Neil Gibson

The following is a verbatim transcript of Neil Gibson's presentation to the conference. Introduction
I'm going to really be concentrating on the second piece of work, Belfast: The Economic Future which we, Regional Forecasts, were commissioned to do by Belfast City Council. I will focus on some of the key challenges which the research has highlighted. The economic model we were asked to develop provides a very detailed and rich evidence base which Belfast City Council will now be able to use in a lot of their policy work going forward. Forecasting is increasingly used by local authorities and central government throughout the UK, partly as a response to the challenge to increase evidence based policy making. It is not an exact science and forecasters do tend to come in for quite a lot of criticism for maybe not getting potential facts, certain things correct, and that's why we're trying to set up the forecasting system in such a way that we can keep looking at it, revisiting it and improving the knowledge base. I think that's very important; there's a lot of research that can be built into some of the forecasts that we've done which might improve some of those areas.

Benefits of forecasting?
What benefits would such a system give to a local authority or to a council? One potential benefit is to provide an early warning system. Some of the forecasts provide somewhat of a surprise for the potential future and the threats that exist for the Belfast economy. I want to focus our attention on what those threats are and what potential policy actions might be used to avert those difficulties. It also allows us to give some thought to the understanding and relationships between local cities and their regions or between different sectors. The evidence and research uncovered by doing a forecasting project provides a lot of important research evidence that can be used elsewhere, and of course the modelling gives us the potential to explore different scenarios.

"What would happen if Belfast's population was to increase or what would happen if it could succeed as an exporting service sector economy, what difference might that make to some of the other indicators that are often put forward as indicators of Northern Ireland's economic prosperity?" I don't want to dwell too much on the technicalities of the forecast system; all I want to say is that the model developed for Belfast is consistent with all the other published forecasts by ourselves and our strategic partner, Oxford Economic Forecasting, one of the largest forecasting houses in the UK and the world. The immediate parent of the Belfast area model is the Northern Ireland policy simulation model which was a project, a model developed for DETI by Regional Forecasts to allow a more in-depth look at the Northern Ireland economy than some of the more macro-models would provide. We've looked at the whole Northern Ireland economy to make sure that the forecasts are consistent with wider macro-economic trends. The forecast largely covers a 20 year historical basis, that's the basis of data that we're using to drive forward, which is driven by the amount of data that's available. Again I don't want to go through the list of indicators, all of these forecasts have been provided for Belfast City Council. We'll be concentrating on the labour market today, but there are wages, house prices and potentially quite interesting output forecasts at a local level by industry which is the first time these forecasts have been produced. To our knowledge it's the only forecasting system of this kind, either in Northern Ireland or for any other city in the UK. It's important to note that a lot of the factors you see built into our forecast are driven by well established national and world trends in sectors.

The forecast summary
So I'll move on now to the actual forecast summary. Belfast has already moved to a position of being a very service sector orientated economy, very much a post industrial city. We can see that the biggest sectors in employment terms are health and education followed by financial and business services. Again, it is interesting to note that financial and business services employ more people than both the distribution and hotel sector together. Or, if you want to put it another way, shopping and tourism actually employ less in Belfast city than health and education do. Again we can see the very small concentration of manufacturing at just 7% of employees in the city.

"Belfast has already moved to a position of being a very service sector orientated economy"

The real theme of the forecast that we've produced is that there are fewer people but more jobs. The Belfast population has been falling quite steadily since 1993, while the rest of Northern Ireland's population has been growing quite steadily. So when we read in the press about the rising population in Northern Ireland, it is important to reflect that this is not actually the case in Belfast. Crucially, our forecast shows a continuation of this decline based on our work to date, and we'll come back to that as a very important challenge for Belfast over the decades ahead. But the city has managed to create more jobs. Over the last decade we've had around 35,000 jobs in the Belfast city area, which is quite an impressive number, although we should bear in mind that many of those jobs are part-time. We estimate somewhere under 20,000 jobs for the year, for the decade ahead. That's an important figure because it suggests that growth in our forecasts, although continuing to be very strong in the Belfast city area, will be less so than in the past ten years, and we're going to take a look at some of the sectors to help explain that.

The manufacturing decline is one factor; we expect there to be somewhere around 8,000 employees in manufacturing left by 2013. And of course, financial and business services has been the big growth sector. The important thing is that Belfast hasn't actually grown any faster than the overall region in this sector despite its rapid growth which might come as a surprise when we think of some of the professional services. Although a lot of that is to do with the fact that the professional services sector covers a wide realm of activities. If we were to take professional services out we might get a slightly different picture. Unfortunately we were unable to get the detailed breakdown of employment data from the relevant agencies.

The first area which might be somewhat controversial is retail. Retail has gone through a very, very long period of catch-up in Northern Ireland. If we go back ten years we didn't have the same level of national chains either in food or other high street retailing that we do today. But based on population numbers or on spending levels, it looks like Northern Ireland is rapidly approaching the time when it will actually have the number of people employed in this sector which you would expect, given its size.

The growth for retail may moderate to a level more akin to the overall growth in population, so you can see that our forecasts moderate after another couple of quite strong years, and quite interestingly they actually begin to fall in Belfast. There are a lot of factors behind that, one is that Belfast is moving towards being a professional services provider. If we get these value added high paying jobs into the sector it does increase rents, increase costs in the area, and that can have a very negative effect on retailers and their ability to locate in the city centre. John Lewis is a good example where we've seen the move towards these US style mass huge floor space outlets in many sectors. DIY is another example, and in most cities in the UK they're not city centre activities. That's not to say there's not a lot of potential in Belfast, but it's important to consider what types of retailing Belfast may well be competitive at over the next decade. "Is it in niche retailing, is it in high value added retailing?" It's certainly not going to be in a position to compete with out-of-town shopping centres and that's an important threat.

The second sector to face threats to its long term growth is public services. Again public services have been a big source of jobs in Belfast over the last ten years, and an important sector throughout the UK with increased public spending. There was also an increase in public sector employment as a result of the Assembly. Obviously we don't have that situation at the moment although it is interesting to note that the employment hasn't returned to its previous levels. It's important to consider here what the threats might be to the public services sector. We've obviously got the Review of Public Administration, we've also potentially got efficiency pressures and productivity pressures in terms of cutting budgets in the civil service and public administration here, so there's a very real possibility that employment will at least slow off in public services. The Lyons review in the UK shows a great deal of pressure to move public sector jobs out of London into less successful regions. There was certainly some support for that during the Assembly's time and we may see that return as the possibility of using public sector jobs potentially as a sort of development policy in moving some of the jobs out. So again that's a sector which will see rather slower growth than we had in the last decade.

Hotels and tourism has been another important sector - 3,500 jobs in Belfast and again we see a similar trend to retailing. There are a lot of hotel chains now in Belfast that weren't here a decade ago, and we've seen the emergence of business visitors as a real feature of the employment in these sectors. This also includes eating out and restaurant employment is again becoming a feature of Northern Ireland and other UK economies throughout the last decade. Again, we see this as potentially a sector where, with some change, Belfast could perhaps do rather better. Certainly our forecast suggests it will do almost as well as the Northern Ireland economy as a whole, but won't stretch ahead in the way it has in some other cities in the UK.

"We expect around 16,000 jobs in Belfast over the next ten years."

Just to summarise what I've already said about employment forecasts - we expect around 16,000 jobs in Belfast over the next ten years. The vast majority of those jobs will be in the business services sector, and hopefully when ABI data becomes available at local level we'll be able to look at Belfast's activities in more depth. Health and social work, again population based, but still an area which is receiving a lot of spending and we expect to increase employment, as we do with most other sectors to a lesser degree. The only exception is manufacturing which will continue its job shedding. We've really only talked about employment; I haven't talked about output forecasts or occupational forecasts to any great degree, but one forecast I want to draw attention to is the demand for skills, based on that employment structure that we've built in.

"What types of workers, what skills profile will Belfast require in the ten years ahead?" We can see that 30% of employees, including the public sector are graduates and we expect that to rise to over a third of employees over the next ten years. This might not seem like a big rise in terms of percentages, but it's quite significant in terms of numbers. It's also quite important to realise that if we really succeed in becoming an exporter of private services the likelihood is that this high level of graduate employees will rise further. The forecast shows a fall in the demand for the number of people with no qualifications. Again this really reflects quite long established trends for the upskilling of workers and what employers require and, quite importantly, the reduction of manufacturing again has an impact on that. There's also a very notably strong rise in the demand for Level II, NVQ Level II qualifications, again quite a well established trend in Belfast. The occupational structure is changing, we're getting more managers and professionals; again it's quite a slow change process and any move to being a really successful city as an exporter will hasten that change. Average house prices in Belfast are expected to be £165,000 in 2013 and they'll obviously be much higher in the surrounding area.

Summarising the forecasts, we've already seen that Belfast is a post industrial city, it's very much service sector orientated, services are becoming dominant and that's expected to continue. But we do think that around the retail sector, public services and to some degree hotels, certain threats exist which maybe suggest that as things stand we won't have the same extent of growth in jobs in the city ten years ahead as we've had in the ten years past, and that's reflected in our lower employment forecasts. It is also important to note that this is partly driven by slightly slower sectoral growth at the UK level. We don't expect as many business services jobs to the same degree, so part of the UK's trends are built into that.

Key challenges ahead And we can see with the changing occupational structure, changing skills demand, there are some signs in the forecast that Belfast is moving becoming a more successful city but one of the key questions for us is, "How quickly and is it fast enough?" So I want to try and raise a few of the challenges. We've summarised the two pieces of research (Belfast: Core City and Belfast: The Economic Future) into four key challenges and a lot of these interact or overarch with some of the action points that were raised at the inaugural State of the City conference. So the four headings are:
  1. Reverse the population decline
  2. create a living city
  3. encourage the service sector and attract a skilled workforce
  4. balanced development, "How can we make sure that the city actually works for all?"
So what might happen if we don't respond to these challenges? A couple of policy challenges have been raised which we'll look at in more depth. Cities have started to return to growth, brownfield development, regeneration initiatives, which have been going for some time, and are really starting to bear some fruit now. We can see cities beginning to increase their population for the first time in decades; London started first and then was followed by Leeds and a number of other cities. The population is still lower in all of the cities in 2003 than it was in 1981, but you can start to see the pick-up in certain cities such as Manchester, Birmingham, Nottingham, towards the end of the period. Belfast and Liverpool stand out as being unable to, as yet, arrest this population decline.

Why does population matter? Well, it's important to have a living city in the sense that some of the untapped potential of the city, if it becomes purely an office park that only works between the hours of 9am-5pm. Then there are wealth generation possibilities and income possibilities that are lost by not having any activities open beyond office hours. A living city also improves reputation, people, and crucially attracts graduates. Graduates expect quite a sophisticated offering in terms of their leisure activities, the retail choices that they might have in a city. It also helps in terms of the financial sustainability, obviously in terms of income that you might get from ratepayers which obviously depends quite significantly on how many people live within the city's boundaries.

What happens if we don't have a living city? Well, many of the other cities are going to continue this increased urban living and Belfast will fall rather behind which might make it increasingly difficult to attract the sort of firms we want to have within the Belfast boundaries to help economic development. Costs will increase in terms of servicing the city due to reduced incomes and also, the pressures in costs of increased commuting is an important factor to bear in mind. If Belfast can't have a lot of these jobs within its own boundaries that will put considerable cost pressure on the infrastructure system, which could have quite damaging effects on Northern Ireland's productivity. What issues does that raise for the city to consider? How do you make city living attractive, how do you make a city a place that graduates would want to live in? And how do you make it attractive for families to stay in? We've seen the outflow of retail employment as a result of cost pressures as we have with manufacturing. Public sector could go the same way, schools are under a lot of pressure in many cities as their land is very valuable within the cities. But if those sorts of activities move out, people don't want to live in cities, so there are a number of significant threats to actually achieving the goal of making people want to live within Belfast. You need the correct environment, it's not all graduate flats and apartments that might be required, or Waterfront development. There are obviously people with Level II qualifications and even the substantial amount of people required to service the city. You can see examples in London of the important role that migration has played in meeting the city's needs. Obviously there is a need for housing opportunities and living space for people within Belfast as well.

Belfast is still quite low in its share of financial and business services, again above the northern poor performing cities, Liverpool and Sheffield, but below the cities we might realistically expect to aspire to in a UK sense such as Manchester and Bristol. Why do services matter? They're the growth sectors, they're city friendly, they're the things that cities can effectively compete for in the decade ahead and they offer export potential. They offer the greatest opportunity for Northern Ireland to increase its wealth and hence standard of living. Again all cities are catching onto this, although quite slowly, and Belfast would fall very much behind. It's very difficult to get back on the ladder if you've missed out. There's nothing better for attracting new firms than to have legacies of existing ones that have actually shown that service sector exports from Belfast work.

We might also expect to lose some of the key graduate workers which is important, being the wealth generators, in the economy. We risk losing them in an environment where the city isn't attractive for those people to live in, and there aren't the employment opportunities. And we might get to the point where all we are is a local service centre simply servicing Northern Ireland's population needs, and that would severely curtail the growth and of the Northern Ireland economy as a whole. Indeed you'll actually have other cities competing for those local service functions and you could actually lose some, so it is important to remember that providing those local services is vital in the sense that it prevents imports.

A very important question for us all to consider - something which is a very difficult policy question for everyone. How do you break into the cycle? Graduates won't want to live in a city which doesn't have sophisticated employment opportunities, career progression, good earnings potential, yet employers won't want to locate in a city that can't provide that quality of graduate or quality of worker, so it's actually quite difficult to think exactly at what point policy could intervene there. What does this suggest? We've done some research for DETI on private services looking at what we need to know about that private services. How do we encourage the major firms to locate in Belfast? What influenced the firms that have located here to make their decisions? How do we ensure that there is sufficient development space - the office space for those big major players, but also the smaller firms who are increasingly locating around the fringes and outside the cities. Maybe it's costs, maybe it's commuting pressures, but it would be a useful exercise to try and understand why that trend is occurring. I think also it's very important to respond to threats; all the other cities are going to be competing for these service sector jobs, they're even going to be competing to do some of the tasks we already do. And it's very important to recognise that this threat will come.

Third challenge, attracting a skilled workforce, again Belfast performs rather better on this but still behind Bristol and Manchester in terms of its graduates. Why does that matter? Well, the highest growth potential firms are going to require a skilled workforce within their labour force. It also helps to create wealth - a skilled workforce is better paid bringing more money into the economy, increased spending, and that in turn will strengthen the economy. What is the risk? We risk becoming uncompetitive and I think that's the real threat through all of these challenges, becoming uncompetitive and falling behind. It's very difficult to recover the position as some of the UK's most industrial cities have found to their cost. We really need to be at the forefront of this city development agenda, and once you start a period of decline it's very difficult to get out of that. If there's no wealth, housing degenerates, there are no incomes to stimulate jobs and employment declines in those areas, so it's a very real risk. Again, policy issues, how do we make Belfast a graduate location, how do we make it attractive for these skilled workers? And also how do we match the skills from the education system to those that employers require in the future? Dell is doing a lot of important work in that area but it is a crucial question.

My last point really is to talk about balanced development. I think this is a very important overarching theme. What do we mean by balanced development? Will we have the office space, will we have the retail space, will we have the housing within the city to meet the demands of what's likely to happen? Will we reach any cost bottlenecks, is there any sense in which we're failing in any particular area of the market, do we have housing for all sections of the community in terms of the wealth spectrum, and do we have office space for all the sizes and types of firms that we think are likely to be very important in the Belfast economy?

A really successful export city will require a lot of lower skilled workers to help service the city in terms of leisure and retail choices. Again it's important not to get too caught up with the fact that we need top end, graduate locations and making it family friendly. There's actually a very wide spectrum of demands required from the Belfast economy. I think the family point is another important one to consider, "How do we keep families within Belfast, how do we keep people living within the city when their requirements turn to having open space, good schools, those kind of factors?"

What happens if we don't ensure balanced development? Well, there are a lot of risks; one of them is that growth stalls, maybe we reach supply, but we meet some supply bottlenecks, we don't have graduates, we don't have the skills levels which we require or it's too expensive for lower skilled workers to live in the city. Also you might end up with a city with a considerable lack of diversity. For example, not having enough options for tourists; this will certainly deteriorate if the city only caters to one sector and is unfinancially viable for the small retailer. It's important to consider policy, bearing in mind the forecast of the most likely path of the economy. What do we need in terms of housing, in terms of labour markets, in terms of structure, and in planning policy? Is that sufficiently adaptable in order to meet the requirements and to develop the type of office and residential accommodation that we require? A couple of key points; it's important to have a very overarching view of the whole of Belfast and indeed the wider economy to ensure that the best interests of the region are served. This requires a rather high level view of what type of development might be going on in surrounding areas. That's important in terms of fostering partnerships, not only with other councils and their development areas, but also in terms of the employers we might have in the area.

Conclusion
In conclusion, cities are important, they're increasingly important; the sectoral trends are all suggesting that the period of urban renaissance is likely to continue. We've already shown that Belfast has a number of unique functions, not easily transferable to other areas within the region. It is certainly performing well as a regional city but has some way to go to becoming an exporting city. Yet that's where the real wealth and potential lie, not only for the city but for the region. We've seen strong job growth and I wouldn't want to underestimate the remarkable growth in jobs in the city which is a very commendable achievement. But we do see certain threats to some of that growth in the decade ahead such as the population decline. A competitive Belfast is vital for a competitive Northern Ireland in terms of what the city can do and also in terms of the forecast numbers. I've hopefully given you some idea of where Belfast might be going in the next decade and summarised the challenges facing us in the future.

Neil Gibson
Economic analyst and forecast expert

Neil Gibson is a joint director of the Regional Forecasts consultancy based in Belfast and has worked in economic consultancy for a number of years. Neil was previously manager of the OEF Regional Forecast before working for PricewaterhouseCoopers as a senior economist. He has been project manager on a number of major research and forecasting projects in both the private and public sector. In the field of regional economics Neil has been lead author on a number of major publications including the OEF bi-annual Regional Economic Outlook and the PricewaterhouseCoopers Annual Review of the NI economy. He has managed and developed forecasting models both at a regional and local level across the United Kingdom. Recent examples include Local Authority models for the Black Country, North Staffordshire, West of Scotland and Manchester.

He has been leading Regional Forecast's development of local economic and housing models for a number of urban areas in the UK. This work has involved construction of detailed economic, and in some cases housing, projection models capable of supporting urban policy makers. Neil has been heavily involved in Regional Forecast's work for Belfast City Council. This has entailed a detailed examination of the Belfast economy and development of a unique local forecasting model for Belfast and surrounding Belfast Metropolitan Areas. The first results of this modelling exercise were presented in spring 2005, and are currently being used within Belfast City as an evidence tool to support policy.