Examination of Witnesses (Questions 80
- 99)
WEDNESDAY 26 JANUARY 2000
DR PAUL
GORECKI AND
MR AIDAN
GOUGH
Mr Beggs
80. I think, Dr Gorecki, earlier this afternoon,
you did say that there was not an even spread of investment over
all the local authorities in Northern Ireland. What work has the
Council done to assess the economic effects of inward investment
in Northern Ireland by local authority area?
(Dr Gorecki) I do not think we have done any work
which looks at where inward investment is located, except insofar
as the report that was referred to earlier, Report 99, which was
released in November 1992, gave some detailed estimates of where
inward investment was located with respect to various local council
regions. I think that the issue is part of a broader issue about
where economic activity is located, not just specifically with
respect to inward investment, because economic activity in general
in Northern Ireland, as in, I think, almost anywhere else, is
distributed in and concentrated in certain geographical areas,
particularly the Belfast `travel to work' area, which I think
accounts for around half the labour force and half the economic
activity of Northern Ireland. And there are good reasons why you
would expect economic activity to be concentrated in terms of
the economic spin-offs and the interconnections that occur between
businesses, between businesses and higher education institutions,
further education institutions; so there are good reasons, general
reasons, why you would expect economic activity to be spread not
randomly across in geographical space. I think the issue, therefore,
to the extent that there are areas, TSN or other areas, where
jobs tend not to go, is to try to have policies which ensure that
the people in those areas can have access to jobs, either by locating
jobs in those areas, or by ensuring there are good public transport
systems and other means of ensuring that they can gain access
to those sorts of jobs. And, with peace and political stability,
things such as the `chill factor' should become less important,
in terms of discouraging people from travelling.
81. Does giving priority towards TSN areas necessarily
accord with the requirements of inward investors?
(Dr Gorecki) There is not necessarily a conflict here.
I think what you have to try to do is ensure that people in TSN
areas are educated and trained to the standard where they can
provide the sorts of skills that are needed for inward investors.
And we know, from lots of work done in Northern Ireland but also
work done in England as well, that there is a strong relationship
between educational outcomes at 16 and 18 and socioeconomic disadvantage,
and TSN areas, by definition, are areas of social and economic
disadvantage and tend, as a result, to score lower, in terms of
people gaining five GCSEs, Grade A to C, and various other qualifications.
And so I think what has to happen, therefore, is to ensure that
measures are put in place so that educational attainment can be
raised, and there are numerous measures which have been put in
place by the Department of Education in, I think, the last five
or six years. In fact some of these measures are in response to
an earlier inquiry into educational underachievement undertaken
by this Committee. It is these sorts of supply side measures which
one has to try to introduce in order to ensure that inward investment
skills are provided by those communities, and giving people in
those communities a reasonable chance; and certainly Government
has tried, with policies like TSN and the whole equality agenda,
to bring that about.
Chairman: Mr McWalter, I think you wanted to
come in.
Mr McWalter
82. Yes, Chair, not least because our colleague
Mr McGrady cannot be here and there are a couple of things he
wanted me to ask and I thought that probably they would fit in
at this point. He was particularly concerned about the latter
part of Mr Beggs's question about `targeting social needs', and
specifically he was concerned about the dearth of investment in
places like South Down, which he represents, but, independently
of that, also, when we trawled for feedback from various people,
Strabane Council wrote to us and they said: "We very much
welcome the fact that you are having an inquiry into inward investment,
because we would really like to have some, because we have absolutely
none." And that sort of reflects the fact that, whatever
you said right at the end of your remarks, and it was rather quick,
about what is being done positively here, would you not agree
that this really should have been taken much more seriously? And
would you not also agree that the reasoning you just gave is a
little bit unconvincing, because much of this investment is, in
fact, into manufacturing industry and that is not particularly,
in many cases, highly correlated with having very high educational
qualifications, sometimes you are more after bodies than minds,
depending on what the particular enterprise is? So, on Mr McGrady's
behalf, I would like to put to you the view that this is something
which, despite the fact you are saying employment is, as it were,
the number one thing you are after, in all this programme, that
the Government is after, that actually it is failing very badly,
and your analysis does not bring that out sufficiently clearly,
because your analysis is not regionalised, or localised, or sufficiently
fine-grained, in terms of the distribution of how this resource
might be better distributed?
(Dr Gorecki) There are a number of points there. Firstly,
I think that it is true that some of the manufacturing industries
do not require, typically, have not required, people with high
educational qualifications, and, often, in areas such as the textile
industry, it is manual dexterity which is required, and some of
those industries are indeed located in rural areas, outside of
Derry, or outside of Belfast. Certainly there has been a tendency
to locate many of those plants in such areas, certainly I would
agree with that. But I think that things are changing now, in
terms of the sorts of industries which are tending to come in,
that skill mix is beginning to change, so what may have been true
some years ago is becoming perhaps less true today.
83. But even if it was less true and there was
only 30 per cent, or whatever, of such investment, rather than
70 in previous days, it would still be true that there would be
some industries which would have some clear advantage from taking
the `targeting social needs' index more on board, and, if they
were given support by the Northern Ireland Office and other agencies
to do that, would it not, in the end, produce a similar satisfactory
outcome?
(Dr Gorecki) The maximum grant rate, which is one
indication of trying to encourage firms to go into TSN areas,
are substantially higher than in other areas; so there is a concrete
example of how Government has tried to address this particular
problem. And the second issue is that unemployment in Northern
Ireland is beginning to fall to much lower levels than historically,
and also in comparison with the UK as a whole. Now I know there
are difficulties about long-term unemployment but, nevertheless,
the picture is improving and employment is going up; and so that
should result in perhaps some congestion in markets like Belfast
and some spreading of that activity to other parts of Northern
Ireland. I think a call centre recently went to Enniskillen, in
part because the labour was not available in Belfast, which would
have been the first choice. As a result we are beginning to see
some movement in that direction, both because the economy is doing
reasonably well and because of the differential grant rates, and
because of the commitment to TSN by Government.
84. So the market is enough?
(Dr Gorecki) No, I am not saying the markets. I think
they have to have these supply side measures in terms of trying
to improve education, and perhaps, we now have a devolved government,
it can consider siting some government offices in some of these
areas, to try to provide employment opportunities. So, no, I do
not think the market is enough, I think it has to be supplemented
by supply side reforms, in terms of education or perhaps some
differential grant assistance.
Chairman: Dr Palmer and Mr Clarke and Mr McWalter
still have questions to ask. I do want to, if we possibly can,
keep as close to the original concept of finishing around six
o'clock, which I think is only fair, given the amount of time
which we have had to be out of the room. Dr Palmer.
Dr Palmer
85. Thank you. What studies, if any, have the
Council made of the success, or otherwise, of Northern Ireland
in attracting investment from other parts of the United Kingdom;
and do you expect the new Concordat on Inward Investment to reduce
the flow of such investment, and do you think it is controversial,
will other areas of the UK resent this?
(Dr Gorecki) The studies that we have already mentioned,
which look at inward investment, typically, we consider external
investment to be all investment from outside of Northern Ireland,
where the ownership resides, so, as part of that, we have looked
at investment from other parts of the UK. And for much of the
1980s there was disinvestment from British firms, they tended
to be withdrawing, quite significantly, and investment increased,
particularly from the United States, and, to a lesser extent,
from the Republic of Ireland. So, in terms of the broad movement
of investment, we have looked at that; and, to some degree, there
has been a reversal of that recently, with some of the call centres
which have come in, such as Abbey National, so there has been
some change in that respect. With respect to the concordat, first
of all, the concordat has only just been signed and so it will
take a little time to work out what the actual implications are.
From Northern Ireland's point of view, I think there are often
concerns that the local councils in other parts of the UK are
able to offer financial assistance and other forms of assistance,
which is not matched by Northern Ireland, and this is not a level
playing-field. But, equally, if you were sitting in a local council
in Great Britain, you might argue that inward investors to Northern
Ireland do not have to pay rates for manufacturing, and the grant-aided
portion of an investment is allowable against tax, whereas it
is not in the rest of the UK. So I think that one of the important
factors about the concordat is that these various benefits, which
perhaps are not as transparent as they should be, will become
much more transparent in terms of looking at where investments
go within the UK, and perhaps could lead to less public expenditure
going towards attracting inward investment and going to other
areas. You asked about resentment, but I am not sure.
86. If there was a huge outflow from other areas
of Britain, people redirecting investment, then you might have
encountered difficulty with it; it is obviously not the case at
the moment?
(Dr Gorecki) No; but there have been one or two examples
where I think, when a glass plant was put up with industrial assistance
in the border area, there was some concern by firms in Northern
England; and when the Hualon investment was coming into Northern
Ireland the textile manufacturers in England were very concerned
about that, they felt that it would lead to excess capacity within
the industry and have adverse effects. And when Gallaghers moved
from Manchester and relocated some of their production to Ballymena,
there was also some concern about that. So there is concern; but
I suspect that it will not be just Northern Ireland, there will
be concern about plants relocating within the whole of the UK.
87. Your memorandum also draws attention,[15]
to the shift in character of externally-owned companies away from
mature, low technology sectors, food and textiles, and so on,
towards tradeable services, in particular; and it also indicates
that in 1998 Northern Ireland achieved a sort of Silicon Valley
status, 39 per cent of total foreign direct investment in software
in the UK as well as in the Republic of Ireland. This is obviously
great news, in many ways, but do you have any worries that it
will actually unbalance the attempt to diversify the Northern
Irish economy?
(Dr Gorecki) Oh, yes. First of all, it
is only one year, so one should not read too much in that. No,
I do not think it will unbalance the economy, because, as you
have rightly pointed out, the current industrial structure is
dominated very much by textiles and clothing and food; and there
have been announcements recently indicating substantial redundancies
and decline in the size of the textile and clothing industry.
And, although it is accepted there may be possibilities for rejuvenation,
and some of the sub-sectors do quite well, nevertheless, that
decline is likely to continue; and, therefore, it is important
that there are new industries which come in, which try to employ
the people who are displaced from that, and that appropriate programmes
are put in place to ensure that they can meet the demand of those
new employers.
Mr Clarke
88. In your submission, you rightly identify
that there is a problem in as much as Northern Ireland's indigenous
industries had not taken full advantage of supply chain linkages,
and you suggest they are not maximising their opportunities. Could
you go a little bit further in saying to the Committee how you
would see the Council assisting, in helping them to maximise those
opportunities that are open to them?
(Dr Gorecki) First of all, perhaps I could make a
point or two about the survey that we undertook, when we came
to the conclusion that the linkages could be raised from 11 per
cent of inputs to about 15, over the next five to ten years. We
found when we did a survey of large inward investors into Northern
Ireland that a significant percentage had actually purchased inputs
from Northern Ireland, but, because of unsatisfactory service,
or price, or various other factors, they had switched to locate
to another supplier; and also there did seem to be a general willingness
to purchase locally—half of the firms had a policy to try
to encourage local purchasing. So I think that there is fertile
ground there for trying to raise the proportion of inputs purchased
locally from, say, 11 to 15; in the South, it is 19 per cent,
on a comparable basis. The Council have called in the programme,
Regional Linkages Initiative, to try to capitalise on that potential,
by bringing together a number of programmes, within the Industrial
Development Board and other agencies, to try to give a sharper
focus and give that more priority in terms of policy; and we also
recommended there should be a triennial survey, so that you know
how you are doing in terms to provide some way of validating movement
towards the targets.
89. I am glad you have mentioned the Regional
Linkages Initiative, because you rightly say that you wish to
increase by 15 per cent by 2010; and could you give the Committee
any examples of take-up already, or interest, in terms of this
Regional Linkages Initiative, is it still on paper, or does it
exist in terms of companies taking up the offer, and, if so, in
what sector?
(Dr Gorecki) This is a suggestion that the Council
made, and Aidan has made one or two presentations to the IDB,
and the IDB are coming to see the Council some time in the next
two to three months. We have already been called before the Assembly
Committee which looks into these issues, that for the Department
of Enterprise, Trade and Investment. We are going to push very
hard for this particular Initiative to be taken forward. And,
certainly, I think, there is a certain receptiveness within the
Industrial Development Board to progressing along these lines.
So I think that it is not only feasible in economic terms, but
I think there is a sympathetic voice within the various agencies
that are responsible for this.
90. It is in its infancy, you would say?
(Dr Gorecki) Yes.
(Mr Gough) At the moment, the IDB have a number of
disparate initiatives, aimed at increasing regional initiatives
and upgrading the capability of local suppliers. What the Council
recommended is that these should be brought together into one
Regional Linkage Initiative, which would give more coherence and
more priority to the objective of upgrading regional supplier
capabilities. We have made a number of presentations to the IDB
and to DED, to encourage them to take up this recommendation.
91. One final question. In your submission[16]
you identify the increase in the last decade of internationally
mobile projects investment from 25 to 48 per cent; you also identify
that cost per job has fallen. Is there a risk, therefore, that
a lot of that investment is by the cheque book rather than underlying
factors? Would that be a fair assumption?
(Dr Gorecki) It is a very good question,
because one of the things that one always worries about is, when
grants are given, that the firms would have come in any event
and it is just a wait. And a number of surveys have been done
of investors in Northern Ireland, both domestically-owned and
foreign-owned, and they do tend to show that a substantial proportion
would have come in any event, although some would have come perhaps
a bit sooner than otherwise they would. And it is a little puzzling
that a lot of those grant rates are quite high, as you say, 48
per cent, and in the case of call centres, where there have been
quite a number of these investments, the Industrial Development
Board, in its 1998/99 Annual Report, does comment that survey
work done for it shows that Northern Ireland is one of the best
call centre locations in Europe along a number of indicators;
so you would think that, if that is, indeed, the case, it is not
clear that a 48 per cent grant rate necessarily is entirely consistent
with that. Now it may well be that other parts of the UK are offering
similar grant rates, in which case 48 is quite explicable, in
that context, but, maybe, to go to Scotland, or to go to Yorkshire,
or Leeds, or wherever, you do not get that sort of rate. And if
Northern Ireland is that much of an attractive destination without
grants, it is not clear why that occurs.
92. You see, what I am trying to get at is that
in other areas there has been this migration, long term, in terms
of there is investment, not a grant, but aid is there, grant support
is there, but then it suddenly disappears; and I just wonder if
you feel there are possible indications about investors' longer-term
commitment to Northern Ireland?
(Dr Gorecki) I think that means that, if you develop
the supplier networks, and those sorts of thing, that will increase
the long-term commitment. Secondly, you have to remember that,
if you are investing in a situation where there is political violence
then you would expect that firms under those conditions are going
to be characterised by easy entry, easy exit. The inward investors
are not going to put down lots of roots, in terms of training
a labour force, in terms of other sorts of investment, which,
if they decide, for whatever reason, they have to leave very quickly,
they are not going to be able to recover their investment which
is sunk. So, with peace and political stability there is a much
greater chance that the sorts of investments that will come to
Northern Ireland will be ones that imbed in the local economy,
that link to the local universities. In another publication which
is mentioned in the Council's memorandum, which we released a
week or so ago, on university R&D, publicly-funded R&D,
we called for a substantial increase in the amount of money given
to university R&D, because it is comparatively underfunded,
compared with the Republic and the UK as a whole, to try to build
on the departments which do very well, in order to encourage just
that sort of investment.
Mr McWalter
93. The concordat again then; so you get rid
of these `beggar my neighbour' clauses, in order to try to produce
sort of opportunities for all, you suggest that, potentially,
that will standardise the package, and it sounds that is a reasonable
assumption; but what effect will that have in Northern Ireland?
(Dr Gorecki) It will be a subsidy equivalent, calculated
so that it will standardise the amount given, but, clearly, the
form in which it is given can vary, in terms of factories, in
terms of a grant, or training; presumably, there will be some
sort of parameters within which that competition can take place,
and some way in which you can aggregate it up, so you can say,
"They are giving so much, and they are giving so much;"
so I think that is an important aspect of that. And the effect
in Northern Ireland, I do not know, because Northern Ireland,
in some sense, is quite up front about the sort of financial assistance
it gives; if you look at the back of the IDB's Annual Report,
it lists all the assistance that is given, by project, and you
can calculate, reasonably accurately, what sort of rates might
be paid, and some of the other assistance. My impression is that
in other parts of the UK there is not as much transparency, and
so it is difficult to come to a conclusion about how this will
affect Northern Ireland, except that peace and political stability
should make Northern Ireland more attractive; and if some of the
things happen that we have been talking about, in terms of upgrading
regional capabilities, in terms of education, university R&D,
and these sorts of things, that should make it a more attractive
place in which to invest. So, hopefully, one of the side effects
of the concordat will be that people will try to develop these
sorts of capabilities, their own particular regional specialisms,
rather than financial assistance, as the way of encouraging firms
to come in.
94. So you do not anticipate that it will inhibit
investment by firms from Great Britain?
(Dr Gorecki) I think we will have to wait and see.
95. Finger in the air stuff, as it were?
(Dr Gorecki) One of the things the concordat covers
is large mobile investments. If you take large mobile investment
as say £100 million, and you look at IDB's 1998-99 Annual
Report, there is one investment that comes into that category,
Seagate Technology. Now whether that would have gone to other
parts of the UK or not I do not know, because I think it already
had plants in Ireland, so that the concordat may have not been
an issue in that particular case.
96. What role do you think the IDB will have,
in the next few years, in terms of their investment role, do you
think played-out forces should be pensioned off, or do you think
they are getting increasingly sophisticated and better at doing
their job?
(Dr Gorecki) I think that the IDB's main role will
be to continue to market Northern Ireland as a location of investment,
and to move away, to the maximum extent possible, from grants,
straight capital grants, towards developing greater regional capabilities,
encouraging supply linkages and concentrating on some of the sectors
which the IDB have identified, and trying to get particular firms,
where there are niches, so Northern Ireland can have coherent
clusters and a virtuous circle of economic growth.
97. But we know that, when they do that, half
the investment goes to Belfast, or to the Belfast `travel to work'
area, and we have already talked a little bit about the difficulties,
or the small amount of the cake, as it were, if it is a cake,
that the other areas in Northern Ireland get. Do you not think
that the IDB might be a bit more proactive about developing a
greater investment in those regions and having a strategy that
both sells Northern Ireland to the world and also recognises the
different strengths of different parts of Northern Ireland when
they actually handle investment inquiries?
(Dr Gorecki) The impression is, and I stand to be
corrected, that the IDB do try to do that, they do work out the
strengths and weaknesses of the various parts of Northern Ireland,
that they have meetings with the various local authorities within
Northern Ireland, to try to work out the particular attributes
that can be used in order to attract investment. In addition to
which, a number of the local authorities have their own attempts
to encourage investment, such as the Derry Boston Ventures, in
Derry, in which Mr Hume has been very active. I think that perhaps,
up until recently, it was getting jobs into Northern Ireland,
because the levels of unemployment, particularly long-term unemployment,
was so high; now those things are beginning to decline, the level
of unemployment, and so perhaps these other issues can come more
to the fore. Certainly, with its new TSN policy, and, I think
it was March 31 2000, every Government Department in Northern
Ireland has to have a `Targeting Social Needs' policy, and I am
sure the IDB has one, which tries to meet precisely the sorts
of concerns that you have been raising.
98. So, as far as the IDB are concerned, everything
is in order as it is?
(Dr Gorecki) Well, no. I cannot speak for the IDB,
but I am sure that they would like to lower the very high levels
of unemployment in places like Strabane, which I think, traditionally,
has had the highest level of unemployment in Northern Ireland,
I am sure that if there is anything that they can do, to do that,
they will do so. But, as I said before, I think it is also important
to have the right supply side policies, in terms of education
and in terms of university outreach, and all these other things,
in order to upgrade the skills of those areas. I think that is
important as well. And we have a draft regional planning strategy
currently going through in Northern Ireland, and there is some
attempt to deal with the transport infrastructure needs of some
of those TSN areas, to ensure that there will be increased investment.
And, finally, if we have peace and political stability of a durable
nature, many of those border areas which have been blighted in
the last 25 years, because they have been cut off from their natural
hinterland, then that will begin to change as well, so they can
draw, for example, on County Donegal, if you are in Derry.
(Mr Gough) Just to add to that, this is a general
problem. In the Republic of Ireland, despite its success, if I
remember correctly, in the IDA's recent Annual Report, despite
its largely very successful year in attracting inward investment
and jobs, we find, in some of the deprived areas or less developed
regions down South, there were net job losses; so it is a general
problem, and it is leading to supply side policy responses.
Mr McWalter: Chair, apart from thanking our
witnesses, I wonder whether I might just end with a remark, which
is that, obviously I have been asking some quite hard questions,
I do think that the bit of the report that deals with the fact
that inward investment is a two-edged sword should be compulsory
reading for many people. I thought you dealt with that point particularly
well. So, thank you for that.
Chairman
99. We are extremely grateful, particularly
for your patience when we had to leave the room. And I should
have remarked, right at the beginning, how appreciative we were
of the amount of trouble that had gone into the memorandum which
you submitted to us, because it was extremely helpful, as has
been demonstrated by the number of questions which have been derived
from it today. In other, more relaxed circumstances, I would actually
have some follow-up questions myself on the effect of inward investment
on the surrounding economy, but what I will do, in the particular
circumstances in which we find ourselves, is read your evidence
carefully and then follow up specifically with any questions;
and I might also include some questions in it about higher education,
as well, because it seems to me to be one of Northern Ireland's
assets which is worth exploring further. Finally, one of my ancestors,
in the 18th century, born in the island of Ireland, who went out
and served in the East India Company, and was, effectively, an
18th century yuppie, came back with a large amount of money, in
his late twenties, which he invested in a textile village in County
Kildare, which he foolishly gave the name of Prosperous. He intended
to set up a rival to Manchester; he was spectacularly unsuccessful.
However, he retained a place on the European stage, in that the
East India Company, who were not prepared to have him back, because
he had gone up in age and they did not think he should go back
to the tropics again, invited him to become the Governor of St
Helena, shortly before Napoleon arrived. And, therefore, I have
some family understanding of the entrepreneurial risks that people
can sustain when investing in the island. Thank you most warmly,
and if there is anything you want to gloss after the event please
do not hesitate to do so; and, as I say, I will follow up with
supplementaries derived, having re-read your evidence, about the
impact of inward investment on the surrounding economy.
(Dr Gorecki) Thank you very much. I am glad you found
the brief so useful.
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