Posted on Wednesday 24 February 2010 byUlster Business
DETI minister Arlene Foster has put together an action plan in response to the recent Independent Review of Economic Policy, or IREP. John Simpson casts a critical eye over the plan and asks whether it will help the local economy.
Regional economic policy is to be reshaped and more effectively targeted on clearer objectives. The Minister, Arlene Foster, has set out her agenda drawing on the proposals made in the IREP chaired by Professor Barnett.
The proposals are wide ranging and include restructured policy making arrangements in the Minister’s department (the Department of Enterprise, Trade and Investment), improved operating mechanisms for Invest NI, plans for the Executive to set clearer priorities for the economy and facilitate their implementation as well as a shift in the way in which official finance is used to leverage better results.
In total, Arlene Foster has approved a radical shake-up in business development mechanisms. Many of the IREP proposals now officially adopted can only be implemented with the co-operation of other departments.
Businesses will find that investment proposals put to Invest NI for support will continue to be assessed for their additionality and will also be subject greater rigour about the merits of the investment in terms of generating an economy creating higher value added goods and services.
The Minister has divided her recommendations from IREP into four generic groups where the critical practical impact come as part of changes in assistance to business from Invest NI.
Assistance to business
The debate provoked by IREP had several themes but two gained more attention than the others. First, can businesses expect Invest NI to continue to offer Selective Financial Assistance (SFA) to additional investment whether by new foreign direct investment or from established businesses with an extra investment programme? Second, how will the type and scale of financial assistance be affected by new EU rules on State Aid and Regional Assistance?
These questions lie at the centre of much of the financial assistance available from Invest NI. Local business organisations took exception to the prospect that Invest NI would narrow the eligibility criteria. IREP was thought to suggest that existing businesses should be refused assistance for ‘repeat’ investment. This could have meant that welcome expansion plans would be rejected even where, in comparable terms, they were equivalent (or stronger) than the merits of FDI.
The Minister has dismissed that idea. SFA will continue to be widely available. However, to enhance effectiveness and maximise its impact, as well as meeting changing EU requirements, the criteria will become more selective. Critically, awards will be more directed to proposals that involve explicit R&D applications or significant innovations.
In support of this shift towards R&D and innovation-related investment, the Minister points out that these objectives already account for 38% of Invest NI’s programme spend.
Selective Financial Assistance and State Aids
SFA will be available for all eligible business investments subject only to an assessment of the contribution to the economy, including creating higher value added (per employee) and contributing to productivity gain.
The debate about SFA extends logically into the emerging impact of tighter EU State Aid rules. The IREP report outlined the prospect that after 2013 Northern Ireland, along with other similar parts of the EU, would no longer be permitted to offer current forms of SFA under the tighter rules on state aid. Also, the permitted scale of aid begins to reduce from the end of 2010.
The Minister has hedged her strategy on state aids. Her statement points to the preparation of an argument to be made in Brussels (presumably after approval in Whitehall) for Northern Ireland to be given a derogation from the incoming EU rules. Post 2013, the Minister hopes to have options to continue SFA-type programmes.
The focus of the proposal is that any derogation would be defined to allow support for improved business competitiveness, particularly for innovation and R&D.
This strategy on State Aid is cleverly constrained to emphasise that there would be selectivity in application. More generalised SFA would attract less sympathy from the EU Commission.
The more detailed arrangements for the continuing but refined application of SFA have been referred to one of the official implementation groups involving DETI and Invest NI. Its report is timetabled to be available in June 2010. The initial guidance suggests that the review group can be expected to set higher ‘job quality thresholds’ for assistance and some selectivity for strategically important projects and those in areas of particular need.
Venture capital initiatives
There are very few ideas from IREP that the Minister has rejected. One rejection is the suggestion that the role of Invest NI in support, or provision, of venture capital should be narrowed to smaller seed corn type projects. The Minister wants Invest NI to continue to intervene to develop the local venture capital market.
Encouraging higher productivity
When the IREP proposals were first published there was very significant misunderstanding and even misreporting of some of the critical parts of its analysis which were (inappropriately) labelled as showing that Invest NI had wasted some of its resources. That was an unhelpful misreading.
The Minister has now consigned that argument to the past. She says: ‘There is no evidence in the report that resources have been wasted.’
The substantive question raised by IREP was whether Invest NI funding had always been allocated to projects that might otherwise not have occurred in NI. The methodology used by IREP was not reliable and although it did raise doubts about the effective additionality of Invest NI’s decision making, it could not be proven that, even with hindsight, better decision making was possible.
When the Minister says that there is no evidence that resources have been wasted, her statement goes (too far) from the overstated criticism into an unqualified compliment.
A more important issue where IREP questioned the outcome of Invest NI’s actions was in asking whether an assessment could be made of the extent, if any, of productivity gains by businesses assisted by Invest NI.
In the Invest NI evidence, there are no acknowledged relative or absolute comparators on the achievements of Invest NI clients. Over recent years, Invest NI has been reticent in assessing overall client performance in terms of productivity or value added per employee. The Minister would accept an aspiration that there should be improved performance assessment and has put her department into a pivotal role by agreeing that in future it should be responsible for performance monitoring.
Clearer targets and accountability
The Minister has set the framework for decision making by Invest NI. Invest NI is expected to publish more detail of its new operational methods. There is now the prospect of a more focused action plan from Invest NI and, where it matters, assistance to businesses which can best benefit the local economy.