29 October 2009 Edition
Investing in the future: state agencies and job creation
The west Belfast MLA was opening an Assembly debate into the record of Invest NI. Invest NI is the most recent of a series of government-led agencies tasked with supporting economic development within the North of Ireland.
McCann called for the development of “new and innovative measures that will address existing patterns of socio-economic disadvantage and target resources and effort towards those in greatest objective need”.
Last month saw the publication of the latest in a long line of critical reports into Invest NI and its predecessors. The report was headed by Professor Richard Barnett and commissioned by Assembly DUP Minister Arlene Foster, whose department of Enterprise, Trade and Investment has direct responsibility for Invest NI. The Assembly’s Public Accounts Committee provides another mechanism to oversee the spending of public money and holding agencies to account.
Speaking after the publication of the Barnett report, Jennifer McCann said it was clear that “Invest NI has failed to provide value for money, the promise of jobs has been grossly inflated and companies have pocketed grants and given little in return”.
The west Belfast MLA added:
“Too many jobs have been low waged and insecure. This has done nothing to raise living standards or tackle poverty and inequality at the heart of the economy.”
The report also exposed an ethos at the heart of Invest NI’s practice to date which has prioritised granting public money to some of the world’s richest multinationals while neglecting alternative strategies such as funding social economy projects and supporting local businesses and manufacture.
Invest NI has pumped around £190 million into an elite group of ten multinationals while allocating a mere £4-5 million towards the social economy. Investment in the social economy in the south of Ireland by the Irish Government is around €40 million and in Scotland £30 million and has played a key role in their respective anti-poverty strategies.
Invest NI was established in 2002, merging a number of separate development agencies, including the Industrial Development Board (IDB) and Local Enterprise Development Unit (LEDU) with responsibility for supporting smaller businesses. The merger followed a series of costly failures and damning reports into the operation of both the IDB and LEDU.
Invest NI is the most high-profile quango within the Six Counties with just under 600 employees operating out of eight offices, including a brand new multi-million-pound Belfast headquarters co-ordinating a further 14 international offices both within Europe and across America.
The current Invest NI chief executive is Alasdair Hamilton, a former BT managing director for Ireland and recent special adviser to Ian Paisley during his time as First Minister. The salary of £160,000 also carries an additional potential bonus of a further 30%, over £50,000 a year.
Hamilton replaced Leslie Morrison, a former investment banker for the US banking giant JP Morgan, who was Invest NI chief executive since its establishment until his retirement last year. Morrison’s departure has been heralded as a new opportunity by Sinn Féin.
Invest NI is overseen by a 12-strong Government-appointed board whose membership is drawn from the business and public sector. Each board member is paid £12,000 a year with the board chair enjoying a fee of £41,000 annually.
These positions are part-time and may be only one of a number of posts held by board members. The current chair, Stephen Kingon, holds a number of boardroom posts, having recently retired as Pricewaterhouse Coopers’ managing director in the North.
In 2005, Invest NI opened-newly built headquarters in Belfast’s Bedford Street. The new building was funded by PFI, a system whereby private business puts the capital upfront for a public amenity and then makes a profit (usually a staggeringly large profit) in the repayments. Invest NI is scheduled to pay £4 million a year for the next 25 years, bringing the cost of its building to around £100 million.
Within the context of the Good Friday Agreement and the establishment of a locally-elected power-sharing Assembly, the establishment of Invest NI was seen as offering a new dispensation, a new opportunity to address economic issues outside the dynamics of conflict and sectarian discrimination.
It is only within this context of opportunity, as well as against the backdrop of mistakes made by its predecessors, that we can fully assess Invest NI’s performance to date. In other words, has Invest NI learnt the lessons of the past while at the same time fully engaged with the current opportunities of political transformation?
And there are plenty of lessons to be learned from the past. The IDB presided over a litany of high-profile catastrophic public investment failures, from De Lorean and Lear Fan to the more recent Valence Technology project. Last month, the Assembly’s Public Accounts Committee published a report into the IDB’s assistance to Valence Technology.
Valence, a Texas-based company, was involved in the development of a new lithium phosphorous battery. Their product was heralded by the company as a possible technological breakthrough promising to corner a sixth of the world market within five years.
On the back of the company’s promise to invest £147 million in the North of Ireland and create 660 jobs by 1998, the IDB awarded Valence a grant of over £27 million with an additional £5.6 million factory investment at Mallusk. Over a 14-year period, the IDB continued to pump millions into the company despite the fact that Valence never delivered in terms of job creation (briefly peaking in 2001 at 417 and falling to 97) or exports.
There were clear indications that the product was completely unviable. The manufacturing cost ($57) per battery was almost five times that of its market value ($12). A child would have been able to spot the contradiction and make the decision to cut their losses but the IDB continued to pump public money into Valence.
By 2001, Valence’s losses amounted to $250 million but it still maintained IDB support. Indeed, the IDB’s support only ended in 2003 when the company relocated to China, leaving the IDB to claw back a miserly £2.5 million from the abandoned factory site.
The report into the Valence debacle shows a project flawed from the outset with serious failings by the IDB both in terms of initial appraisal and subsequent monitoring of the company. According to the Public Accounts Committee, the IDB ignored its own guidelines and allowed Valence to impose an appraisal deadline of just six weeks.
During the appraisal “corners were cut with many aspects not being fully investigated” and “there were also failings on the assessment of the viability of the project”.
The report continues:
“At the time the product was assessed, Valence had not even developed a commercial product and so could not produce a proper business plan despite this being an absolute necessity for any meaningful appraisal of viability.”
The IDB only carried out a perfunctory assessment of the technological viability of the project. In fact, the IDB only carried out a desktop review of material supplied by Valence’s own public relations organisation!
There were also irregularities in the purchase of the company’s main factory. Inexplicably, the IDB used a local building company as an intermediary to purchase the factory. They broke with established procedures and paid an extra £175,000 over the odds for a factory the IDB had actually sold some years earlier at a bargain basement price.
Despite the high-risk nature of the Valence project, the IDB also failed to ensure that ownership of the site would revert to the IDB in the event of any premature failure. The committee dismissed the IDB’s explanation as implausible and concluded it was “far from convinced that it had got to the bottom of this matter”.
Due to the high-risk nature of the Valence project, the IDB set up a Project Monitoring Group, scheduled to meet every month to monitor the progress and performance of the company. It met for the first time in November 1993. There is no further record of the group ever meeting again.
Speaking after the publication of the Public Accounts Committee’s report, Sinn Féin MLA and PAC chair Paul Maskey said the committee had profound concerns about how the IDB had handled the Valence project.
“The widespread nature and extent of the shortcomings, which occurred over a 14-year period, mark this as one of the most disturbing cases that this committee has examined,” said Maskey.
“At several key points in the life of the project, the IDB failed to take the opportunity to renegotiate its offer or withdraw from the project and invoke clawback, even when the evidence pointed overwhelmingly towards the need to do so.
“All too often, the IDB gave in to the demands of the company and failed to take the hard decisions when required. It is not surprising therefore that the project represented a very poor return for taxpayers’ money.
“This report is an indictment of a management culture within IDB which acquiesced in ignoring the rules, ignored crucial lessons from earlier projects and circumvented its own control process. It is clear that, from beginning to end, there were serious lapses at a senior level in the IDB’s handling of the project,” Maskey concluded.
Within weeks of this damning critique of Invest NI’s predecessor, the IDB, Invest NI was itself in the firing line with the publication of the Barnett report.
The report examined the record of Invest NI and its outlay of around £1 billion within the last seven years in terms of outcomes, posing specific ‘value-for-money’ questions about economic growth, job creation, productivity and wage levels. On all counts the report found Invest NI had either failed or had secured only marginal success.
Invest NI admitted that amongst its assisted client companies there has been “only a marginal change” in overall employment levels over the last five years, an overall increase of just 0.4%.
The Barnett report concluded that economic development policy had little or no impact on improving wages and living standards and criticised Invest NI’s focus on attracting service sector employment which tends to be highly mobile and generally low-paid.
According to the renowned poverty watchdog Joseph Rowntree Foundation, £7 an hour is the minimum wage necessary for a socially-acceptable standard of living. In the North of Ireland, half the population falls below that standard.
The report also revealed that some of the world’s richest multinational companies are amongst the 10 top companies to receive the greatest share of grants from Invest NI. This elite group in receipt of Selective Financial Assistance from Invest NI include the US giant Citybank, Canadian plane maker Bombardier and call centre Firstsource, a subsidiary of one of India’s largest banks.
Others include Seagate and FG Wilson, both of which have shed thousands of jobs in the last year. Only two of the ten have their headquarters in the North of Ireland: Craigavon pharmaceutical company Almac and County Antrim manufacturer Randox.
Invest NI’s enthusiasm for bankrolling the rich stands in sharp contrast to the lacklustre approach to addressing poverty and inequality by targeting areas suffering the greatest objective need. Recent figures, highlighted by Sinn Féin MLA Paul Maskey, have exposed the glaring disparity of expenditure on job creation between different Belfast constituencies.
According to official statistics, while more than £60 million has been spent on job creation in east Belfast and £43 million in south Belfast, the poorest and most disadvantaged areas of west and north Belfast have secured only £9.36 million and £7.6 million respectively.
The total planned investment for east Belfast is £711 million while the figure for west Belfast stands at just £41 million. This is despite the fact that a third of the city’s population live in the west and the area has some of the highest rates of unemployment, under employment and poverty in the Six Counties.
“For decades,” Jennifer McCann told the Assembly during a debate last week, “the focus of Invest NI and its predecessors has been on drawing investment into the greater Belfast area. That approach has failed people in the north-west, west of the Bann and even certain areas of Belfast, particularly north and west Belfast.
“The former Mackies’ site is 12·5 acres, and there are another 36 acres in the hands of Invest NI throughout west Belfast, yet almost half of that land lies vacant.
“Over a three-year period, west Belfast received the lowest number of offers of assistance in the Six Counties, only 5% of Invest NI’s investment budget.”
It’s a well-documented fact that sectarian discrimination and poverty and the refusal of the state to address these issues were key factors in igniting conflict in the North. It has been widely acknowledged that addressing inequality and poverty are key elements of conflict resolution.
Clearly, state agencies like Invest NI can play a crucial role not only in assisting economic development but social transformation in the North. Sinn Féin has heralded the appointment of a new executive chair of Invest NI as an opportunity for change. Greater mechanisms of democratic accountability will undoubtedly encourage a more socially and locally responsible ethos within agencies such as Invest NI.