IRA Ceasefire: Heavily subsidised economy waits for 'peace dividend': Hopes of growth tempered by fears of cut in grants

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TWENTY-FIVE years of conflict in Northern Ireland have had a substantial economic cost, as well as a terrible human one. If the ceasefire holds, there may be a valuable 'peace dividend' north and south of the border.

Both Republic and province are disadvantaged by their location, well away from the 'golden triangle' - encompassing south-east England, the Benelux nations and parts of France and Germany - which forms the hub of an integrated and competitive European market.

An end to conflict would save the London and Dublin governments almost pounds 500m a year, according to a recent study by DKM, the Dublin economic consultants. They estimate that the Republic could cut its security and defence budget by 10 per cent, while security costs per head of population in the North could be reduced to the same level as in the South. This would save Whitehall pounds 220m a year and Dublin pounds 90m.

Tourism has been hit hard by the Troubles, with 60 per cent of its vistors coming from the rest of Britain and 30 per cent from the Republic. Advertising by the Northern Ireland Tourist Board has helped lift the number of visitors above 1 million, but DKM estimates that revenues would be pounds 80m higher in the North and at least pounds 17m higher in the South in the event of lasting peace. The absence of connections between the electricity grids north and south of the border also costs the South pounds 10m a year.

The Confederation of British Industry in Northern Ireland is worried that peace may harm the province's economy in the short term, with 20,000 security-related jobs and pounds 300m of spending power at risk. But Nigel Smyth, of the Northern Ireland CBI, said he expected 'for every two security jobs that go, a lasting peace would create three in the economy'.

The business community is worried that the Treasury may use an end to hostilities as an excuse to rein back the pounds 4bn a year subsidy which it pours into the province. Public spending on services averaged pounds 4,594 per head in Northern Ireland in 1992-3, compared to pounds 3,411 per head in the UK as a whole. But some economists argue that this subsidy has created a 'culture of dependency' which is stifling innovation.

Northern Ireland has historically had a stronger economy than the Republic but the gap has been narrowing steadily in recent years.

The Republic has been relatively successful in encouraging overseas firms to invest in the country, helping to rebalance its industry away from agriculture to high technology sectors like electronics and pharmaceuticals. But the impact on southern living standards has been limited because multinationals have repatriated profits overseas and funds have left the country in interest payments on foreign-owned government debt.

Foreign investment into Northern Ireland has also come in for criticism. Government plans to give Hualon, a Tiawanese company, pounds 61m towards building a pounds 157m textile plant in the province, may threaten smaller firms at the low-cost end of the market.

A lasting peace is expected to yield economic benefits throughout Ireland. The island will enjoy greater aid from both the European Union and the United States if peace lasts, but this is likely to be offset by a fall in the subsidy from London. As with an addict being weaned off drugs, this withdrawal of subsidy could either kill or cure.