By Conor Lambe, Economist at Danske Bank
The services sectors are a key part of the Northern Ireland economy and, from a trade perspective, the Broad Economy Sales and Exports Statistics (BESES) show that the value of Northern Ireland’s services exports in 2015 was around £1.55 billion. This included some foreign sales in sectors that would not typically be considered services, such as construction and manufacturing, while it excluded financial services exports and travel-related spending. The value of services exports in 2015 – the most recent available - represented a fall from the previous year, but was 37 per cent higher than in 2011. Over this five year period, the share of total exports made up by services increased from 12.4 per cent to 17 per cent.
In analysing the data, it must be recognised that services exports are notoriously difficult to measure. For example, a strategy consultant based in the UK who travels to Germany to work on a project for a week would be an example of a services export, but it is not easy to accurately measure this type of activity. However, the data which is available shows that services exports are gradually becoming a more important factor in Northern Ireland’s international trade performance.
The BESES show that, in 2011, half of Northern Ireland’s services exports went to the Republic of Ireland. But in 2015, despite the value of these exports being higher, the proportion of total services exports that went across the border had fallen to just over 40 per cent. The share of exports going to the rest of the EU remained pretty much constant over this period at around a fifth. So it was exports to the ‘rest of the world’ countries for which the share of total exports increased.
Unfortunately we don’t have details of the precise countries these services exports went to, but the category includes places like North America, non-EU European countries and some of the emerging markets. The fact that the share of total services exports going to these countries increased is encouraging, particularly given that some of these markets could become increasingly important destinations for Northern Irish businesses looking to expand their exports once the UK leaves the European Union.
For local services businesses which are already exporting to the EU, or have plans to export there in the future, there are some important features of the final Brexit package that could be particularly significant.
The first is the extent of liberalisation of services trade. Most free trade agreements involve the reduction of tariffs on goods. But services aren’t really impacted by tariffs so the reduction of non-tariff barriers, such as regulatory differences or the granting of licences, will be a crucial aspect of any future trade deal.
Another factor will be how easy it is for people to travel to, and provide services in, EU countries. Services trade can often be reliant on the movement of people, as the strategy consultant example above illustrates.
And organisations in different services sectors will have specific requirements that would make it easier for them to keep doing business. A recent report from the House of Lords European Union Committee on the potential impacts of Brexit on non-financial services trade mentions some examples. Legal and accountancy firms currently benefit from the mutual recognition of professional qualifications across member states and would find it harder to provide services in the EU without this. For some digital services businesses, the free flow of data and being covered by the cap on wholesale mobile phone roaming charges are areas that they would like to see addressed during the negotiations.
Service providers play an important role in the UK and Northern Ireland economies and so ensuring that a future free trade deal with the EU includes significant services trade liberalisation must be a key priority for the Government during the Brexit negotiations.
This article was published in the July/August 2017 issue of Ambition.