The chief executive of Invest NI, Alastair Hamilton, has given the Business Alliance a worrying update on the immediate prospects for Invest NI in the last months of its corporate plan for 2010-11 and as it prepares for the following years.
Although the Northern Ireland economy has experienced a sharp recession and there is now an expectation of a period of expansion, Invest NI does not have adequate funds to finance its current corporate plan opportunities. Preference has been given to projects involving innovation and R&D, and projects offering earnings levels which are above the private sector median.
The impact is that the number of new jobs created will fall, the ratio of Invest NI support to spending by companies will fall, expenditure on R&D growth will slow and the pipeline of forthcoming projects will reduce.
During the first eight months of this financial year, there has been a 37% decrease in the financial assistance offered compared to the same period last year. Alongside estimates for 2010-2011, Invest NI has quoted preliminary figures for its finances in the three years to 2013-14. It had been asked to plan for a reducing budget.
Taking commitments made in investment contracts already agreed, Invest NI will have very little scope for extra spending in 2011-12 and even in the following two years the ‘head room’ for new contracts will be lower than could have been expected unless exceptional pleading gains sympathy from the Finance Minister.
This budget squeeze is happening at the same time as an increase in the number of negotiations with potential external investors, some possibly as a result of the recent investment conference in the USA. The monitored workload of Invest NI reflects a 67% increase this year in the work in progress with external businesses.
There is now a risk of a conspicuous clash between the budget of the Northern Ireland Executive and the scope to make the economy a priority.
Reducing the real level of funding for Invest NI at a time when external investors are taking a stronger interest would present a major dilemma. If the economy really is a priority for jobs and incomes, then the Executive will be aware the Invest NI budget should be enhanced.
The recent performance of Invest NI defies any pessimistic forecast of a weakening local economy. In the three-year horizon, from 2008-11, progress on the formal public service agreement (PSA) targets has been commendable.
An investment target of £1.2bn has nearly been reached, job commitments by inward investors have over achieved on the target, targets to encourage an increased number of firms to try exporting have been met and targets on the levels of R&D spending have been exceeded.
A small underachievement is expected in the number of jobs with earnings above the private sector median.
For Invest NI, potential new business projects are now more in evidence than in the recent past. In particular, the FDI (external investment) pipeline has expanded. So also has the interest of businesses in R&D spending along with innovation activity. In this setting, the Invest NI’s assessment is there is a real appetite for support from Invest NI but this risks being constraint by budgetary.
Inadequate funding would mean actual support for R&D and/or innovation was lower than the demands of businesses.
In January 2011, the permitted limits on state aid for qualifying projects will be reduced across the EU. It is a small consolation that, even with lower permitted ceilings, Invest NI would have too many customers seeking assistance.
If the economy remains the priority for the Executive, as would generally be agreed, then the Invest NI budget cannot logically be significantly reduced. The Executive needs to target and realign its main economic policies.