Local politicians in Northern Ireland have inherited an economy in relatively good shape although several key political and economic challenges need to be addressed to maintain competitiveness, according to an economic report published today.

Northern Ireland Economic Review & Prospects 2000 is optimistic about future growth but identifies the emergence of a twin-speed economy, the strength of sterling and political instability as potential threats to growth.

The close relationship between politics and economic growth cannot be overstated. A massive 90 per cent of companies reported a slump in confidence following the suspension of the Assembly this year while 40 per cent of firms linked investment intentions to the survival of the local political institutions.

It was not surprising that a number of large inward investment packages, including a massive £100 million sterling (€158 million) investment by Bombardier Aerospace, immediately followed the resumption of the Executive this month.

A boost in confidence and a recovery of the sentiment which encourages investment are the first tangible benefits from a resumption of the Executive, says Sir Reg Empey, Minister of Enterprise, Trade and Investment.

"I had appointments lined up with a number of other major companies but these were stalled when the Assembly was suspended. I'll be trying to re-establish contact now," he says.

Increased foreign direct investment and further expansion of indigenous firms will be crucial to deliver the 132,000 jobs required to offset job losses and population growth over 10 years.

Mr John Stringer, chief executive of the Northern Ireland Chamber of Commerce, agrees confidence is returning within the business community.

"There is no doubt everyone in business wants devolved government. Given stable political structures and peace, our economy could start to grow far faster than it is now. Tourism is one area where we could see immediate growth." he says.

In a sign of growing interest from tour operators seven cruise liners are scheduled to visit Belfast this year and 10 are booked in for next year.

"Even in the 70 days we had an executive the first time around, we experienced better interaction upwards and downwards between the community and local politicians. I think the big difference is that local people understand local situations better."

Managing an emerging twin-speed economy in Northern Ireland, which has strong growth in high-tech sectors balanced by a sharp contraction in more traditional sectors of the economy, will require policies tailored to local requirements.

It is estimated some 55,000 jobs are at risk in textiles, clothing, agri-business and other parts of the old economy. The current strength of sterling has compounded existing structural weakness in these sectors, forcing high-profile closures such as Maldon meat processors.

A rescue plan is being developed by the British Department of Trade and Industry to help the ailing textile industry in Northern Ireland, which lost 2,428 jobs net last year, says Sir Reg.

This is evidence of how local ministers can address local issues more effectively than British ministers, who don't have the required local knowledge or the same, he adds.

There will be no fundamental restructuring of the economy or wholescale shedding of old-economy jobs under a local executive despite a strong focus on hightech investment, says Sir Reg.

"We shouldn't put all our eggs in one basket; we can't replace all of the traditional industries. I am anxious to have a balanced economy."

The North has been reasonably successful in attracting high-tech investments in the software and telecoms sectors and there are signs that "critical mass" or "hub" concept is developing.

The concentration on technology fits neatly with the economic blueprint for Northern Ireland contained within the Strategy 2010 document. But there has been much criticism of Strategy 2010 from economists, trade unionists and politicians.

There is a growing acceptance that it does not contain a firm economic model.

Earlier this week, Mr Pat Doherty of Sinn Fein, chairman of the Enterprise, Trade and Investment committee, criticised Strategy 2010 for containing cliches and platitudes about competitiveness and knowledge-based innovation.

Certainly, a goal to recruit 20,000 IT graduates in a decade is unlikely to be achievable, given that 70 per cent of technology firms are already experiencing skills shortages.

But as the economic review of Northern Ireland published today notes, discussions surrounding Strategy 2010 have been ongoing for more than 14 months. There is now a pressing need for an agreed programme for government to implement a co-ordinated economic strategy based around education and promoting an enterprise culture.

"Thirty years of lost opportunities have shifted our entrepreneurial culture in Northern Ireland," says Sir Reg. "We need to change the esteem with which the community view the business community especially in relation to the public sector."

Public expenditure is about 56 per cent of regional GDP and 200,000 or almost a third of the entire working population are employed directly in the public sector in Northern Ireland.

The Northern Ireland Industrial Development Board was recently criticised by a parliamentary select committee for the cost of job creation for the period 1988-97. And economic observers have pointed to a prevailing grant culture which undermines an enterprise culture.

There is already a move away from a grant culture towards a partnership approach with the private sector, according to Mr Nigel Dodds of the DUP, Minister of Social Development.

"You can't fail to be impressed by the public-private partnership approach at the Laganside development," says Mr Dodds. "For every £1 put in by government, £3 of non-public money was levered, 5,000 jobs were created and hundreds of square hectares transformed from dereliction."

Mr Dodds highlights the growing role of the private sector in urban regeneration. "A decade ago private investors demanded a large government subvention to build the Castlecourt shopping centre and retailers dictated its design," he says. "But this month four consortiums are competing for a piece of the action in Belfast with no grant aid from government."

The developers will learn if they have won support from the Department of Social Development to acquire land titles by the end of the month. This should lead to a state-of-the-art £100 million sterling city centre development. Such physical transformation in Belfast is evidence of the relatively sound footing of the economy. But clearly major challenges remain.

Shortfalls in infrastructure funding, exchange rate fluctuation and a major shift in economic focus all require efficient management. Meanwhile, the local institutions need to deliver a sustained period of political stability and politicians need to agree to implement a co-ordinated economic strategy to sustain growth.