Ulster University Economic Policy Centre (UUEPC) has published new research assessing business births and deaths over a decade, and implications for productivity in NI.
Between 2010 and 2021 the number of business births in NI rose by 45%, reaching 6,655 in 2021, the highest over the decade. The increase compares to a 55% rise in the UK. Reflective of the increase in numbers the birth rate, births as a share of active businesses, has risen from 7.8% to 10.3%.
There was little difference between 2010 and 2021 in the number of business deaths in NI, at approx. 5,200 in both years. In fact, the death rate in NI actually fell. In the UK the number of business deaths increased by 10% over the same period, resulting in an increase in the death rate.
Increasing rates of dynamism in the form of firm entry and exit are regarded as an indication of a healthy economy due to their positive impacts on innovation, competition, productivity and job creation.
UUEPC’s analysis suggests that business churn in NI (measured as the business birth rate plus the death rate) has risen from 16.6% in 2010 to 18.3% in 2021 and there has been a slight drop in the death rate but there is a persistent gap between NI and the UK. The UK has a higher churn rate at 23.5% in 2021.
In fact, NI remains the least dynamic part of the UK, with lower birth and death rates than the other nations. It also has a lower churn than the leading Small Advanced Economies of Estonia and Denmark.
At the sectoral level, the highest business birth rates annually are typically in lower productivity sectors. In fact, the sector with highest birth rate in 2021 and the fastest growth in births over the decade – Transport and Storage – has the lowest productivity levels of business births.
The largest number of business births and deaths annually was recorded in the Construction sector while the lowest has been largely in the Education sector.
Just three sectors have accounted for the highest birth rates across the decade; Information and Communication from 2011-15; Business Administration and Support in 2010 and from 2016-19, and Transport and Storage from 2020-21. The number of births in the latter is over five times higher in 2021 than 2010, with a notable increase since 2020. This is likely a reflection of the move to online shopping and an increased demand for delivery services due to Covid but could also involve a Brexit effect with companies wishing to establish an NI presence for storage and/or distribution access.
Only the Information and Communication sector recorded all three of: higher than average business birth rates, higher than average sectoral productivity and births with higher productivity than deaths. As one of the 10X priority sectors this is particularly important.
Meanwhile sectors which are high productivity have seen birth rates fall, including Finance and Insurance, again one of the 10X priority sectors.
Link to productivity
The productivity levels of entering and exiting firms in NI are broadly similar. In fact, in a number of sectors the productivity levels of business deaths exceed that of births.
Of the individual components of business dynamism, the birth rate is found to have a stronger relationship with NI productivity, although overall the correlation is weak.
Karen Bonner, UUEPC Economist offers insight in to the economic solution: “In order to boost overall economic performance and narrow the gap between business dynamism rates here and the UK, Northern Ireland needs to refocus on facilitating more highly productive firm entrants, with a capacity for innovation and growth.
Ensuring adequate access to both financial capital and human capital in terms of a skilled pipeline of individuals in high productivity sectors is crucial. For productivity improvements from business start ups to be sustained, capacity for growth by way of access to skilled employees and funding will be necessary to ensure that those that survive are the most productive.”
The wider report is available to read here: www.ulster.ac.uk/__data/assets/pdf_file/0004/1519168/Business-Dynamism_final-report.pdf