Value for Money Examination  06;  Regional Development Measures   Summary


Background

The scale of expenditure on regional measures, jointly funded by the State, the European Union (EU) and the private sector, has been enormous by Irish standards. This, therefore, of paramount importance that these funds be used to best effect and in a way that will contribute to the improvement of key national economic objectives.

For that reason the examination sought to establish the extent to which the effectiveness of the measures under the Community Support Framework (CSF) 1989-1993 was evaluated so that the findings could be applied to the management of current and future programmes in the area of regional development.

A number of programmes within the framework were selected for specific examination. It was also decided to review the overall position on European Regional Development Fund (ERDF) allocations for the pre-1989 projects.

CSF 1989-1993

The measures under the CSF 19891993 were administered on a programmes basie. This approach worked reasonably well. However, in a small numberof cases there was a tension between the short-term budgetary requirements of the State and the desirability of ensuring a smooth implementation of the five-year programmes.

Generally we found that

  • the combined thrust of the measure examined was consistent with the overall objectives of the CSF 1989-1993
  • measurement of achievement was not always possible since in some cases objectives were not set in quantified terms
  • output targets, where set, were usually achieved
  • in most cases the impact of the measures was not isolated and considerable difficulty was experienced in determining the extent to which sectoral results were attributable to investment under the measures.

In addition, a lack of baseline data and deficiencies in ongoing data collection hampered effectiveness evaluation.

The Department of Finance ha made efforts to rectify evaluation in deficiencies in relation to the CSF 1994-1999.

Economic Impact

A study by the Economic and Social Research (ERSI) in 1993 conducted that the CSF 1989-1993 expenditures should make a significant and lasting difference to living standards in Ireland. The supply side effects of the EU funding should raise the levels of GDP and GNP by 0.8 per cent and1.1 per cent respectively by the year 2000. The demand side effects of the EU element would raise GDP by 2.5 per cent and GNP by 3.5 per cent by 1993 according to the study. The real rate of return on the investment of the EU resources was estimated at between 7 and 8 per cent.

Specific Measures

Transport

?861m was applied to transport measures aimed at reducing the impact of Ireland?s peripheral location. The bulk of the money (?668m) was invested in roads.

One of the transport programme?s main objectives was to reduce the transport cost differential for Irish exports to Europe by a quarter, by 1995. Transport costs had been estimated at 9 per cent of total export costs. In retrospect, considerable doubt has been cast on the validity of this estimate with recent studies suggesting a level of around 4 per cent.

The economic impact of the investment was examined in 1992 by the ERSI and it was estimated that it would add 0.4 per cent to GDP by the end of the decade and impact on employment to the extent of 9,000 jobs.

However, the impact of the programme on transport has not been determined, largely because evaluation to the extent 9,000 jobs.

The Department of the Environment has sponsored two initiatives which if successful will assist in the future evaluation of transport investments. These involve the construction and validation of models to effect

  • route transit time monitoring
  • export transport cost monitoring

In regard to specific measures it was notes that

  • Progress on road construction measures was good, with targets generally being met.
  • Although investment in facilities at State airports had to be scaled backing 1991 significant increases in passenger throughput occurred.
  • Passenger numbers at regional airports, where capital investment totalling ?20.85m was undertaken, fell far below the levels envisaged declining by 43 per cent over the life of the programme. In 1991, external evaluators concluded that what was required in this sector was marketing assistance rather than infrastructural investment. They particularly questioned the need for a jet runway in Farranfore.
  • The targets set for commercial port measures were achieved with the exception of lift on/ lift off freight which only reached 62 per cent of the target set. In relation to local ports the increase in freight was well in excess of target.
  • Passenger numbers exceeded the level projected following the upgrading of rail services between Connolly Station, Dublin and Maynooth. However, up to 1995, passenger numbers for the Arrow train service had fallen short of target with the stations closer to Dublin particularly failing to meet their targets.

Science and Technology

?209, was plied to six measures designed to enhance the technological capacity of industry.

The measures were focused largely on providing testing infrastructure, promoting linkages with third level institutions, and developing and transferring leading-edge technologies.

The approach was largely supply driven but a change of emphasis began with the adoption in 1993 if s measure to assist companies carrying out large research and development work.The subsequent operational programme had taken this further and the emphasis is now on individual and applied research and development.

No aggregate targets were set for the measures making it difficult to form judgments on achievement. However, research and development expenditure by indigenous industry almost doubled during the life of the programme and it appears that Ireland?s investment in terms of GDP has been increasing, having moved from 0.87 per cent in 1987 to 1.04 per cent by 1991.

Evaluation of the science and technology measures found that Ireland had been successfully offered a range of technology services to industry. However, in a number of cases individual actions were criticised

  • research in the areas if metal processing, ceramics technology and polymers was conducted as part of a programme that was too big, too complex and in parts too future-orientated
  • centres conducting software engineering research operated under a confusing and conflicting set of guidelines and overlapped with other initiatives
  • research in the area if optoelectronics had largely failed to address the opportunities for application of that technology in mainstream manufacturing
  • the marketing and strategy used in the development of the advanced manufacturing technology was below the quality required to address the needs of the Irish industry
  • achievement in the area of academic-industrial transfer seemed less than envisaged.

The Department if Enterprise and Employment has informed us that the Programmes in Advanced Technology which constituted the principal measure to develop and transfer leading edge technologies have since been redesigned and rationalised to make them more accessible and attractive to the industry.

Tourism

An estimated ?182m in public funds was applied to develop Irish tourism with the greater portion of the investment being channelled into public sector initiatives.

Although only 46 per cent of the targeted increase in tourist numbers was achieved the revenue increase projected was exceeded. It is now clear that the original targets for visitors and revenue were not consistent. Employment targets were largely achieved. However, a 1994 study estimated that 50% of the jobs claimed would have been created without any assistance.

No overall evaluation of the impact of the spending has as yet been undertaken. Monitoring of the programme has not been satisfactory. There has been a delay in finalising progress reports and the drawdown of ERDF moneys has also been delayed. At August 1995 some ?7.2m had not been drawn down from the EU.

Evaluation is particularly important in view of the risk that some assisted projects might have proceeded evening the absence of State aid. Given the time-lag between construction and marketing of assisted facilities, evaluation might be best carried out in 1996. It would, in addition, be more cost-effective if the contribution of all public sector inputs, including those under the programme, were assessed together.

An evaluation carried out on a private sector marketing measure on which ?16.5m of public funds was spent concluded that while the measure was a significant contributing factor in the success of Ireland?s overall tourism performance, serious questions arose on the effectiveness if some if the grants.

Small and Medium Industry

Public expenditure of ?149m was applied to a series of measures aimed at creating 55,000 jobs over the five years of the programme. This target was exceeded. However, net job creation was quite low, at around 1,500 jobs.

The overall programme was subject to external evaluation and late in the programme (1993) an Evaluation Unit was established in the Department of Enterprise and Employment.A 1994 evaluation concluded that the programme was fairly well directed.

Little evaluation was done in individual measures and actions. The Department of Enterprise and Employment has acknowledged this and sees the new Evaluation Unit as filling this role.

During the period of the programme, a particular deficiency was the lack of information on the impact of the measure. Indicators focused largely on inputs or activities. The external evaluator reported that the lack of such information was a recurring problem when attempting to make value for money evaluations of specific measures.

The Department of Enterprise and Employment has assured us that it is addressing this deficiency and that a range if performance indicators have been adopted for the subsequent programme and related data are being collected.

A particular nee, at this point, is to derive value from the information being compiled in that department?s industrial database by identifying statistical techniques which can be used to analyse the relationships between the performance of supported firms and assistance they have received.

Marketing

Public funds totalling ?113m were applied in a set of measures designed to improve the marketing capabilities of small and medium enterprises. The main aim was to increase exports by these firms from the 1988 level of ?2.5bn to ?4.5bn by the mid-1990s. The money was used by An Bord Tráchtála (ABT) to assist marketing activities of firms, provide advice and information services and organise export promotions. The overall export target was achieved. However, the exact impact of the programme on that achievement is not clear. An external evaluation concluded that since overall physical targets were being met it was reasonable to conclude that value for money was being achieved. It did, nonetheless, recommend more detailed evaluation of specific measures.

Matters which need to be addressed include

  • tracking performance of assisted firms
  • relating that performance to State interventions using statistical techniques
  • monitoring user perception of the measures
  • tracking the evaluation of independent marketing capacity in firms assisted.

The final incorporation of client data from ABT into the industrial database of the Department of Enterprise and Employment is important, as it would facilitate analysis which could assist in evaluation and the focusing of marketing initiatives.

ABT costs of administering the measures were reasonable although there may be scope for boosting cost recovery from older and more established measures with a view to reducing reliance on State funding.

Water and Sanitary Services

Over 100 water and sanitary services projects, assisted under the programme to the extent of ?222m, have been estimated by external evaluators to have increased the capacity of existing services by

  • 386,000 m3 /day in the case of water supplies
  • 451,500 m3 /day in waste water collection

Project selection criteria proposed by consultants engaged by the EU were received too late (December 1990) to influence the assignment of projects to the programme. The programme was, accordingly, drawn from existing projects proposed by local authorities to the Department of the Environment.

Targets were ser and output recorded in terms if physical infrastructure using measures such as pipeline length and numbers of treatment plants. While these measures of output are not susceptible to aggregation, since each project has a different specification, the figures reported appear to indicate underachievement which should be investigated by the Department. It would be preferable to account for output in the basis of capacity at standard rates of operation.

Difficulties were also encountered in gauging the impact of the projects and the Department of the Environment had to abandon its initial attempts in this respect in 1992.

Our review of projects included in the programme indicated

  • a tendency for a cost drift to occur between design, tender and completion stages
  • a need to consider more cost-effective ways if undertaking projects such as ?design and build? arrangements
  • inadequacies in expenditure reporting by local authorities
  • problems due to ground conditions not being as expected and records of existing works being deficient.

Pre-1989 Measures

Up to July 1988 ERDF assistance for individual projects could be reallocated if the original project did not proceed as planned. However, following EU reforms in 1988 this facility was removed. In all, Ireland?s allocation from the ERDF reduced by ?51m, some of which could have been avoided had the process of project substitution been more efficient. The lack of co-ordination between Departments was responsible for a significant proportion of EU allocations decommited.

In particular, the administrative practices in the Department of the Environment led to delays in submitting completion reports which were critical to the claiming of EU aid. The administrative deficiencies in the Department have since been addressed.

Cohesion Funds are currently administered on a proect basis. In order to maximise funding allocations there should be close liaison between Departments and spending bodies, as well as a central claim control function to effect on-going independent reconciliations.