VII. DOES THE PRESENT INWARD INVESTMENT
66. Government policy is predicated on the assumption
that Northern Ireland represents a commercially attractive potential
location for an inward investor. But is it? Dr Bradley considered
that the present policy thrust of the IDB is based essentially
on "a marketing strategy to win inward investment, where
the crucial assumption is made that the Northern Ireland economy
is already quite an attractive and competitive place within which
to produce for export. It is as if all that is required is continued
"peace" and the ability to catch the attention of potential
investors in the crowded market place."
He had doubts about the underlying competitiveness of the Northern
Ireland economy, which he considered faced a number of major challenges.
He also considered that the present incentive system tended to
attract labour and capital intensive industries which are relatively
and disproportionately vulnerable to economic shocks.
67. Northern Ireland Chamber of Commerce and Industry
on a 1996 survey of a representative sample of inward investors
in all parts of the United Kingdom, and also in the Republic of
Ireland. This showed that Northern Ireland came out very well
on the basis of a number of indicators: cost of operations against
anticipated cost; overall operating costs; and infrastructure.
Many investors also discovered advantages not recognised before
the investment was made. Also, Northern Ireland had the highest
level of future planned investment by existing inward investors.
Overall, the survey concluded that Northern Ireland was the best
performing and most attractive region in the UK and was only marginally
beaten by the Republic of Ireland.
68. John Simpson summarised Government policy as
"aimed at the encouragement of inward investment which might
not otherwise locate in Northern Ireland.". He also pointed
out that there was a potential tension between the two principal
means of doing so; making investors aware of what the Government
perceived as the underlying commercial benefits of a Northern
Ireland location and offering assistance, financial or otherwise,
to make the investment more attractive. He considered that too
high a level of overall financial assistance could damage the
credibility of claims relating to the strength of the economic
Furthermore, the intention was to attract projects with a viable
long-term future, from which wider benefits might be drawn, rather
than projects whose viability is dependent on the financial assistance.
Dr Bradley also emphasised the potential contribution to economic
development from long-term inward investors.
69. Sir Reg Empey, amongst other witnesses, cautioned
against over-estimating the extent to which Government could influence
companies both as to locations visited and sites ultimately chosen.
"... we have to recognise
... 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 .... at the end of the day .... a company will visit an
area which it considers appropriate for its business. We cannot
put somebody off nor should we."
Mr Ingram also pointed out that IDB could not be
prescriptive about where potential inward
70. As we have pointed out earlier, one of the key
objectives of the inward investment strategy is to focus the job
creation efforts to a substantial extent on more deprived areas.
Accordingly, IDB's targets include:
- 75 per cent of all first-time locational visits
from inward investors to be to TSN areas; and
- 75 per cent of all first-time inward investment
projects to be located in or adjacent to TSN areas.
Over the period April 1995 to March 1999, 37 new
inward investment projects located in TSN areas.
IDB told us that, taken over that period, 68.5 per cent of projects,
and 87 per cent of associated job promotions, were located in
TSN areas, a significantly
better performance than NIAO had reported over the period 1988-89
to 1996-97. In
1998-99, 62 per cent of new inward investment projects (but 84
per cent of the associated job promotions) were in TSN areas,
and 73 per cent of first time visits by potential investors were
to such areas.
IDB now specifically monitors the annual level of job creation
in TSN areas arising from projects it supports.
71. The present strategy is, however, patchy in that
not all TSN areas benefit from inward investment. Over the nine
years to March 1997, two such areas failed to attract any projects.
NIEC was not unduly surprised at this and drew attention to a
range of reasons why this might be expected to happen. It reiterated
its view that this demonstrated a need for improving access to
72. The concentration on physical location of new
inward investment in, or adjacent to, TSN areas did not command
universal support. Investment Belfast argued for letting the investment
go where commercial realities dictated, and ensuring that people
have the right skills for the jobs, the opportunity to apply and
the means of transport from where they live to where the jobs
Derry Investment Initiative expressed similar sentiments and agreed
that "businesses do not want to locate in deprived regions."
CORE commented that a decreasing level of inward investment in
non TSN-areas in the north east of the Province over the period
1994-98 had not been reflected in an enhanced amount of such investment
in TSN areas in the region.
It also pointed out that siting jobs in or near a TSN area did
not mean per se that people from these areas were the ones
employed: recent research had shown that, in two particular cases
studied, local people picked up only 50 per cent of the jobs.
The West Belfast Economic Forum have also concluded, on the basis
of experience in West Belfast, that many of the jobs created there
go to populations outside the local area.
CORE stated that there was some evidence that residents of TSN
areas tended disproportionately to get the less skilled jobs,
and that the total amount of the jobs they obtained was approximately
30 per cent of the total. ICTU stressed the importance of providing
adequate training to enable local people to take full advantage
of jobs created in, or adjacent to, TSN areas.
This could also have social benefits as Mr McKee put it:
"...it might be tempting
to see TSN solely in the context of social restructuring but,
whilst it is that, it is much more than that. In the long-term,
if there is sensible investment in TSN then the community as a
whole becomes a much more stable entity and in the long-run it
is more likely to continue to attract inward investment. If you
do not cope with TSN, you will end up with social unrest, the
community as a whole can become quite unstable and, in the long-run,
can become less attractive. So there is a return on it, it is
not just a philanthropic concept by any means."
73. Mr Donnelly, of CORE, pointed out that simply
being a TSN area (and consequently having access to higher rates
of grant) did not of itself necessarily mean that the area benefited
from a higher level of investment.
"... you tend to find
the TSN areas are areas with low educational achievement, poor
housing quality, low infrastructure, and therefore that is not
compatible with attracting inward investment. Investors are looking
where there is good quality education, they are looking for good
infrastructures that can move their goods, they are looking for
quality environments where their employees can live. These are
the types of factors which influence the decision."
He supported the targeting of adjacent areas, which
were more attractive to inward investors, but could still impact
on employment in TSN areas.
Sir Reg Empey agreed there was a real danger of the local labour
force not benefiting from inward investment in these circumstances.
Dr Bradley did not consider inward investment as an effective
means of addressing social exclusion or social need. He added
"Targeting social need with inward investment is a very blunt
instrument and I cannot conceive of how an American firm which
is in the business of making profits for its shareholders will
react to an appeal to come to a region to help solve their social
74. Several local authorities argued that TSN areas,
as currently defined, were too blunt an instrument for encouraging
inward investors towards deprived areas. This approach overlooked
the fact that, within many other areas, there were pockets of
deprivation as severe or more severe than that in many TSN areas.
They considered that greater attention should be given to such
75. There has been some criticism of the fact that
the conversion rate of jobs promised to jobs actually created
is, in the case of inward investment, only about 70 per cent,
although it is higher for expansion projects. Indeed, following
a special exercise, PAC was informed by IDB that, for the 330
inward investment projects assisted between April 1993 and March
1997, the peak level of jobs created, as a percentage of jobs
promoted, was 60 per cent for new inward investment and 86 per
cent for expansions, with an overall average of 76 per cent.
Mr Ingram considered such criticism misplaced. He emphasised that
other development agencies had similar experience, but admitted
that there may have been a degree of overselling.
He stressed, though, that payments of financial incentives were
strictly linked to performance, not promises.
76. We understand Mr Ingram's wish to emphasise the
positive news about inward investment in Northern Ireland, given
the background of the political climate in the Province over the
last 30 years or so, and consequently to take a view of likely
job promotions which veers towards the optimistic end of the spectrum
of likely out-turns. However, we can see two risks. First, the
failure of jobs promoted actually to materialise causes doubts
to be raised about the robustness of the assessment process on
which any grant offer was based. Second, such failure can cause
acute disappointment amongst those who might aspire to take those
jobs. So, while we do not disagree with Mr Ingram's assessment
that "realism would be the order of the day but ambition
would sit alongside that",
we would encourage also a due measure of proper caution when making
claims about the likely employment benefits of an inward investment
77. There has also been comment that the average
life of each job actually created is, according to IDB, about
ICTU were critical of what was perceived to be the short duration
of many IDB and LEDU sponsored jobs and in their view 'best value'
had not been obtained for the substantial public investment involved.
78. NIEC pointed out that Northern Ireland's performance
in attracting inward investment was good in international terms,
although in the early part of the 1990s its performance relative
to other peripheral regions of the United Kingdom had not been
One explanation for this might be the dependence in Northern Ireland
on declining industrial sectors. NIEC also noted that the share
of projects has increased in the latter part of the decade,
although the sector remains biassed towards what NIEC describes
as "mature, low technology sectors",
despite a doubling of the share attributable to the tradeable
services sector. NIEC commented that "new greenfield investment
has undoubtedly contributed to the positive shift in structure."
Overall, it considered
that the Province "has done reasonably well within a country
which is doing very well."
79. As to the targeting of sectors, Derry Investment
Initiative concurred "very strongly" with IDB's focus
on the information and communications technology sector as the
best target for inward investment in the city.
Its relatively scattered population and peripheral location had
led it to target this sector as peripherality was not an issue
with this industry.
Whereas Derry Investment Initiative had set out to attract the
information and communications technology sector, Investment Belfast
has sought to capitalise on its competitive advantage in attracting
headquarters buildings and call centres.
It also has an advantage in that the Greater Belfast area has
a population of about one million, thus providing a substantial
and concentrated pool of labour, something particularly attractive
to larger projects.
80. One of the issues we discussed was the risk that
the Northern Ireland economy could become over-dependent on inward
investment. Mr Ingram thought that reaching this point would be
"a tremendous achievement".
IDB commented that, historically, the economy had not generated
enough jobs in its own right to meet its needs and that this had
been the rationale for inward investment.
It also stressed the importance of the parallel policy of stimulating
locally-owned industry, and argued that both types of investment
have a part to play in producing economic activity.
Investment Belfast saw no risk of over-dependence on inward investment,
given the current dominance of the Northern Ireland economy by
the public sector.
Mr Doherty, of Into the West, considered that there might be an
optimal level, but it had not yet been reached.
did not think the level of inward investment sufficient to create
148 Ev. p. 116. Back
p. 117-118. See also Q 294 and 300. Back
21, p. 198-199. Back
p. 83. Back
p. 2. Back
p. 6. For the number of jobs created at March 2000, see Appendix
25, p. 210. Back
NIAO Report, p. 14-15. Back
Annual Report, 1998-99, p. 14. Back
Report, para 22. See also Q 394. Back
Report, p. xi. Back
or just promises? The IDB and West Belfast, WBEF, 1999, p. 21. Back
334, 335. Back
279. See also Q 280. Back
for example, Appendix 3, p. 169, Appendix 5, p. 170 and Appendix
6, p. 171. Back
35 and Ev. p. 22. Back
Report, Ev. p. 36. For corresponding data in relation to new
inward investment projects locating in TSN areas over the period
April 1995 to March 1999, see Appendix 25, p. 211. Back
368. See also Q 35. Back
35-36. See also Q 52. The Public Accounts Committee was subsequently
informed that the average life of a job created by inward investment
over the period 1983- 89 was likely to be about ten years. (See
PAC Report, Ev. p. 36). See also Appendix 22, p. 203. Back
p. 27, 28. Back
p. 28. Back
p. 30. Back
p. 30. Back
60. See also Ev. p. 31. Back
42, 46. Back
161. See also Appendix 21, p. 200. Back