Boosting business

Dec 21, 2011

Pictured is Alastair Hamilton, CEO of Invest Northern Ireland

Ulster Business talks to Invest Northern Ireland’s Chief Executive, Alastair Hamilton, to find out about the key role the agency is expected to play in delivering the Government’s Economic Strategy

Alastair Hamilton is well aware of the expectations resting on his shoulders.

As well as the normal scrutiny reserved for Invest Northern Ireland, an even brighter spotlight will be shone on the agency over the next four years because the top three priorities in the Executive’s recently delivered Programme for Government depend on the organisation for delivery.

Goals have been set to promote 25,000 new jobs by 2015, to bring £300m of foreign direct investment into the economy, and to provide aid to small and medium sized businesses through a £50m loan fund.

The economic development agency’s chief executive says the targets set out in the PfG and its accompanying Economic Strategy are “stretching but achievable” provided it continues to have full support from the Executive and everybody is prepared to “put their shoulder to the wheel”.

“From my point of view as a leader in this organisation, I want to have a challenge that we can set to people. I want to have a vision that is achievable but actually stretches the organisation,” he told Ulster Business.

In line with the strategy’s twin themes of “Rebuilding and Rebalancing” Hamilton says the document gives Invest NI clarity about the Executive’s expectations and a mandate to pursue both short term and long term initiatives to improve the economy.

Invest NI has already begun promoting jobs through the £19m Jobs Fund, launched earlier this year in recognition that getting people back in work quickly has taken on as much significance as the long term goal of attracting high value jobs to Northern Ireland. Well over 1,000 jobs have been promoted so far and Hamilton says the pipeline of opportunity is strong.

“The rebuilding theme in the strategy totally aligns with the Jobs Fund,” he said.

“We will still be driving foreign investment and indigenous company growth in high value areas and we will still drive export growth. But separate to that there is now a mandate around the short term rebuilding of the economy and that allows us to exist without strategically getting those two things confused.”

Invest NI is currently in the final stages of its own Transform programme, a plan devised following the IREP report in 2009 and which has seen a change in the structure of the organisation, the breadth of its client base, the delivery methods for its support and the speed of its processes.

Hamilton is confident it will enable the organisation to get more from its current resources.

To that end it has introduced a number of new programmes under the banner of “Boosting Business”.

The initiative’s aims are threefold: to communicate more clearly with companies about the support that’s available; to launch new programmes which reflect lower economic growth projections; and to set mechanisms in place to change Invest NI from an organisation that is reactive to one that is proactive.

“This new piece has risks for us, because as a Government development body our mandate is only really to get involved in areas where our intervention will make a difference,” said the CEO.

“Being proactive we might see an opportunity and someone might say down the line that we didn’t need to do it because the company would have done it anyway, and they may question value for money. But in the current economic climate the mandate on me to help drive business and support business is overwhelming, so I’ll deal with those questions if they come.”

Boosting Business is also increasing support for Research & Development in line with the PfG’s aims of encouraging £300m investment by businesses in R&D – including getting 500 companies to undertake R&D for the first time.

While recent figures showed R&D by Northern Ireland-based companies increased by 6% to £344m in 2010/11 and of that the amount attributed to local companies went up an encouraging 27% to £110m, Hamilton believes more can be achieved.

“We still need the Bombardiers and Almacs and Wrightbuses of this world doing the R&D they are doing but we need to encourage many many more small companies to get involved in R&D,” he said.

“We want to open small companies’ eyes to the D element of R&D. A lot of the work we’re now engaged in with small companies is around developing an existing product for a new market or new opportunity.”

Through Boosting Business small companies new to R&D will be able to get up to 75% grant assistance for projects up to a limit of £50,000.

“If you take that combined with R&D tax credits you have the most supportive R&D mechanism anywhere in the UK for small businesses,” adds the Invest NI chief.

With increased reliance on the global economy to drive growth and recovery, Invest NI is also ramping up its support for exports, investing in both its own in-country teams and the funding it provides companies to help them tap into new markets.

It has established full time offices in Dubai and Jeddah in Saudi Arabia and in recent months has hired full-time representatives on the West Coast of the US, South Africa, Russia, Brazil and Canada, and is recruiting for a dedicated trade person in London.

It also now provides free market research for companies on their first visit to a market, will pay for them to spend extra days exploring markets and will joint fund return trips for follow up meetings.

Hamilton believes Invest NI has a key role to play in enabling companies to overcome their fears of international trade and, taking the view that almost every company in Northern Ireland can export to some degree, is adjusting its budget accordingly.

“The trade element of our work generally gets flexed in year depending on the amount of budget we have available. But I’ve said this year we will ring-fence the budget for trade. We’re going to grow that budget year on year because it is important for us, and if that causes pain elsewhere we’ll have to deal with it, rather than using the trade budget as a buffer for pressures that come elsewhere,” he said.

Perhaps the most telling measure in the Government’s Programme for Government was the £50m Loan Growth Fund.

It aims to generate £150m of sales growth per year in small and medium sized businesses, safeguarding and creating over 2,000 jobs over a 10 year period.

It will be managed by an independent fund manager and is expected to make loans of between £50,000 and £500,000 available to small businesses in manufacturing and tradable services.

Hamilton says the fund will address a gap in the market for access to finance – complementing rather than competing with bank finance, venture capital and private equity finance.

“This is not to compete with banks,” he stresses. “This is a fund that has been set up to give support to those companies who cannot get access to funding from elsewhere. In that space we expect the majority of those to be unsecured. That is the main reason companies at the present time are unable to get funding from banks. There are a lot of firms out there who want access to loans but can’t provide that security.”

As effectively a “funder of last resort” the terms around the loans will be similar to those for unsecured loans, he adds. Invest NI intends to finance its £25m share principally through the European Regional Development Fund and has an agreement in principle with NILGOSC – which administers the Local Government Pension Scheme for Northern Ireland – to provide an additional £25m in match funding. Hamilton believes it is hugely positive that NILGOSC – which previously had little of its funds invested in Northern Ireland – has come on board, but notes their participation does come with conditions.

“To draw NILGOSC in they have a corporate responsibility to ensure growth of the private pension fund that they hold. Therefore they need to be assured they will get a sensible return out of this. What we’ve done is the same as we did on some of the early venture capital funds, we’ve subordinated our funding in there,” he explains.

“At the end of the day we’re not here to make money out of our loan funds or VC funds. Don’t take that to mean we want to lose money. But that’s not the primary purpose of what we’re here to do. The objective for me is to provide funding that allows companies to grow,” he adds.

“This is lending of last resort, this is the highest risk lending you will get to. But the companies need it, so the partner in here who is providing £25m of their money will be assured a return out of this and we will subordinate our funds. It is the best way to make it work.”

Added to its existing Co-Investment and Development Funds the Loan Fund will form part of a £100m fund of funds at Invest NI’s disposal.

The agency came in for some criticism earlier in the year when it was forced to hand some £17m of its budget back to Stormont because it was unable to spend the money in the budget period.

Much of that money was earmarked for projects which have slipped into next year because potential investors have held off on their plans due to economic uncertainty.

It again raised the question of whether Invest NI should be allowed flexibility in its budget to ensure the money is spent on economic development, something Hamilton believes will be increasingly necessary given the changing nature of its support and the returns that £100m under management generates.

“More of my funding going forward, and I think rightly so, depends less on the block and more on us investing money and getting that back and recycling it for economic development. But yet my fixed Budget mitigates against that,” he said.

“Because people are focused on economic development it is viewed as negative when you’re not able to spend that money. What people forget is that the vast majority of our funding requires match funding. I hear lots of people saying we need to be distributing it to small businesses but I can’t just go out on the street and find projects to 100% fund,” he adds.

“I think we need to find a way to allow funds to be managed in a different way if we’re getting equity investments returned to us, if we’re getting loans returned to us, and commitments drop to future years. We need to be able to manage a budget over that longer term. The last thing I can afford to do is think of those commitments that have moved from this year to next year and take my foot off the gas.”

This article appeared in the December 2011 edition of Ulster Business.

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