WEDNESDAY 14 JUNE 2000

SIR REG EMPEY MLA, MR LESLIE ROSS AND MR BILL PAULEY

  403. Minister, you are very welcome. It is extremely good of you to do this. You know the circumstances in which we embarked upon this inquiry. We moved, in a sense, into devolution and out of devolution and back into devolution again. Although we have the advantage of knowing whom you have brought with you, we would be happy for you to introduce them to us. Our normal pattern, which you may have noticed from previous occasions, is first for me to say that if you, or indeed either of your colleagues, want to gloss any answer after the event, you are entirely welcome to do so, either during this session or in writing afterwards, if on reading the transcript it looks as though something should have been said which was not said, or is an occasion where something needs correction. We will also reserve the right, if we may, to come back with supplementary questions in writing once the session is over, if on reading the transcript we spot something we should have asked, which we failed to ask. We will endeavour to make the questions follow a logical pattern but the questions may come, in the nature of things, from different corners of the horseshoe. We will not be going straight round the horseshoe. So if you would like to introduce your colleagues and if, in particular, there is anything you would like to say to us in advance before we start taking evidence.

  (Sir Reg Empey) I would appreciate that opportunity, Chairman. First of all, may I introduce Mr Leslie Ross, currently Acting Chief Executive of IDB, formerly Deputy Chief Executive. Due to the moving, because of the promotion, to the Head of the Civil Service of Mr Gerry Loughtan, Bruce Robinson of IDB is acting up for him as Permanent Secretary of my Department. Therefore, Leslie Ross is acting as Chief Executive of IDB. We are also accompanied by Mr Bill Pauley from the Department's Strategic Planning Division. If I could take the opportunity of saying that I am very pleased to have the opportunity to come and assist the Committee with the work that it is undertaking, namely, investigating inward investment policies. I believe that even though we have been in and out of devolution, the fact remains that we are still responsible for spending taxpayers' money, which is voted by this House; so irrespective of whether we are in or out of devolution, that is not quite the point. The point is, as I understand it, the purpose of the investigation is to establish if we are doing the right thing; if we are doing things wrong; if there are improvements that can be made and lessons that can be learned. Therefore, any contribution to assisting the Committee to come to a conclusion on that, we are very happy to make either today or subsequently in written form. We welcome the opportunity to provide a backdrop to IDB's achievements within inward investment, not only over the past year but also in previous years, and also to try and set that in the context of what the impact of that is on the Northern Ireland economy. We believe that the last year ending March 2000 has been a good year for IDB, with new inward investment and expansions by investors who previously arrived here. To be specific, we achieved new inward investment jobs of 2,548. That was the second consecutive year above two and a half thousand. The previous levels had been around 1,500. 80 per cent of these jobs were in high tech manufacturing, software and network services. This, of course, is entirely in line with the Strategy 2010, which highlights the knowledge-based economy. 76 per cent of the 2,548 jobs were either in or adjacent to TSN areas. That is the fourth consecutive year where this figure has been above the 75 per cent target. The cost per job promoted from new inward investment has come down by 40 per cent from the 1995/96 levels: ie, from £17,000 per job to just under £10,000 per job. Now the second component of inward investment basically is expansions and jobs offered by investors who are repeat investors, as it were, as distinct from first-time investors. Here again the year ended March 2000 was successful. Over 4,000 jobs have been promised: ie, more than twice the previous year. I will come back to the use of the word "promised". The cost per job is down by over 60 per cent from the 1995/96 level. That is from over £23,000 per job to again under £10,000 per job. This inward investment, both new and expansions, has helped the economic development throughout the 1990s. Manufacturing employment has grown and only four other regions in European have achieved this: Northern Ireland, the Republic of Ireland, Finland and Portugal. Manufacturing output has exceeded United Kingdom average figures. The 1999 figure for Northern Ireland was 11 per cent growth whilst the United Kingdom figure was 2 per cent. Sales by manufacturing companies have increased during this period by 44 per cent. Exports have grown at 1 per cent per annum, meaning that during this period they are now up from 28 per cent to 37 per cent of sales. That equates approximately to 10,000 jobs. So I think, Chairman, that what we can point to is that there has been an improving performance. I have followed the proceedings at your last meeting and picked up some of the points that you were making at that particular stage, but the point is that we are seeing improvements. That is not to say that there are not more improvements that we can make. The final thing I want to reflect on is Strategy 2010 which, as you know, is something that was published 14 months ago. Due to the on-off situation with regard to devolution, there has been a necessity for the Government to start to implement parts of it and, indeed, this has happened. But it does set out a framework for the future, although it has to be said that the new administration has not yet finalised its economic development policy, and that will come when the Programme of Government is actually worked out and developed. So perhaps this subject might arise later during questions.

  404. Thank you very much indeed. Quite a lot of what you have just said came in the area of the ground clearing question I was going to ask you, which I also asked Mr Ingram last week. I did, as far as I could, take down data as you were uttering it. I would be very grateful if you could just go over again the figures in relation to repeated investment, the expansion figures, in relation both to 1999/2000 and also the comparison with the previous year.
  (Sir Reg Empey) First of all, Chairman, might I say that I will ensure that you are furnished with written copies of all of these figures for your records. But the raw statistics in respect of the last year, which ended in March 2000, was that there were 4,000 jobs: that is, expansions by investors who had already been in Northern Ireland. That there were 4,000 jobs promised, more than twice the previous year. The cost of those jobs from 1995/96 was down by 60 per cent from £23,000 per job to under £10,000 per job.

  405. As matter of curiosity—and I realise that the £10,000 per job in the year 1999/2000 is identical between new projects and expansions—but why previously were expansion jobs significantly more expensive than new project jobs?
  (Sir Reg Empey) I think that perhaps Mr Ross, if it is possible to intervene on these occasions?

  406. He is encouraged to.
  (Sir Reg Empey) He would wish to elaborate a little on that for the Committee.
  (Mr Ross) It depends very much on the project itself. All of the investments that are put forward to us in the IDB are invariably mobile projects. These are projects are attractive to other regions, not only in the United Kingdom but the Republic of Ireland, and indeed on the Continent of Europe. So when we look to see what it is we need to contribute towards securing that investment, there is a case of negotiation and judgment as to the level at which we need to pitch the offer in order to secure the investment. Those that were secured, which were quite expensive, are those which would be in the knowledge-based sectors, such as telecommunications, electronics, and software.

  407. Yes, I understand that. You may not have caught the total flavour of my question. On the figures which the Minister gave us a moment ago, the cost of new jobs in 1995/96, in terms of people coming for the first time, £17,000 per job; whereas the cost of expansion jobs was £23,000. Now I can see that it would vary according to who was doing the expanding and who was coming in, but on a priori grounds you would assume that you would spend more on new jobs than you would on expansion ones, because in the expansion ones it would be less likely that they would go somewhere else.
  (Sir Reg Empey) Maybe I did not speak up enough. The time period of difference, I was comparing 1995/96 with 1999/2000.

  408. I see.
  (Sir Reg Empey) But the fundamental point you are making is still valid in so far as I see where you are coming from. My only assumption—and it is only an assumption at this stage—is that, in fact, there is an element of randomness about it, in so far as one responds to the applications that are put before us. In other words, the IDB responds to applications from the client companies as opposed to being arbitrary. Looking at the inward investment figures, I think a copy of the End of Year statement was furnished to the Committee. In the tables there you will see that there is quite a substantial variation between the different categories over the 1995/96 period and 1999/2000. That probably supports the randomness of the applications theory, but it is a very good question and I will certainly reflect on it again. If there is any reason other than that, I will certainly draw it to the Committee's attention.

  409. Thank you very much indeed. Before I turn to Mr Beggs, can you remind me about IDB targets in the year which we are now into.
  (Sir Reg Empey) The current year. You know what the position is in the year just ended. Clearly we are setting out to improve our performance. If you take the two categories—that is, the first-time investors—we had a total in the previous year of just over 7,100, if we take the two categories together. The targets for the current year are 2,800 and 2,500 respectively in the two categories. Sorry, 25 projects meaning 2,800 jobs coming in for the first time[1].

  410. And expansion?
  (Sir Reg Empey) Expansion. Well, again, I do not have expansion figures before me here, but I think it is fair to say that our objectives have been, in the past, clearly aimed at putting the figure up; but we have kept the targets of first-time investors, as I have indicated. I will furnish you with targets for expansion jobs, if you would allow me to do so, at a subsequent time.
  (Mr Ross) May I come in to say why it is more scientific to set targets for new inward investment as distinct from expansions. This is because we look at the investment coming into Europe and the British Isles from foreign markets and seek to capture a market share of that investment. That crystallises into the number of projects that we seek to achieve and by sector; and also crystallises, in terms of the number of jobs, that we hope to secure. This is more easily done for the new inward investment than indeed for the expansions.

  411. The Minister did say earlier on that he wanted to return to the issue of promised jobs, job promotions. Is it possible, through you, Chairman, to ask: does the Minister want to address that issue now?
  (Sir Reg Empey) I am very happy to because I am aware that there is a concern. The concern seems to be focused on the fact that if a project comes in and there is a certain number of jobs promised, people know that IDB is making a contribution towards those jobs.

  412. May I interrupt here. There is a very common widespread criticism that there is this promised inflation. That large numbers of jobs, which are promised, do occasionally pan out at rather lower figures.
  (Sir Reg Empey) It does happen. There is absolutely no doubt about that. But the other thing that goes along with that is an assumption, somehow or other, that public funds have followed the promised jobs and not the actual jobs. I want to make it clear that the agreements the IDB enter into with companies are based on targets, which are assessed in negotiation with those companies. There are certain trigger points along that critical path where grant aid becomes payable in part. It is linked very frequently to the numbers of actual jobs created, and when the company reaches a certain point that triggers a payment from IDB. Therefore, if a company fails to perform, it does not manage to trigger a further payment. In other words, if the company does not reach the targets, it does not get money. What I am trying to get over is that the perception in some quarters is that we are conned, effectively. That a company comes along, promises a lot of jobs, gets a whole lot of money, and does not deliver. It does not work like that. The agreements can be linked to production. They can be linked to certain trigger points in the development of a project, whether an actual product is brought to market. Bringing a product to market can be a trigger point. Employment levels can be trigger points. So there is a lot of care taken to ensure that when the legally binding agreements are drawn up, that there are specific points along that path which justify money from IDB, but it is not paid if those targets are not achieved. Therefore, when a company presents a business plan and it is assessed, there are frequently differences between what works out: what is achieved and what is planned. But clearly IDB's and the taxpayers' commitment to that project is so linked in such a way that the amount of money is proportionate to what is achieved. That is the linkage, I want to make clear, which is established.

  Mr Pound: Thank you.

  413. Minister, we have received a considerable amount of evidence from local authorities about their potential role in attracting inward investment. What contribution do you think they are best suited to make and what encouragement and support do you give them in your endeavours?
  (Sir Reg Empey) Like you, Mr Beggs, I come from a local authority background. I have spent until June of last year as chairman of a local authority economic development committee. So I come from a point where I believe that local authorities have a significant role to play. Since 1992, when power was given to local authorities in Northern Ireland to become involved and have money raising powers in economic development, it has been one of the best decisions that Government took. This is because it brought to local government an additional power, which has had the effect of getting councillors to work together, even though they come from very disparate parties and disparate elements. It has been a very positive development. Certainly in my local authority, in Belfast, it was. I know that your local authority, Mr Beggs, was closely involved and worked hard in it as well. It has been a very positive development in bringing what you might describe as "real" or "normal" politics into the situation. The one area where I think there is perhaps a gap is that there is a certain randomness about it, in so far as in some local authorities there are people who are very interested and working hard at it, and in other local authorities—perhaps because of their size or whatever—there is maybe a less enthusiastic involvement. Now I do believe that through civic links, historical and genealogical links and so on, there are many connections which local authorities can make, particularly in the North American markets, (but not exclusively in the North American markets), where you do need a civic leadership role to break in and exploit a potential market in those areas. Many local authorities have twinning arrangements, have link-ups. I know in the case of Belfast we have very strong links with Boston, Nashville, with the Atlantic arc, running into Nova Scotia, Newfoundland, Massachusetts, Maine, that sort of area on the eastern seaboard of North America. Therefore, I believe there are certain links that local authorities can make, which are much more difficult to be made by a Government agency simply acting in a bureaucratic fashion. This, again, is one of the things that I hope for devolution: that we are going to be able to make more of this on a larger scale. But the local authorities, in my opinion, still have a role. As you probably know, Strategy 2010 made certain recommendations with regard to the structures of the investment: how investment should be pursued in the future. There were a number of recommendations. I have not done anything yet about those but quite clearly we cannot allow time to pass too long before we have to deal with those matters. In that review of what we do, I would like to see a specific role be asked of local authorities in regard to the economic development field. This is because I feel there are certain areas of investment they can deal with. For instance, IDB has certain targets. It has to follow, perhaps some of the larger companies, the Fortune 500 companies, to get large investment. It is very difficult for them to be following the smaller investments: the 5 jobs, the 6s, the 10s, the 15s. The other major role that local authorities have is that they can break into communities at civic level, at state level, with a political edge, which perhaps an organisation like the IDB cannot. I think that we need to define more closely that all local authorities are working towards a general guideline, which would be generally agreed between them and the new administration. That would be my personal view of the future role but the fact that they should have, and must have, a future role I am not utterly convinced.

  414. Could you let the Committee have a table setting out, by district council area, the number of visits by potential inward investors arranged by IDB in 1999/2000, broken down into visits by overseas companies and United Kingdom companies respectively.
  (Sir Reg Empey) I think I can maybe do slightly better than that for you, Mr Beggs, in so far as we can furnish you with one done by Parliamentary constituencies, if you would prefer that format. In other words, of the thousands of people who have visited East Antrim, I can tell you the percentage of the letters of offer which have been made; the number of visits by both LEDU and IDB for each Parliamentary constituency. If you would like it in that form, I can provide the Committee with it in that form immediately.

  415. I think it would be valuable by Parliamentary constituencies, but we would still quite like to have it on a local authority level.
  (Sir Reg Empey) I was not quite sure which way you would prefer it done. We do have some material. The reason why I am being a bit hesitant is that I have it in Parliamentary constituencies because I have been asked an Assembly question. I am not quite sure whether the question has been formally answered in the Assembly yet. If it has not, it will be answered some day this week. Once it is answered, certainly I will let you have the information immediately. I do not think there will be a difficulty in providing that information. A lot of it is already available.

  416. The reason why we have a selfish interest is, and I say this in case it is helpful, there was a written question to Mr McFall on 28 October 1999 in column 932, which actually gave us the figures from between 1994 and 1998 on a district council basis. So if we can have the extrapolation, that would be extremely helpful.
  (Sir Reg Empey) There will be no difficulty, Chairman.

  Chairman: Thank you.

  417. The figures available to the Committee show that some local authority areas, including some disadvantaged areas, are relatively infrequently visited by prospective inward investors. What steps do you plan to take to seek to change this and encourage prospective inward investors to visit these areas?
  (Sir Reg Empey) I can give you a table from 1995/96 up to 1999/2000 of the visits undertaken in district council areas; so I will provide that figure alongside the other ones that we promised. As to the main thrust of your question, we have to recognise, Chairman, that there is a limit to the role that any Government Department or agency can play. I do not think we should over-exaggerate our ability to influence commercial decisions. The market will drive itself. If a company that we have been targeting, or if somebody comes along and says, "I would like to come here and make contact," we do have a general policy of trying to achieve visits of 75 per cent to TSN areas. However, at the end of the day, Mr Beggs, a company will visit an area which it considers appropriate for its business. We cannot put somebody off—nor should we. What we do is that if a company is encouraged certainly to look at a TSN area—and, indeed, a financial package may very well be tailored to encourage that company to move to a TSN area, but there are decisions taken by companies for commercial reasons that they are going to a particular location, irrespective of the additional incentives we offer—that is entirely consistent with the commercial freedom of a company to do so. Looking from the Northern Ireland perspective, as a whole, it is much better to have that investment because everybody benefits in the long run. However, we do try and encourage a spread of investment. But it is fair to say that there are one or two areas which do not have a significant number of visits and others which do. If you look at the actual delivery of projects, the distribution is still somewhat in or adjacent to TSN areas. We are still reaching our targets. However, I think we have to understand that we cannot sit here and direct. Nor should we attempt to do so. We try to have a carrot, not a stick approach, to inward investors in this area.

  418. How much flexibility then do you have with regard to the level of incentive grant?
  (Sir Reg Empey) There is not, as I understand it, an absolute limit on it, but it is one of the areas where there is a lot of discretion on behalf of the Minister in dealing with each particular project. Bearing in mind that we do have a policy of trying to reduce consistently the degree of subsidy that we have to put in—and I quoted figures earlier on, which indicated there was a significantly downward trend—if you look at Strategy 2010, it is encouraging more of that and moves on to what described as softer forms of assistance. We do have a discretion, which lies at the end of the day with the Minister, on what we offer to companies. Basically we do encourage investment and financial assistance is only one part of it. Do not forget that a company will be looking at the labour supply; will be looking at the physical location, depending on its business; its access to transport routes, its nearness to its markets. All of these things will come in. But the answer to your question, Mr Beggs, is that it is a discretionary element on the part of the Minister concerned.

  419. Thank you. In your experience, how attractive are the border areas to prospective inward investors? Is there any evidence that these areas lose out to the Republic of Ireland locations in terms of attracting inward investment?
  (Sir Reg Empey) I need hardly tell you—nor indeed, Mr Thompson, as he does have a border constituency—the difficulties that have arisen. There is the physical location, which is one issue. There is the infrastructure in those areas. I am sure Mr Thompson is very active in having the roads improved in his constituency. But, again, in the western constituency, one of the local authorities, Strabane, has teamed up with Limavady Borough Council, the Council in Londonderry, and Donegal County Council, to form a consortium. They have joined together and are doing good work in putting money forward in attempting to improve their own infrastructure. The difficulties are also with the European Union, when in the special peace and reconciliation Peace 2 Programme, and indeed the Peace 1 Programme, cross-border elements were recognised by including the six border counties in the Irish Republic within the total package. It was recognised there were difficulties. Although the Celtic Tiger and the Republic have done well, they have had difficulties in getting their significant expansion to spread out to the north west of the island. Indeed, they have had difficulties in textiles and so on, with exactly some of the same companies that we have had, such as the Fruit of the Loom company and Hawkes Bay, which are two examples that come to mind immediately. There are difficulties of peripherality. There are difficulties of logistics. However, with some of the new industries, particularly those that are knowledge-based and based on telecoms and so on, it is possible, I suppose, to try and avoid some of that; but it would be misleading the Committee if I did not say there were difficulties related to geography; related to the fact that the primary industry in those areas has been farming. That industry has been suffering enormous catastrophic problems really in the last four years. So we do what we can. When I was Minister for a short time, in December, January, February I made it my business to get out into the border areas. I was up in Strabane. I was up in Londonderry. I was up in that part of the country. Indeed, I am hoping next week to go down to Fermanagh to concentrate on things there. I am very acutely aware that it needs a lot more work but there are difficulties. They are the same difficulties as apply in regions of Great Britain, Scotland and Wales. They are no different. Cornwall is in difficulties. So these are the things we have to work with. It is recognised that partnerships are being formed on either side of the border, and there is this European context which has specific programmes, which are related to cross-border activities. The LEDU programme is another example, with which you would be familiar.