensive. All in all we’re in a tricky period, and I believe that’ll be reflected in our end of 2024 export sales figures.
What has been the lasting impact of Brexit on Northern Ireland manufacturers?
Let’s just say it’s been a qualified positive, evidenced by the record amounts that we’re selling to the EU, both in terms of volumes and cash. We continue to be the only place in the UK where exports to the EU are growing, so we have seen quite a significant benefit by achieving that dual market access. We have the ability to continue to sell unfettered into the rest of the UK marketplace, while the things that we make here can be freely circulated within the EU.
That’s not to say that Brexit hasn’t brought its own difficulties, particularly in supply chains from Great Britain into Northern Ireland. Around 12% of manufacturers reported that their supplier in Great Britain was either unwilling or unable to continue to supply into Northern Ireland as a result of Brexit, because they were reluctant to deal with the added admin and customs red tape.
And problems persist to this day – particularly around the understanding from UK and EU customers and suppliers that, while Northern Ireland is constitutionally part of the UK, economically it is in a very different place.
So there’s a bit of work still to be done to achieve that clarity, and while there were improvements with the previous Prime Minister’s Windsor Framework, some of those grace periods that we were benefiting from, particularly around the movement of parcels, are coming to an end, and that will represent another moment of disruption that will cause some concern to the manufacturing community here.
What trends are you seeing from the manufacturing community in Northern Ireland?
As the labour market has tightened in the last few years, we’ve seen an increasing confidence among manufacturers around the introduction of automation, robotics and digitisation, so we’re starting to see a real escalation in those investments, and that’s a good thing.
On the decarbonisation piece, manufacturers are aware that the demand for a net zero future is here. If I’m honest, however, they’re only just beginning to feel the need to address it. They can deal with their Scope 1 and 2 emissions by buying renewable energy and they’ll do what they can within their own internal processes.
However, the truth is that there’s still very little understanding and appreciation for Scope 3. It seems to be a significant investment that, at this stage at least, doesn’t have the necessary ROI for our manufacturing businesses. As such, we’ve spent this year, with others, encouraging manufacturers and trying to actually define Scope 3 emissions as a cost of admission to business.
What I mean by that is our larger customers, government bodies, banks, etc., have a mandatory reporting responsibility. They now have a big decarbonisation problem, so they’re looking very closely at their supply chain and customers as a means to deal with that. There have been a number of examples where very large retailers have approached manufacturers within their supply chain and asked to see their decarbonisation plan, to be shown their net reductions and the company’s path to net zero.
Retailers are telling manufacturing businesses across the UK that unless they are taking action on their decarbonisation plan (or at the very least making preparations), they can no longer do business. So, decarbonisation is becoming a real cost of entry.
We’ve also seen that some of the banks are offering a mixture of either discounts or penalties on their borrowing because, as mentioned, they have a reporting responsibility as well. And we’re beginning to hear reports – not so much from the manufacturing sector, but other parts of the economy such as agriculture, and beef farming in particular, which is largely carbon intensive – that banks are refusing to take new customers on because they can’t afford to have that carbon sitting on their balance sheet. Unfortunately, that message is only now starting to get through.
It should be said that there are some businesses who are early adopters. They are getting out ahead, making the big investments and planning for the transformation of their business, particularly in what would have traditionally been seen as dirty industries, such as construction, materials, energy intensive industries, etc.
However, it’s important that those pace setters cluster together. They need to share their resources and plans. One factory might have solar panel availability on their roof, for example. Businesses are now beginning to break down the competitive suspicion that may have existed in the past and are realising that they need to work together. Decarbonisation is such a big challenge, manufacturers need to collaborate rather than compete.
What has been the reaction in Northern Ireland to the new government’s Industrial Strategy?
Sadly, the UK’s Industrial Strategy is largely invisible to manufacturers in Northern Ireland, and it may be similar in Scotland and Wales, where these economic powers are devolved through the regional parliaments.
At this stage, no one is talking to me about the UK’s Industrial Strategy at all. So, there’s a bit of work required from the UK government to explain why this is relevant to the devolved nations.
In terms of the impressions of Northern Ireland’s manufacturers to the new government, they’ve been negative so far – the rise to national living wage, and particularly the changes to National Insurance, have added quite significant costs to businesses here.
Those costs are hugely significant. Recruitment has been frozen in a number of manufacturing businesses and a particularly difficult piece in the Budget was around inheritance tax. There was quite a negative reaction from the farming community, but in fact, the change could have more impact on our manufacturers, particularly in Northern Ireland where there is a large number of family-owned businesses.
On their balance sheets our manufacturers are very capital intensive in terms of valuations, with large properties and lots of machinery, etc. As such, they may not necessarily have the cash on their balance sheets, which makes it difficult for firms to be passed on.
There’s a lot of anguish around what this means in terms of family-owned businesses. People are still unclear on what they can do to mitigate this problem and we may well see businesses sold to international buyers, as opposed to keeping them within the family. This would have a massive impact in terms of the culture of our manufacturing community, where jobs are often in towns and villages, and represent the largest employer in those areas.
We’re no longer in a space where the jury is out on the UK government. I would say that there’s disappointment as a result of the Budget and in what has been done so far.
What does the future look like?
There’s no doubt that in the shortterm, we’re in a difficult place. There’s the possible escalation in the trade war between China and the US, plus subsequent tariffs, and Europe is stuck in the middle. Problems persist around migration and the labour market, the cost of doing business and significant additional tax burdens.
So, we’re in for a tricky two years. Long-term, however, we remain incredibly optimistic. Our manufacturing community continues to grow. There’s 20% more people employed now than there was in 2010, and our export sales combined with the unique market position that we have, gives us an opportunity that doesn’t exist anywhere else in the world.
If the innovators that are bringing solutions to customers here and across the world continue to do so, while at the same time finding the capital to deploy productivity improvements and decarbonisation plans, then there are certainly reasons to be cheerful.
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