Peace has brought prosperity, but should a lower corporation tax be introduced?

The sense of optimism is palpable. Since Northern Ireland's new power-sharing government ministers once again took their seats in May, business conditions have looked promising. Unemployment levels have dropped; the working population is one of Europe's youngest with 60 per cent under the age of 40; the capital's two universities, Queen's and Belfast, churn out high-calibre talent. And according to Ken Belshaw, managing director of Grafton Employment Solutions, Northern Ireland's (NI) largest recruitment company, the region is benefiting from immigration, mainly from eastern Europe.

But although confidence runs high, the new executive still has huge challenges ahead. Working-age economic inactivity is at 27.8 per cent—much higher than the UK average—and 91 per cent of those don't want to work.

Peter Robinson, NI finance minister, has emphasised the need to create better jobs. In his first draft budget, announced in October, he called for a restructuring of the country's public sector-oriented economy. "The executive is committed to delivering the economic vision of an innovative, entrepreneurial, wealth-generating, export-oriented economy. For too long the private sector has been constrained by the influence of Northern Ireland's public sector."

Sixty per cent of NI's income comes from the public sector, which employs a third of the workforce. The population of just 1.7 million is governed by 11 departments, 26 local authorities, 108 assembly members and 18 MPs—a structure that could be simplified.

Robinson's words will have pleased local businesses, which have had their patience tested in recent years. "Developments have been held up in the peace process," says Janice Tracey, chief executive of the Londonderry Chamber of Commerce. She concedes it is unfair to expect too much from the new assembly so soon, but cautions: "If we don't see some progress, frustration will return."

The big talking point for some time has been corporation tax. The UK rate of 30 per cent at the higher end cannot compete with the 12.5 per cent charged in the neighbouring Irish Republic.

"If a project has a profit dimension, we are simply not going to win it," says Jeremy Fitch, managing director, clients' group and business international, at Invest Northern Ireland.

Not surprisingly, businesses are migrating. "We know a local entrepreneur who used to employ 60 or 70 people in Derry," says Tracey. "He now employs about 300 after moving across the border to Donegal. The loss to the British Treasury is huge and he will not be the last."

Businesses are asking for a cut to match the Republic's 12.5 per cent. They see US computer-hardware giant Seagate's October decision to move its Limavady factory to south-east Asia as evidence that something has to give if the economy is to prosper. But some have questioned the legality of a rate change under EU law. As Director went to press, Sir David Varney, the former chairman of HM Revenue and Customs, appointed by Gordon Brown to revise Northern Ireland's tax system, was yet to make a decision.

Those against believe that giving in to NI's request would lead to other regions making similar demands. There is also the possibility of "brass plating", where businesses could set up to operate out of Northern Ireland on paper only, to benefit from the lower tax rate. But many have found the market enormously lucrative. "The employment conditions are different from most of Britain," says Michael Stuart, director of business development in Fujitsu. "People don't move jobs so often and are less inclined to move south of the border or to England. This allows you to develop them and try to ensure they stay with you."

Fujitsu has operated in Northern Ireland for over 30 years and employs about 400 people there. Its Belfast building is bomb-proofed and fenced off, with visitors only able to enter through the security hub. "This is a product of the bad old days," says Stuart. "We don't have to worry about those things any more." Earlier this year Fuijitsu announced hundreds more jobs in the north-west. "NI is really buzzing at the moment," he says.

Despite the corporation tax woes, it is hard to overstate the buoyancy—people who left during the Troubles have started to come back. "We have had an enormous increase in enquiries about returning," says Belshaw. This seems to support Fitch's claim that NI is ripe for investment. He readily admits that it is not the first destination businesses look to, but says firms that have invested usually reinvest. Five years ago, BT set up a call centre with 375 people. Today the company employs 2,000 in the region.

Fitch touts the region's accessibility. "We are the most cost-competitive option within the UK. If you don't want to go to the Far East and you want cultural compatibility, such as language and data protection, NI is perfect."

Improvements to the region's outdated infrastructure include new roads, and a massive dockland development in Belfast—Titanic Quarter—which will bring jobs, investment and socially integrated living (80 per cent of the capital's residents live in segregated neighbourhoods). Aer Lingus has moved its European hub from Shannon in the south to Belfast International. The three Ulster Airports, including City of Derry, serve 36 countries.

Belshaw thinks development can only increase. "There is a very bright future for us here," he says. "Just because an economy is 20 years behind, it doesn't mean it will take 20 years to catch up."