Committee Reports::Report - Review of Shannon Free Airport Development Company Limited::29 April, 1986::Report

1.1This report is the result of an examination of a number of aspects of the activities of the Shannon Free Airport Development Company undertaken by the Dáil Committee on Public Expenditure. Only the major issues concerning the Company’s performance have been addressed. The Committee has indicated where, in its opinion, more detailed work could usefully be undertaken.

Functions of SFADCo

1.2Originally established in 1959 to protect employment at Shannon Airport the Company has been highly successful in promoting industrial and tourism development in the mid-west region. The Company has also undergone a considerable evolution of its powers which have converted it into a multi-role, regionally-based organisation unique in Ireland. It has provided grants, loans and tenancies to industry, has invested in a number of commercial ventures in industry, tourism and the nursery business, met the marketing costs of urban renewal projects and established national agencies to support industrial development. SFADCo is also involved in promoting traffic through Shannon Airport and to that end is a major tour operator and tourist operator in the region with promotion offices in the U.S.

Duplication

1.3The Company, as a result, operates in fields which elsewhere in the country are handled by national bodies. This has given rise to questions about overlapping, duplication and dissipation of resources, and to suggestions that economies could be secured if some of SFADCo’s functions were assigned to national bodies.

Strategic Options

1.5By voting to continue financing SFADCo, the Oireachtas is confirming its belief in the desirability of giving special attention to the mid-west region. Should the Oireachtas revise its opinion about this, then there would be a strong case for assigning SFADCo’s powers to other national bodies.

The option open to SFADCo then would be to rationalise its present functions with the agencies already established to undertake these tasks and to concentrate on its major task which now seems to be that of Regional Development Agency. The Committee considers this the most appropriate route in light of SFADCo’s record and experience in the promotion of small indigenous industry and the growing importance of this type of project is industrial policy.

1.6A valuable by product of the above approach would be a tested Regional development model which could be applied in other regions in time. This would require SFADCo to show that it can eventually stand on its own feet without additional Exchequer support, funding its promotional activities from rent and other income.

SFADCo Annual Report

1.7SFADCo’s annual report and accounts follow a conventional form for a State body. However, this makes it difficult for the general public to assess its performance. The Committee recommend that the costs and benefits of each of the Company’s major programmes be clearly shown. Where necessary, financial data should be supplemented by non-financial measures of performance. Fuller information on the Company’s commercial activities ought to be provided, and where autonomous organisations or activities have been established whether incorporated or not, seperate accounts should be provided. The Committee also recommends that SFADCo and other State agencies comply in full with the Standard Statements of Accounting practice in its annual reports and accounts.

Commercial Activities

1.8The Company has a number of activities with a commercial element. While profitability has not been the prime reason for setting them up, the shortage of funds from alternative sources and the length of time some have been in existence (e.g. factory building and the castles) suggest that a greater effort needs to be made by the Company to commercialise its operations. In fact there is no reason why many of its investments and commercial operations should not be sold off leaving SFADCo free to apply the resources thus freed to continue its development role.

Job Creation: Measures of Performance

1.9There is considerable confusion about measures of performance in the field of job creation. The Committee strongly recommends that the standard method established to assess performance of State agencies in this area be extended to include an assessment of promotion and other non-grant costs in relation to job creation.

1.10Something between one half and two thirds of all job approvals do not translate into job creations. This is a very high proportion and suggests that the figure should not be used in external reporting and used with caution in internal management decision making.

1.11Grants approved per job approved tend to underestimate significantly the ultimate level of grant payment per job actually created because of the differences between the number of jobs proposed in the grant applications and the numbers achieved. The causes of this ought to be investigated in the interests of cost effectiveness for all grant aiding agencies.

1.12The redundancy rate of the jobs arising from SFADCo approvals appears to be about 10% suggesting an average “life” of a job of about ten years. The Committee would consider this to be reasonable.

Cost of Job Creation

1.13The methods employed by SFADCo (which are based on those devised by the IDA) for calculating the cost of job creation are not adequate and the Committee recommends that they not be used.

1.14One major problem is that the definition of costs used by SFADCo is too narrow, being confined only to grant costs. The Committee recommends that all relevant capital and current costs (net of any revenues) be included.

1.15The use of jobs as a measure of the “return” on the State’s investment in job creation is unsatisfactory. The Committee recommends that value added be considered as a basis for measuring the return to the State’s investment, with a view to setting upper limits on the level of grant approval permissible by each grant aiding agency in light of their performance.

1.16A simplified analysis of the benefits to the Exchequer from SFADCO’s job creation programmes suggests that there is a net benefit to the Exchequer but that the margin of benefit is small. The Committee believes that the Company must increase the productivity of its promotional efforts and concentrate its efforts on a smaller number of more promising projects. The Management Committee on Industrial Policy under the aegis of the Department of Industry & Commerce, involving the industrial promotion agencies including SFADCo, has agreed to operate a new measure of effectiveness. This arises from the Government commitment to that effect in the White Paper on Industrial policy. The Committee considers this system to be deficient in that it is designed only as an indicator of grant effectiveness in terms of job creation. Its use, therefore, demands that a regular review of promotional cost effectiveness also be undertaken.

Tourism/Traffic Promotion

1.17It is difficult to assess the effectiveness of the Company’s traffic development functions but examination of some elements of traffic entering through Shannon would suggest that the Company’s outlays on promotion do earn a return for the national economy by extending the average length of stay. However, problems and cost duplication do arise as a result of the arbitrary and unsustainable division of responsibility for airport traffic promotion between two State agencies. And it is only arising from this that SFADCo have engaged directly in tourism promotion and operations.

1.18Accordingly the Committee, in the interests of streamlining roles, rationalising the use of personnel and marketing budgets and avoiding the possibility of the State inadvertently carrying promotional costs which would unfairly affect the competitiveness of privately held tourist facilities recommends that the Ministers for Industry & Commerce and Communications resolve the appropriate roles for Aer Rianta and SFADCo and that the Minister for Tourism, Fisheries & Forestry reassign budgets and personnel between Bord Failte and SFADCo and establish one New York office even if it entails staff from both organisations manning it.

This Committee would consider the IDA/SFADCo agency agreement as an appropriate model for developing a better basis for Bord Failte/SFADCo cooperation.

1.19This Committee considers it timely for the Management Committee on Industrial Policy to review the process of submitting, approving and making payments of grants to industrial projects to ensure that all industrial promotion agencies have the benefit of the sum of their experiences and in particular that consideration be given to having a panel of consultant valuers who could be drawn on by the client at the discretion of the agency.

1.20This Committee considers it unnecessary for an industrial promotions agency such as SFADCo to be involved in banking and accordingly recommends that it no longer be authorised to provide loans or to undertake sale and leaseback arrangements.

II INTRODUCTION

Orders of Reference

2.1The Orders of Reference of the Committee on Public Expenditure are set out at the outset of this report. In summary the Committee was appointed by the Dáil to “review the justification for and effectiveness of ongoing expenditure” and to make recommendations to the Dáil on cost effective alternatives and the elimination of wasteful programmes. As part of this activity Coopers & Lybrand Associates were asked to assist the Committee in this review.

Work done by the Committee

2.2The Committee commenced its work with an extensive examination of witnesses from the Shannon Free Airport Development Company (SFADCo). In all this took five sessions of the Committee. This procedure followed on, and to some extent was based on an analysis of the replies of the Company to a questionnaire which had earlier been circulated to all Government Departments and State companies. In addition the consultants spent a number of days interviewing company personnel in Shannon and have also devoted time to the examination of published and unpublished statistics. relating to the Company’s operations. The Committee also examined officials of the Department of Industry & Commerce and of IDA and Bord Fáilte and received a submission from Aer Rianta and comments from the Comptroller & Auditor General.

Acknowledgement

2.3The Committee wishes to record its appreciation of the cooperation which has been extended by SFADCo personnel which has covered not only the spending of considerable amounts of time with the consultants, but also preparation of supplementary material, some of it requiring time-consuming research, drafting and computer programming, and, of course, attendance at and the giving of evidence to five meetings of the Committee.

III BACKGROUND

3.1Within the Irish Government system SFADCo is a unique organisation in that it combines a number of somewhat different functions and has even at times reported to different Departments. This singularly confers upon the Company a special status which is sometimes regarded as being a source of strength - perhaps because there results a degree of flexibility in the determination of the Company’s terms of reference. The origins of this status are historical arising from the circumstances of its foundation in 1959.

Origins and Purpose

3.2SFADCo was set up in 1959 by the Shannon Free Airport Development Company Act with responsibility for developing traffic through the Shannon Airport, and for encouraging industrial development in the immediate vicinity of the airport. The stimulus for the establishment of the company emanated from the threat to the viability of the airport from the introduction of jet aircraft on transatlantic routes. This technological change removed the need for aircraft crossing the Atlantic to refuel at either Gander in Newfoundland or Shannon. In fact, at one point about two thirds of all transatlantic flights touched down at Shannon. Although this produced mainly transit traffic, the activities arising from aircraft and passenger handling, and sales from duty free shops employed a total of 1,800 persons at the airport. The airport was thus a very substantial economic centre in the mid-west area particularly given that there was little industrialisation at that time. By stimulating tourist activity in the area it was hoped that “terminal” traffic would replace transit traffic and maintain employment at the airport or provide alternative employment. The object in developing industry in the nearby estate was similar; to develop freight traffic through the airport or provide alternative employment in industry for persons likely to lose their jobs if airport activity contracted.

Airport Management

3.3In 1959 the airport was under the management of the Department of Transport and Power which directly provided air traffic controllers, ground staff, etc. However, the catering and duty free shops were managed by Mr. Brendan O’Regan under contract to the Department. Mr O’Regan was one of the principal motivators of the concept of SFADCo and was appointed Chairman when the company was established. In 1969 Aer Rianta took over the management of Shannon Airport as well as the ancillary catering and retailing formerly contracted to Mr. O’Regan.

Tourism Development

3.4The tourist side of the Company’s activities in the early days concentrated on developing amenities for tourists to visit and accommodation for them to stay in. Both were regarded as being in short supply in the vicinity. Promotion of hotel development essentially consisted in encouraging hotel operators and other investors to provide accommodation in the area. Other than persuasion, the Company had no incentives to offer; grants for hotel development were and still are administered by BFE. In the case of the castles, the development of which commenced at this time, funds were and are provided by the relevant Department. The operation of the castles, as well as the catering and entertainment, are provided by Aer Rianta on contract to SFADCo. Shannon Castle Tours is the Aer Rianta department which handles this activity. The profits from the banquets and ground handling by Shannon Castle Tours are split 50/50 between Aer Rianta and SFADCo. SFADCo retains all of the profits from day visits to the castles and other facilities.

3.5A major development in the Company’s tourist activities took place in 1969 when Shannon Travel collapsed. This was a privately owned handling company providing services for U.S. tour operators. Its collapse seriously threatened the tourist business in the area and SFADCo, with Government approval, filled the need and subsequently contracted out its operation to Aer Rianta. SFADCo’s role is to arrange tourist packages which are then marketed by SFADCo personnel to U.S. and European tour operators under the aegis of Shannon Castle Tours. Shannon Castle Tours then handles booking arrangements, coaches, tours, etc.

Transit Traffic Development

3.6It might be relevant at this point to distinguish the foregoing activities of SFADCo and Aer Rianta in the generation of Shannon tourist traffic, from Aer Rianta’s activities in promoting “transit” or “technical” traffic through Shannon. Originally, transit traffic was virtually the only traffic at Shannon. However, the introduction of jet aircraft did not entirely eliminate such traffic contrary to what had been feared. In the first place airlines operating certain long distance routes (e.g. from the U.S. mid-west to central European destinations) have to refuel in Britain or Ireland. In addition airlines are now operating certain types of equipment which cannot comfortably bridge the Atlantic without a refuelling stop. For these and other reasons Aer Rianta have a number of personnel marketing the facilities of Shannon as a transit stop in the U.S. The marketing effort is directed at airlines which are also part of the target market for SFADCo in selling Shannon as a terminal stop though their main focus may be on tour operators. Also, Aer Rianta control most of the cost factors involved in transit traffic. The distinction between SFADCo’s tourism and traffic development roles may lead to confusion. The original purpose of engaging in tourism promotion and development was to increase traffic through the airport. The argument is now made that it is for the purpose of creating traffic that SFADCo engages in tourism promotion. It now appears however that tourism is the only means or object of SFADCo’s traffic promotion role and the question arises whether certain responsibilities might not be assigned from SFADCo to Bord Fáilte and Aer Rianta, if only to avoid confusion within and between agencies and with prospective customers.

The Committee acknowledges that SFADCo has added considerably to the tourism infrastructure of the region. But now that many privately owned and operated tours and facilities exist which compete with SFADCo facilities, the proprieties of a substantial promotional grant and capacity to absorb losses being applied to the facility should be re-assessed.

Industrial Promotion: Shannon Free Zone

3.7The industrial side of the Company’s activities originally consisted in promoting Shannon Free Zone. This was an industrial estate beside the airport. The concept of an industrial estate was new in Ireland in 1959, and the concept of a customs free manufacturing zone (where materials intended for incorporation into exports could be imported free of tariffs and duties) was relatively novel on the world scene. In addition, industries setting up in this zone were entitled to certain grants and incentives which differed in some important respects to those available in the rest of the country.

Regional Industrial Development

3.8The first major change in SFADCo’s industrial remit came in 1968 when, as part of the move towards regionalisation of industrial development, it was determined that SFADCo would be responsible for industrial development in the newly created mid-west region (Clare, Limerick City and County and North Tipperary). Subsequently parts of County Offaly were added to SFADCo’s remit. It was decided however that small industry would remain the responsibility of the IDA’s Small Industry Division in the mid-west region. Hence SFADCo responsibility was for the promotion of medium and large industry. This division of functions was based on the belief that the promotion of small industry required an administrative structure with relatively large numbers of specialised industrial promotion staff which, at that time SFADCo did not have. In 1978, however, after ten years experience, this allocation of responsibilities was exactly reversed; SFADCo became responsible for small indigenous industry (SII) in the region, and the IDA resumed control of medium and large industry (MLI). SFADCo continued to be responsible for the promotion of industry in the Shannon Free Zone (SFZI) which had been its original and exclusive responsibility.

Small Industry Development

3.9In assigning responsibility for SII to SFADCo in 1978, the Government specifically directed that SFADCo would adopt a developmental approach which would be both intensive and innovative. In both respects the programmes of SFADCo would be “test beds” for concepts which, if successful, could be applied to the country generally. In pursuit of this objective, the Company has become involved in activities which are not exclusively concerned with small industry and which have a national, rather than a purely regional “clientele”, such as the establishment of the Innovation Centre and the National Micro-Electronics Application Centre.

Urban Development

3.10Because Shannon Airport was not in the vicinity of any town, the industrialisation of the area generated an acute need for accommodation. The Company, therefore, was empowered to provide housing using State capital funds in much the same way as any local authority. As the housing was in a new area, the Company’s responsibilities actually extended to the development of a town as such. Again, funds for roads and utilities came from the Government in much the same way as to any local authority marking a significant evolution of the Company’s functions. The White Paper on Industrial Development announced that the town was to be transferred to Clare County Council. No definite date has been agreed for the transfer between the relevant Departments but the Committee sees no reason why it should not be executed as quickly as possible.

Urban Redevelopment

3.11The Company has also become involved in urban renewal on the grounds that improving amenities in the City of Limerick is an essential input into the development of tourism and affects industrial development of the region. The Granary project in Limerick is the prime example of this and the Company’s involvement was essentially promotional. It encouraged a property development company to refurbish the building and find tenants. Apart from its own city offices in the building, the Company’s outlay on the project was to meet the advertising and promotion cost of the development. The Tait Business Centre is another example of integration of building needs for SII with urban development.

SFADCo Incentives

3.12In pursuit of its objectives the Company has an advantage over the national promotional bodies (such as the IDA, BFE, and, in its time, An Foras Tionscail) in that its promotional personnel and activities are dedicated to a specific and relatively small part of the country. In addition, in the industrial sector it has certain powers which are or were in some respects superior to those available in the rest of the country.

^*Export Sales Relief (ESR). Industry and services in the Shannon Zone were entitled to claim exemption from tax on profits earned on exports for 25 years up to 1990. In the rest of the country the full exemption applied up to 15 years and with partial relief for the remaining five years. This rather slight advantage applies for companies which were approved by SFADCo for assistance prior to 1980 and ESR is scheduled to disappear in a few years time. The replacement regime, namely 10% on all profits, applies equally throughout the whole country.

^*Aviation Related Services. Services related to aviation, such as training of aircrew, servicing of aircraft, warehousing of goods air freighted in or out, or other internationally-traded services which contribute to the use and development of the airport, were exempt from tax if they established in the Shannon Zone. This concession applied from the early days of the Company up to 1980 and is now, as in the case of manufacturing, to be replaced by a 10% tax rate. Such service activities anywhere else in the country country continue to bear tax at at a rate of 50%. The tax concessions which apply to certain other specific services (i.e. those related to building and data processing) which were introduced since 1968, apply throughout the country. As against that, employment grants for service industries, which are available in the rest of the country, are not available in Shannon.

^*Capital Grants. The Company is entitled under its legislation to grant aid industries up to a maximum of 50% of the cost of plant and equipment. The corresponding percentages in the designated (i.e. underdeveloped) areas of Ireland is 60% and in the non-designated areas is 45%. In practice, SFADCo grant ratios are the same as those in the non-designated areas which is 35% under current industrial policy.

Conclusions

3.13The Company was originally established to save Shannon Airport and/or provide alternative employment for the 1,800 persons employed there in the late 1950’s. There are now 1,700 persons employed at the airport, 4,300 employed in the Shannon Free Zone and many others employed in tourism in the immediate vicinity and in SFADCo promoted industry throughout the Mid-West Region. The Company’s original objective has thus been more than attained.

3.14As a regionally based agency SFADCo combines a number of roles and activities handled by national bodies in the rest of the country. These bodies include the IDA, BFE, IIRS and the mid-west local authorities. The Company also has some degree of interaction with state commercial companies including CIE, Aer Lingus and particularly, Aer Rianta.

3.15For historical reasons, amongst others, SFADCo has been able to adopt a fairly liberal interpretation of industrial and tourist promotion. This had led it into urban development and urban redevelopment and industrial training and the promotion of higher education facilities and science and technology. SFADCo has been responsive to needs and innovative as it was required to be in the promotion of small indigenous industry.

3.16These characteristics of the Company have given rise to a number of questions about the Company’s role, its relationship with other bodies and the cost of its operations. These questions arise in part from the Company’s success in promoting development in the mid-west region and are addressed in the following sections.

Recommendations

3.17The transfer of the administration of Shannon Town from SFADCo to Clare County Council ought to be proceeded with forthwith.

3.18The original SFADCo remit can be said to be fully and satisfactorily executed and the future role of SFADCo should now be redefined in terms of its more recently assigned responsibilities.

IV LINKS WITH OTHER STATE BODIES

4.1As the Committee has already stated, the Company’s mandate has brought it into contact with a number of state bodies with national responsibilities. This has given rise to questions from time to time about the appropriate allocation of responsibilities. The Committee explored this issue through consultations with the relevant Department officials, the other agencies and SFADCo and through written and oral evidence given to the Committee. The following paragraphs set out the Committee’s analysis.

Industrial Development Authority

(a) SII

4.2Of the various organisations with which SFADCo interrelates, the IDA is the most important. Under the Company’s SII programme, SFADCo is responsible for promotional expenditures in the mid-west, and for the construction of factory buildings for small industry. Finance for these activities comes from the Grant-in-Aid and Share Capital subscriptions from the Department’s estimate. However, grants for plant and equipment, training and R & D, etc, for SII come from the IDA. The origin of this unusual arrangement stems from the fact that when SFADCo was responsible for MLI in the mid-west, it was given the statutory authority to incur promotional expenditures but not to give grants in that area. When the switch from MLI to SII took place in 1978 it was considered unnecessary to make any legislative changes. Thus SFADCo never got the statutory power to give industrial grants to SII. However, full delegated grant-giving powers are given to SFADCo in respect of SII by IDA on an agency basis. The result is that these grant payments are not reflected in SFADCO’s accounts.

4.3The close Cooperation between SFADCo and the IDA operates through the “Mid-West Buildings and Grants Committee” set set up by SFADCo with delegated powers. This is made up of representatives of the DI & C, IDA, CTT, ICC, IIRS, Mid-West RDO and SFADCo. (Similar bodies are now in the process of being established throughout the country). The terms under which grants are approved by this body are the same as those in the rest of the country. Cooperation is also achieved through close working relations at all levels of the two organisations. The Committee considers this form of association and cooperation to be highly satisfactory in ensuring the cost effective discharge of the duties of both organisations at the point at which they interact.

(i)The period when SFADCo was responsible for MLI in the mid-west has left a number of MLI companies in SFADCo buildings. The companies concerned are now IDA “clients”, but SFADCo continues to own the buildings. However, this relationship seems unlikely to give rise to any problems as SFADCo’s role is simply that of landlord.

(ii)Some SII’s eventually exceed the level of 50 employees and therefore pass into the category of MLI’s and become part of the IDA’s remit. A formal transfer to the IDA’s project officers takes place when application is made for grants or other forms of capital assistance by the expanded company. Otherwise the company remains in SFADCO’s portfolio even though it might be a MLI.

(iii)Under the intensive “company development approach” now being pursued by the IDA, some of SFADCo’s SII companies have been or may be selected for special attention. It seems that the promotional effort is arranged between the two organisations on a cooperative basis at local level.

(iv)As an organisation with a significant construction capability, SFADCo continued to build advance factories for MLI companies in the mid-west on request from the IDA even after 1978. At the same time, the IDA started its own factory building programme for MLI’s in the mid-west, but confined itself to “custom” buildings for specific companies. The relationship between the IDA and SFADCo in this respect is a straight-forward contractual one and should not give rise to problems. In any case, due to lack of funds, SFADCo is no longer able to provide advance MLI factories and has recently given up this programme. SFADCo may still be involved in refurbishing some MLI type buildings in the area but again this would be on a contractual basis. The Company of course, continues to be responsible for building factories for SII in the region and for MLI in the Shannon Free Zone.

(b) Shannon Free Zone

4.5In the case of the Shannon Free Zone the problems of co-ordination are potentially more complicated since the Zone was established before the IDA took its present shape (whereas the Company got responsibility for SII after the IDA had started its Small Industry Programme). In addition, as noted in the historical review, SFADCo has a unique position with respect to services and has its own grants legislation in the Zone. Finally, SFADCo is dependent on the IDA for handling overseas inquiries for industry in the Zone and is almost totally dependent on the IDA for inquiries with respect to service industries. The relationship in this area is dealt with as follows:-

(i)Overseas offices. The IDA handles inquiries for all parts of Ireland from its overseas offices. SFADCo does not have an independent overseas sales force for industry. (It does, however, have one person in the IDA’s New York office dealing with services). Friction about the number of industrialists induced to visit Shannon as opposed to other parts of the country is avoided since the performance of IDA overseas personnel is evaluated by the number of projects or jobs they stimulate in the country as a whole. Thus, there is no incentive for IDA overseas personnel to divert inquiries or industrialists from Shannon. Also some Shannon-based industries have subsequently set up associated companies in other parts of the country. There is also regular consultation between SFADCo and the IDA about the number and type of visits by potential investors being routed through Shannon. If SFADCo anticipates major requirements in the Zone, perhaps because a major employer is likely to close, then the IDA is likely to take special measures to assist the Company in seeking replacement investment.

(ii)Grants. Although the legislation is different the IDA and SFADCo gives the same level of grants in non-designated areas.

(iii)Buildings. The grants for buildings (for buyers) and the rents (for tenants) are determined by national policy with which SFADCo conforms. As SFADCo building costs appear to be in line with costs in the rest of the country, the incentives in this respect are also in line with national policy.

4.6The Committee is satisfied from its review that there is sufficient coordination between the IDA and SFADCo to ensure that there is neither destructive competition between the two bodies, nor duplication. Relations also seem to be harmonious at executive level so that no inefficiencies are likely to occur because of strained personal relations between two organisations which have to work closely together.

The Committee did not examine the reliability of the system employed by IDA and SFADCo to safeguard against the payment of grants above the proportion of cost approved, but they did request SFADCo to outline the system to indicate whether they were satisfied that it does not or could not be open to abuse. This differs in some material respects to IDA’s approach which is set out in Appendix C.

On the basis of SFADCo’s reply and since the matter is of equal relevance to each of the industrial promotion agencies the Committee urges that the Management Committee on Industrial policy give consideration to the matter. The Committee would ask that consideration be given to establishing a panel of valuers one of whom would be retained by the client at the discretion of the agency to verify and certify the cost of capital expenditure being considered for grant aid. SFADCo now uses one firm of consulting Engineers to do this while IDA have their own staff.

This is not to suggest that the Committee has evidence of any special difficulties for SFADCo in this regard.

Aer Rianta

4.7SFADCo also has close interrelationships with Aer Rianta. Aer Rianta is responsible for the management of the country’s airports including traffic promotion. In the case of Dublin Airport, Aer Lingus and the other airlines undertake some promotion as part of the development of their own traffic and so there is correspondingly less need for promotion by Aer Rianta. The airlines have less interest in Cork airport and so Aer Rianta mounted significant promotional activity directed at airlines and involving the arrangement of tourist packages. In the case of Shannon a different arrangement exists. SFADCo has statutory responsibility for terminal traffic and so Aer Rianta is concerned with transit traffic promotion only. But it does have a key role in the servicing of tourist amenities in the area through a management agreement with SFADCo with respect to Shannon Castle Tours.

Since Aer Rianta has management responsibility for Shannon Cork and Dublin airports and responsibility for promoting and developing that half of Shannon’s traffic which is transit, it no longer makes sense to assign separate responsibility for the terminal traffic to SFADCo when in fact the same airlines and tour operators are often involved in both. Apart from duplication this has also led to conflict and confusion. This contrasts with the degree of cooperation between SFADCo and IDA.

The Committee, therefore, recommends that the two Ministers involved review matters with a view to facilitating the transfer of authority, responsibility and personnel as necessary to streamline this hitch in the structure of both organisations. This will be most appropriately undertaken simultaneously with a similar adjustment between SFADCo and Bord Fáilte. This is the logical outcome to the reference in the recent Green Paper on Transport Policy.

SFADCo also has some interrelationship with BFE. BFE’s role is the promotion of tourism in Ireland as a whole, and the administration of such grants and incentives as may be available. SFADCO’s role is confined to promoting traffic through Shannon Airport and its involvement in tourism is a direct result of its remit in relation to the development of terminal airport traffic. This difference in function is reflected in a difference in approach; BFE’s promotional effort is through advertising, national participation at exhibitions and fairs, the publication of brochures of national interest etc. SFADCO’s approach is to promote packages using Shannon Airport to tour operators having invested in tourist facilities in the region. That being said, there is an obvious need for close cooperation between the two bodies. It seems that this takes place mainly on an informal basis between executives at various levels of the two organisations. However, it is surprising that there is no formal coordinating mechanism as there is between SFADCo and the IDA.

CIE

4.10CIE has a substantial tourism business profitably run on a commercial basis. The CIE Management have been critical of SFADCo’s involvement in tourist development. This criticism apparently arises from the fact that SFADCo and CIE compete in certain markets. Yet CIE brings some of its customers to the Shannon area and purchases banquet space from SFADCo. As SFADCo has a primarily promotional role, and CIE’s role is wholly commercial, there is at least a possibility that SFADCo might be competing unfairly. It must be said that no allegation to this effect has been made. But the question of the relationship between CIE and SFADCo would be worth more detailed study in the context of the examination of the role of BFE in tourist promotion.

The Committee considers that there is inadequate differentiation between SFADCo’s direct commercial involvement in tourism and its tourism promotion programme for the region. The Committee considers that when the responsibilities in relation to traffic promotion in Shannon Airport are rationalised between SFADCo and Aer Rianta, the separation of SFADCo’s tourism roles will become inevitable. Because of the pattern of longer stays in Ireland established for those who start their holiday in Shannon it is in the national interest to give Shannon special support under the tourism budget. The Committee considers, however, that this can best be done by developing an agency arrangement between SFADCo and BFE comparable to that applying between SFADCo and IDA.

SFADCo can then continue its direct commercial involvement at arm’s length or it may see fit to realise its capital and redeploy it otherwise for the benefit of the region.

IIRS

4.12There are a number of areas of close cooperation between SFADCo and the IIRS including most recently the formation of an experimental food kitchen at Raheen by the Company with IIRS participation. However, in establishing the National Microelectronics Application Centre, and to a lesser extent, the Innovation Centre, SFADCo was entering areas which have been handled by the IIRS. There seems little doubt that the MAC at least did involve some actual or potential duplication with the IIRS. In the fast developing field of micro electronics this may have been no bad thing. Even if it was, it might be argued that the MAC was better placed to provide the service than the IIRS (because of its association with the NIHE and its links with industry, etc) and that the appropriate response would be for the IIRS to be withdrawn from the activity. The position now is that there is IIRS representation on the Board of the MAC (and also on the management committee of the Innovation Centre). The N.B.S. is also represented on the MAC board having been a founder member. There is also D/I & C representation on the Board. Finally, of course both the MAC and the IIRS report to the same Department Thus the means for coordination are certainly in place but it would require an investigation by technically competent personnel to determine if in fact the elimination of areas of overlap and duplication is taking place.

Because SFADCo is a multi role organisation in one geographical area it handles functions which in other parts of the country are delivered by national bodies. Of these, the functions relating to the IDA with respect to industry and BFE and Aer Rianta with respect to tourism are the most significant. This situation, together with certain other considerations, has led to the argument that SFADCO’s involvement in these activities necessitates an unnecessary level of public expenditure.

4.14The Committee is satisfied that the programme undertaken by SFADCo since its inception in 1959 to increase the attractiveness of the Mid-West region as an industrial and tourism centre, has with the support of Government and other agencies, been an outstanding success. Not only have 1,700 jobs of the 1,800 jobs then at risk at Shannon Airport been saved but a further 4,300 have been added in the Shannon Free Zone and countless thousands in tourism and industry in the Mid-West Region and beyond owe their livelihoods to that Programme.

The Committee considers that continuing with the present subdivision of responsibility between Aer Rianta, SFADCo and Bord Fáilte can no longer be justified as it leads to confusion, duplication and cost ineffectiveness.

Recommendations

4.15Accordingly the Committee, convinced that SFADCo’s more recent mandates in relation to SII, Regional development and innovation in the food industry should have more influence on the shape of the organisation in the future, makes the following recommendations:

That Aer Rianta’s mandate be extended to Shannon Airport in the same way as it applies to other airports leaving SFADCo free for its regional development role.

That a formal agency agreement be devised with Bord Fáilte parallel to the IDA/SFADCo arrangement for the promotion of tourism in the Mid-West and that the New York offices be rationalised. This will not only resolve an issue of cost ineffectiveness but also of hidden subsidy for SFADCo tourism operations.

That SFADCo’s efficiency in the delivery of industrial promotion services deserves detailed investigation. The Committee recommends that such an examination be undertaken having regard to the costs of administration of similar services by national organisations.

Following such a review the remit of SFADCo should be revised to focus its task on the development of the region. This way SFADCo could pilot a new form of regional development agency which could be replicated in time in other equally deserving or even more deserving regions.

V SFADCo FINANCE AND ACCOUNTS

Financing

5.1(i) The Exchequer provides through the vote of the Department of Industry & Commerce:

(a)Grants in Aid for current expenditures on tourism and industrial development. These cover the cost of publicity, advertising, overseas offices, travel, etc. in connection with attracting traffic through the airport and encouraging industry in the Shannon Free Zone and the mid-west region. Outlays for tourism and industrial promotion come under separate votes (F1 and F2 respectively) with F2 covering both SII and SFZI. Under a separate vote (F4), the Company receives grants for housing subsidies in Shannon Town. These are similar to grants from the Department of the Environment to local authorities. These grants in aid are treated as part of the Company’s income in its published accounts.

(b)Under Voted Capital Services, the Company receives funds for grant aiding industry (F3). This refers to SFZI. The grants are for plant and equipment, R & D, and training. They also include grants for factory buildings for firms opting to buy their factories and rent reduction subsidies for those opting to rent premises. The funds for these grants appear as part of the Company’s income in its accounts. Grants for SII are recovered directly from the IDA and appear as part of the IDA’s vote. The Company does not record these grants as part of its income in its accounts. However, they are referred to by a note to the published accounts.

Under Non-Voted Capital Services, the Company receives loans from the Central Fund for the provision of housing and infrastructure in Shannon town. The loans / bear an interest rate of 10.5% and are repayable over various periods. The amounts appear as Repayable advances in the Company’s accounts. Also under Non-Voted Capital Services, the Company receives equity capital issued under the Company’s Acts. These funds are for the provision of factory building and the develop ment of the castles.

The Company’s own resources arise both on the Capital and Current Accounts. The main current account item is factory rents though housing rents and other income are also included. Profits from the Company’s tourist operations however are offset against tourism promotional outlays and so do not appear in the accounts. In fact the gross receipts and expenses under this heading are handled by Aer Rianta.

Accounts

5.3Details of the Company’s financial position are summarised in Appendix B. The data are based on the 1984 accounts but include some minor adjustments. Total receipts of the Company were £21.4 million of which £13.2 million represented current income. About half of this came from Government grants, the remainder from “own resources”. Of the £8.2 million in capital receipts, £4.5 million came in the form of share capital and £3.3 million from the sale of fixed assets (mainly factory buildings). Hence, between Current and Capital revenues, the Company generated about 45% of its own receipts.

5.4Of SFADCo’s expenditure 62% or £13.2 million was current most of which applied to industrial promotion. The bulk of capital expenditure also applied to industry in the provision of factory buildings.

5.5While the Company’s accounts conform in all respects to the requirements of the Companies’ Acts, they could be more useful for the evaluation of policy if additional material was provided and if alternative or additional reorganisation of the data was undertaken. They should, of course, also comply with best accounting practice and the Standard Statements of Accounting Practice. The Committee has pointed to some elements of non-compliance but are assured by the Comptroller & Auditor General that they have no significance.

5.6The Committee acknowledges that the relationship between financial reporting standards and the standards of reporting for evaluation purposes has not yet been determined in this country. As things stand, the requirements of compliance auditing and reporting are uppermost. However, the growing concern about the economy, efficiency and effectiveness of public expenditures, of which this Committee is itself an expression, means that the presentation of financial information by auditors of public bodies, must give greater emphasis to the needs for maximum transparency and scrupulous compliance with best accounting practice.

5.7The Committee also considers that it is necessary to improve the non-financial information contained in the reports of State bodies such as SFADCo. SFADCo’s Annual Reports do contain a large number of indicators of “output”, such as jobs approved, jobs created, numbers of tourists, number of projects aided by the Innovation Centre, etc.. However, these measures of output of the different services provided by the Company are not aligned to the cost of providing them. The Committee recognises that the selection of appropriate measures of output, and cost is not a simple task. The Committee has looked at the Annual Reports of comparable UK bodies such as the Highlands and Islands Board the Scottish Development Agency and Mid-Wales Development bu these bodies offer little in the form of non-financial performance indicators. Nevertheless, the Committee feels that some work should be done by SFADCo and other State-sponsored Bodies which it is obliged to review, in conjunction with the Departments to which they report with a view to improving non-financial indicators of performance.

Recommendations

5.8The following recommendations are designed to increase the value of the SFADCo annual report in interpreting the scale and range of SFADCo’s activities and its performance in each area integrating financial and non-financial data in so far as that is feasible in an annual report.

5.9The fullest possible apportionment of overheads should be undertaken between the various operations being reported on. The cost of job creation should be shown in the annual report. The method of calculation is discussed elsewhere in this report.

5.10Separate activities, more especially when they are commercial, even where they are not separately incorporated should be separately reported on. Thus the Committee recommends that the SFADCo Annual Report shows separately SFADCo building activities, SFADCo property management, Innovation Centre, National Microelectronics Application Centre, Shannon Castles.

At present rents from housing and factories are combined and Castle Tours profits or losses are netted into tourist promotion activities.

5.11Grants to small industry in the Mid-West are not shown in SFADCo’s Annual Report as they act as agents of the IDA. While as accounting practice this cannot be faulted it makes it difficult to get any measure of the scale or effectiveness of SFADCo’s Small Industry Programme leaving nothing against which to relate SFADCo’s costs on this programme. The Committee urges that a suitable means be found for incorporating SII grants in the Mid-West in a presentation of SFADCo’s industrial promotion programme.

5.12Full compliance with best accounting practice and the Standard Statements of Accounting Practice should be observed.

This requires that where as it is argued in the case of depreciation that SSAP is inappropriate because of the funding by grant, the non compliance is commented on by the Comptroller & Auditor General. This is necessary if a reader of the accounts is to be in a position to assume compliance.

5.13The State agencies responsible for various forms of industrial promotion should jointly undertake the task of devising standards with a view to improving the value of non-financial performance indicators, relating to their task of industrial promotion.

VI SFADCo COMMERCIAL ACTIVITIES

Structures of Company

6.1The Company is organised into five main groups illustrated in the organisation chart. (Figure 1). The organisation structure reflects the three main activities of the Company, SII in the mid-west region, SFZI and tourist promotion through the airport.

6.2SFADCo has a number of activities which might be described as “quasi commercial”. These activities, though basically developmental in nature, do recover part of their costs in sales. While the criteria include considerations other than commercial in evaluating these activities, it is desirable that their commercial performance be clearly identified and returns maximised.

Shannon Castle Tours

6.3The composition of this activity has already been outlined. Table 1 shows the net returns to SFADCo since 1979 and the total book value of SFADCO’s investments in the castles and other facilities. Excluded from the calculation of profit or loss on this activity is the cost of “promoting” the castles in overseas markets. SFADCo claim that identifying expenditures solely attributable to promotion of the castles is not easy because they form part of the general promotion of the airport traffic. However, in 1984 the Company has estimated that such costs amounted to £147,000. Thus, although the Company has increased the profitability of the castles operation in recent years, the net contribution to overheads is very small. It has to be stressed again, of course, that the function of the activity in the past has been to draw tourists to the region through the airport. But after two decades of developing the castles, it is time to look for a real return or to consider realisation of this investment to free funds for other developments in the region.

Innovation Centre

6.4The Innovation Centre was set up in 1980 as an incubator for new businesses based on technical innovation. The function of the Centre is to provide guidance, information, market research, advice, work space and some technical facilities for entrepreneurs with new product ideas. The Centre also provides assistance with raising finance for the commercialisation of products. Commercialisation as such is usually undertaken outside the Centre in a convention industrial estate with the assistance of the usual range of grants from IDA/SFADCo.

6.5The Centre provides help from conception of a feasible commercial idea to the birth of a commercial enterprise. From an organisational point of view, the Centre is part of SFADCo’s SII promotion function and is funded out of SFADCo’s industrial Grant-in-Aid. It has its own Executive Board with outside representation. It was originally envisaged that the Centre would be self-financing in the long run. The degree of success achieved in that respect is shown in table 2. Revenue earned by the Centre consists of payments of rents for space in the centre and royalties from successful products. So far the bulk of the revenues received from the Centre has been in the form of rents and fees. The arrangement with respect to royalties is that they will be three times the cost of services provided by the Centre in the case of successful products. Charges are waived in the case of products which do not reach commercialisation.

6.6While the financial results have been sluggish, the Company has stated its satisfaction with the number and quality of the projects passing through the Centre. A recent study of science and technology in Ireland by the OECD commented favourably on the Centre’s performance relative to similar institutions abroad where experience indicates that there is a long lead time for the development of technologically advanced projects. Nevertheless, in a time of financial stringency, it may be necessary to shorten planning horizons. One problem confronting the Centre in this respect is the tailing off of ESF grants. This Committee believes that the Centre should adopt explicit targets for achieving financial and organisational self sufficiency and for the growth of total expenditures over time. Its present status is that of a national facility under the aegis of a regional agency.

6.7The fact that the Innovation Centre is a national agency is reflected in the representation of outside bodies on the Board Although most of the Centre’s activities to date relate to the mid-west, the “outside” component is rising. Given SFADCo’s regional remit it would seem reasonable to expect the national institutions such as the IDA, the IIRS and the NBST to undertake part of the funding of the Centre. The Committee understands that this approach is being pursued. The Committee also recommends that the royalty arrangement be reviewed. A larger “take” than three times costs would seem to be justified in the case of successful projects.

(1)Difference between revenues and expenditure is included in industrial promotional expenditures in SFADCo accounts. ESF grants for the Centre are included in “ESF Grants” as part of SFADCo income. Royalties are expected to be £29,000 in 1985.

National Microelectronics Application Centre

6.8The MAC was set up in 1980. The motivation came from SFADCo in conjunction with the IDA, the NBST and the NIHE, Limerick. The original concept was for a facility which would help promote the application of micro-electronics in Irish industry, through the establishment of a well-equipped micro-electronics laboratory, staffed with appropriately qualified personnel, with strong links to the Faculty of Science and Engineering in NIHE. The facility would provide contract R & D for companies in the micro-electronics area or companies capable of using micro-electronics technology. The facilities of the Company were to be sold aggressively to Irish industry nationwide and it was planned that the Company would make a profit within three years of its establishment.

6.9The legal structure was that of a Company funded by loan capital from SFADCo. The directors are appointed by the constituent bodies which include (in addition to SFADCo), the NBST, IIRS, NIHE, and D/ I & C. Although SFADCo provides the capital for the Company, and so it is a subsidiary, responsibility lies with the Board of Directors whose members are nominated by four other organisations

in addition to SFADCo. In fact MAC is both a commercial State Company in its own right and a SFADCo subsidiary.

6.10The cumulative results of the Company to the end of last year are shown in Table 3. Though the Company did generate a significant amount of business it was not enough to cover its costs. In fact cumulative losses are over 50% of turnover without charging for the loan capital subscribed by SFADCo. The Committee considers that this arises from an over optimistic assessment of the market relative to the staff numbers involved, inadequate control of work undertaken, and difficulties in costing jobs in a field where there was little experience nationally. A major restructuring of the Company has recently been completed including a reduction in staff numbers, a move from the Innovation Centre (a SFADCo facility) to NIHE, Limerick and a change in Board structure. A new plan has been developed by the Company and agreed with the Minister which is intended to bring the Company into profits by 1987. The losses for 1985 were, the Committee was informed, around £100,000. This brings SFADCo’s investment in assets and cumulative losses in MAC in five years to around £1 million.

6.11The unusual nature of MAC’s capital structure and ownership may be the reason why its accounts are not normally circulated. Considering the important role MAC is expected to play in industrial development, and considering also the scale of the financial resources already committed to it, it is highly desirable that financial and other measures of its performance be as available as they are for other comparable State-sponsored Bodies.

SFADCo Building Operations

6.12The projected financial results for 1985 from SFADCo’s industrial building operations are shown in Table 4. revenue is £4.3 million, total operating expenditure is £1.0 million and the gross revenue is therefore £3.3 million. This compares with an investment in factory buildings of £55 million in historical terms. To the revenue figure should be added profits on the sale of buildings which were in the region of £.4 million in 1984. On the other hand Company overheads, estimated at £.7 million in 1984 for factory buildings, have to be deducted from gross revenue. These adjustments do not significantly affect the rate of return, which is low.

6.13The main reason for the low rate of return is that a high proportion of the Company’s stock of buildings at any one time are empty. In the case of the factories in Shannon Free Zone, the vacancy rate is 5% - which is low. The vacancy rate in SII is higher, but not significantly so. The real problem apparently lies in a high vacancy rate in the factories built in the mid-west for the IDA. In general, the Company believes that a 15% vacancy rate is required to have a reasonable supply of advance factories available.

Advance factories are still regarded as key incentives by the Company. The Company believes that 1986 - 87 will see an improvement in the rate of return as buildings are taken up by tenants. Already, indeed, the Company is short of space in the Shannon Free Zone.

6.14Although the low return on industrial buildings may imply a subsidy to industry as a whole, the Company’s practice with respect to any one tenant or purchaser is not concessionary except in certain specialised facilities. SFADCo practice has been to sell factory buildings at cost or market and to rent them at a rate which reflects the cost of capital to the Government. In recent years, Company practice in this area has become subject to a national policy. In the case of sales, this policy, which is essentially determined by the IDA, and which has been adopted by SFADCo since July 1985 is to sell factories at £16 per square foot. Likewise, for some years past, the Company has been following IDA standards with regard to rents. Currently, these are £2.45 per square foot. As building costs are around £24 per square foot, there is a substantial advantage for new or recent tenants to buy their factories. SFADCo policy is to sell at market value or £16 per square foot, whichever is higher, unless there are compelling reasons for selling at a lower price.

Recommendations

6.15The Company has a large investment in the “castles”. While the investment was originally regarded as “infrastructural”, the size of the investment, the general pressure on the public sector’s finances and the level of promotion of the castles suggest that a commercial return on this investment can and should be achieved. The Committee recommends that the Company adopt a phased plan to bring this operation to full profitability after it carries its own promotional costs. There is no reason why SFADCo shoul be the sole owners of this commercial operation. An outside equity participation should be welcomed. The alternative of realising the investment should also be continuously under consideration by the Board with a view to ensuring the optimum return on the public funds employed.

6.16The Innovation Centre is rapidly acquiring a national role. It is no longer appropriate that SFADCo should bear the full “set up” costs. It is recommended that funding of the Centre should also come from the IDA, NBST and IIRS who form its Board. Failing agreement on national funding the Centre should be scaled back to cater for mid-west “clients” only.

6.17The Centre ought to review its royalty arrangements for successful companies. At present these appear to be unduly concessionary.

6.18The Committee notes the plan to restore the MAC to financial viability by 1987. the Committee endorses this proposal and recommends that MAC’s report and accounts be published.

6.19SFADCo’s building operations have attracted heavy investment over the years but appear to give a poor commercial return. The Committee has already recommended that the building operations be shown as a separate profit centre in the Company’s Annual Report. In light of the current pressure on public finances, the Company should adopt a more rigorously commercial attitude in its decisions with respect to investment in new buildings, sales and lettings.

6.20The Committee is concerned about certain aspects of funding occupancy of industrial premises when they inolve loans provided by SFADCo to assist tenants on a purchase deal. When the tenancy option is there it does not seem to the Committee to be a necessary part of industrial promotion. The Committee would take a similar view of SFADCo involvement in sale and lease back arrangements on industrial properties for client companies and accordingly recommends that these procedures be excluded from SFADCo’s remit.

VII JOB CREATION

7.1Job creation through its two industrial programmes is a central function of SFADCO. Unfortunately, measures of the Company’s performance in this area are subject to considerable ambiguity and are difficult to evaluate. SFADCO is not unique in this. The same problem arises in evaluating the performance of other industrial promotion agencies. Because the whole area is of such importance, and not just to SFADCO, and because of the large sums of money involved, the Committee gave special attention to seeking measures of ellectiveness of industrial promotion. It is desirable that some standard method of measuring the performance of job creating agencies be devised. A start has been made in this direction by the Management Committee on Industrial Policy under the auspices of the Department of Industry and Commerce.

Definitions

7.2In common with other job creating agencies, SFADCO uses three measures of job creating activity in any one year:

7.4The Committee considers that the following measures should also be taken into account.

7.5Unfortunately, there are significant, and variable time lags, between a project approval and the time jobs are created and the time grants are actually paid. This means, according to the Company, that the number of jobs created in any one year is not a fair measure of the success of the promotional effort in that year.

7.6Taking these considerations into account the best measure of success of the Company’s promotional effort in any one year is usually taken to be the number of jobs approved in that year. Likewise the ratio of grants approved to jobs approved in that year is the most convenient measure of the cost of job creation in that year. Of course it is recognised that it will be some time before all of the jobs are actually created and the grants paid. It is also conceded that the ratio between grants paid and jobs created may be different to the ratio between jobs approved and grants approved.

7.7A more accurate measure of the Company’s performance in terms of job creation would result from taking averages of approvals, creations/payments, and redundancies (or its reciprocal - survivors) over a period of years. This procedure will even out the distorting effect of lags. The disadvantages of this averaging procedure is, of course, that it obscures the performance in any one year. There is also the question of the number of years to be taken in the averaging procedure. Taking different periods can give different results. Finally, averaging a number of past years is not quite as simple as using current year data only. The Management Committee on Industrial Policy has decided to adopt six years as the basis for applying a rolling average grant cost per job created.

7.8Examination of the measures of performance used by SFADCO in the light of the foregoing observations raises three questions:

(a)The significance of the concept of job approvals and grant approvals as a measure of performance.

Job Approvals and Job Conversion Ratio

7.9The significance of the question about job approvals is highlighted by the attached Figures 2 and 3. These show the relationship between the cumulative number of jobs approved and the actual change in employment in SII and SFZI respectively. The data is replicated in Table 5. As can be seen, there is an enormous gap between the two pairs of data. In the case of SII, between 1977 and 1984 employment in grant aided projects rose by 2,100 while cumulative job approvals in that time were over 10,500. Likewise, in SFZI employment dropped by 46 while approvals totalled 5,900.

(a)the job conversion ratio - that is the proportion of jobs approved which convert into jobs created, and

7.11The job converstion ratio for SII and SFZI is shown in Table 6. As can be seen there is a substantial gap. In the case of SII, about 9,500 jobs were approved between 1978 and 1984 but only about 3,400 were created. In the case of SFZI about 6,900 were approved and 2,500 were created. Over the period as a whole, the job conversion ratio for both programmes

works out at 36%. The Company contends however, that because of statistical problems with SII data in the early years of the programme when a number of already-existing jobs were included in job approvals, the true conversion ratio for SII is closer to 50% The Committee consider even that figure to be low.

7.12The conversion ratio could, however, even when calculated over a period of years be depressed by either (a) an acceleration in the number of jobs being approved and converting into jobs in future years or (b) a longer time lag between approvals and creations during the period under review. The increase in the ratio between approvals and creations is analogous to the increase in the ratio of working capital to turnover in production of items with a long lead time (e.g. ship building) arising from a surge in business or an extension in the average completion times.

7.13In SFADCO’s case, however, the number of approvals was not accelerating, though the lead time from approval to creation may have been expanding. But the speedy conversion of approvals into jobs is not something entirely outside the Company’s control. The Company’s heavy investment in advance factories is specifically designed to accelerate the conversion process. Allowing that there may be some discontinuities over the period under review, the facts would indicate that SFADCO’s true job conversion ratio is between one third and one half.

7.14This raises questions about the usefulness of the job approval concept, since it seems to convey an exaggerated measure of actual results.

7.15The second issue which arises is that emphasis on the ratio between grant approvals and job approvals might distract attention from the ratio between the actual grant paid and the actual number of jobs created. In fact, examination of the data does suggest that grants paid per job created is higher than the grants approved per job approved as shown in Tables 7 and 8. In the case of SII, grants paid per job created turn out to be 20% higher than grants approved per job approved. In the case of SFZI the excess is 50% Therefore, not only do approvals data give a false impression of the volume of activity but more seriously they also tend to understate the cost of job creation.

7.16The Committee regards the above as disturbing because it may mean that projects are attracting public funding on the basis of estimates and projections which experience should show to be unduly optimistic. The Company has indicated to the Committee that diligent efforts are made to ensure that all projections and estimates submitted to it are realistic. The Committee recommends that the Company analyse its experience with respect to approved and actual grant and job data for the last number of years to indentify the cause of divergencies. In the meantime the Committee recommends that the Company when making decisions to support projects, should make a global provision in its own estimates of grant and job approvals to allow for the divergency revealed in Tables 7 and 8. These provisions should also be incorporated in published figures on job and grant approvals.

Redundancy Ratios

7.17The Committee also considered the question of the survival rate of jobs created as a result of SFADCO’s programme calculating redundancies in any year as a percentage of the average labour force during that year. The figure averages out at about 9% for SFZI and 10% for SII over 1979-84 inclusive. The life expectancy of a job, once created, therefore, is about 10 years. This the Committee considers to be quite satisfactory.

Cost of Job Creation

7.18The Committee then considered the question of the total cost in terms of Public funds of SFADCO’s job creation programme. In submission to the Committee, SFADCO estimates that the cost of a job created and sustained was £5,500 for SII and £19,000 for SFZI. These estimates were made by dividing the total amount of money paid in grants over the period 1977-83 by the total number of jobs created during 1978-84 and still extant at the end of 1984. This is the procedure adopted by the IDA and published in its annual report. The Committee does not regard this approach as satisfactory. The definition of “costs” is far too narrow and the number of jobs created and sustained is a dubious measure of the “return” from the State’s investment. This approach is reflected in the technique developed by the Management Committee on Industrial Policy. The Committee’s reservations arise from the following considerations.

7.19The definition of costs excludes net spending on factory buildings and the current costs of administration and promotion. In excluding net spending on factory buildings from the estimates of the cost of job creation SFADCO has argued:

(a)that the factory buildings earn rents and (by implication) are, therefore, self financing and

(b)that included in the cost of factory buildings are advance factories and the costs of site development and infrastructure which are provided for future use and should not be included in a measure of current performance.

7.20As the Committee has already pointed out earlier in this report SFADCO’s industrial building programme earns a very low return and could not be self-financing in the sense of earning a return which would be acceptable to a commercial developer or meeting the cost to the Exchequer of those funds. In any case, whatever the level of actual or potential returns in the form of rents and profits on sales of buildings, the fact is that the activity does generate a significant cash outflow. That outflow constitutes part of the State’s investment in job creation and ought to be counted as such alongside grants. The Committee also contends that no discount should be made for facilities provided in advance. Just as a private company has to remunerate from current factories, buildings in the course of construction, so also must the State take into account the cost of all its investments in job creation including assets in course of construction and assets provided in advance.

7.21Tables 9 and 10 show the Committee’s estimate of the costs of job creation by SFADCO in SII and SFZI respectively. As can be seen the estimate of costs includes not only grants and expenditure on industrial buildings, but also net current expenditure. Net income from rents and the proceeds from sales of factories are shown as deductions from the gross cost. The net cost is grossed up by the capital goods price index to 1985 prices. The final two columns show the number of jobs created and the average cost per job. The expenditure and income figures shown in this table are not completely comprehensive, since grant repayments from enterprises which close down and repay part or all of grants received under the contingent liability provisions of their grant agreements with SFADCO and the IDA are not included. Inclusion of such amounts would not significantly affect the measures of cost per job. However, it may be argued that some impact of the Company’s programmes accrue outside the mid west. On the other hand, current expenditures on both programmes probably understate to a significant degree the operating costs of running the industrial promotion policies of SFADCO because only part of the Company’s total revenue expenditure has been allocated to the Company’s various programmes. The remainder is classed as overheads and are thus excluded.

7.22As can be seen from Tables 9 and 10, the cost per job in 1985 prices created in SII varied from £12,520 in 1979 to £32,160 in 1980 with the average at around £19,570. In the case of SFZI the range was from £5,267 in 1984 to £69,578 in 1982. The average cost was £18,579. There was considerable variation in both programmes from year to year for various reasons. In the case of SFZI in 1984, the exceptionally low figure of £5,267 was attributable to the netting against expenditure of the proceeds of the sale of a major factory unit. In the case of the exceptionally high figures recorded in 1982 and 1983 in SFZI, the explanation lies in the small number of jobs emerging that year compared with grant payments, related to the higher level of activity in immediately preceding years.

7.23The foregoing calculations make no allowance for the incidence of redundancy and as such cannot be taken as a fair measure of the cost of the SII and SFZI programmes. In fact the incidence of redundancy in these programmes is high in absolute terms. Thus, in the period 1978-84 inclusive, 3,768 jobs were created in the SII but at the same time there were 1,666 redundancies. In the case of the SFZI, 2,978 jobs were created but 2,736 redundancies occurred. The IDA/SFADCo procedure does make some allowance for redundancy by counting only jobs created and sustained. In the case of the SII, for example, of 3,768 jobs created in the period 1978-84, 2,434 were still extant at the end of 1984 - a survival rate of 65%. In the case of SFZI the survival rate calculated on the same basis was only 41%. Combining this method of calculating the number of jobs with the Committee’s methods of calculating costs, yields some very high figures. In the case of SII the cost per job created and sustained works out at around £30,000 while in the case of SFZI the cost is around $45,000. This approach, however, does not take account of the benefit to the economy of a job which, even though it lasts only a few years, does generate income and tax revenue during that period.

7.24The Committee, therefore, recommends that the concept of jobs created and sustained be abandoned as a measure of performance and replaced by some measure of the actual economic benefit generated by the jobs which it helps to create. The most relevant such measure would be value added which is the difference between sales revenues and the cost of materials and services purchased. It is approximately equal to wages and salaries and profits gross of depreciation and interest charges. It would be important to identify the wages and salaries component of value added. It would also be desirable to identify purchases of domestically produced goods and services from imported ones. Obviously, such data can only be obtained by direct survey of “client” companies and it might be anticipated that some companies would have reservations about disclosing such data to third parties. However, value added data is disclosed by all manufacturing companies to the CSO in their returns for the annual Census of Industrial Production. Accordingly, the Committee recommends that SFADCo obtain value added data on the companies within its remit each year as a basis for measuring its performance in promoting industrial development, and that the Management Committee on Industrial Policy considers this approach for a wider application on the basis of the value of the results. Meanwhile the Committee recommends that the present system be revised to include all exchequer costs per job created through each industrial promotion agency.

7.25SFADCo would then be in a position to estimate the value of the employment it has helped to create showing the direct and indirect benefits and costs to the economy from job creation. The Committee understands that the IDA undertakes such analyses. The value added data would also enable SFADCo to calculate the benefits to the Exchequer from its job creating activities. These benefits, which comprise PAYE, PRSI, VAT etc., could then be compared with the cost to the Exchequer of promoting the jobs through SFADCo.

7.26In the absence of exact measures of value added, a crude approximation of the benefit to the Exchequer from SFADCo’s job creation programmes can be obtained by assuming that the jobs created by SFADCo attract the same rate of payment as the average Irish industrial worker. According to IDA calculations, the benefits to the Exchequer from an industrial job is equivalent to 47% of the wage earned in that job. Applying this percentage to the average industrial wage yields a flow to the Exchequer of £4,230 per annum. Applying the SFADCo life expectancy to the job the present value of a ten year stream of earnings of £4,230 discounted at a real rate of 8% (the discount rate adopted by the IDA) is £28,000. As this is greater than SFADCo’s average cost of job creation of £20,000 approx. the effect on the Exchequer is on average positive.

7.27The margin between the above two figures suggests a need for caution Even a small adverse variance in any of the parameters would depress the discounted net benefits below the estimated costs. For example, while the average life expectancy of jobs created with the aid of SFADCo is ten years, there is some evidence from the data that life expectancy is shortening, perhaps as a result of the impact of the recession of recent years or perhaps because competition is strengthening. If a seven year life expectancy is taken (this is the assumption used by the IDA) then job creation at a cost of about £20,000 is marginal. Again, the assumptions with respect to incomes may be optimistic - especially with respect to small industries where earnings might be less than in larger enterprises. There are, in addition, the questions of displacement and deadweight discussed below. In the circumstances, a final judgement must await the results of detailed study. In the meantime it can at least be concluded that SFADCO must either improve the “productivity” of its efforts by finding more viable projects - a difficult task in present circumstances - or by rigorously cutting back on its job creation costs, or by being more selective in choosing companies to assist and scale down its operations accordingly.

Displacement and Deadweight

7.28These estimates of the cost of job creation exclude any consideration of the effect of “deadweight” or “displacement”, which, to the extent that such effects take place, raise the cost of job creation. “Displacement” occurs when industries are established with state assistance to supply markets already being supplied by existing Irish firms. Unless the market is rapidly expanding or unless the product or service is new any jobs created may be in whole or in part, at the expense of existing jobs. Obviously this danger is less likely to occur in the case of export oriented enterprises. But it is notable that the majority of the small industries assisted by SII are in fact selling all of their output on home market (and most of the remainder are selling at least some of it on the home market). The displacement effect is reduced by the requirement of the Company that home sales should be import-displacing, but this does not guarantee that displacement of Irish firms will not occur. There is a possibility, therefore, that some of the jobs created by the SII programme may cause redundancies elsewhere in Ireland. The Committee would find it difficult to justify such use of Exchequer funds.

7.29The export oriented industries may also cause displacement effects through their impact on limited supplies of labour and other resources. This type of displacement can be termed “supply displacement” to distingiush it from “market displacement” described above. In general, of course, industrial resources of labour, buildings, equipment, finance, utilities, etc are not in short supply in Ireland so that it seems unlikely that displacement is likely to take place through grant aided industries diverting resources from existing companies and thus causing redundancies. However, some types of skill are in short supply and it may be that “supply-displacement” occurs from time to time.

7.30When assessing the cost of creating jobs consideration must also be given to the possibility that some of the projects assisted would have gone ahead even if no assistance had been available. This is termed the “deadweight” effect. Again, as in the case of displacement, it is not likely that mobile foreign owned projects would come to Ireland without some measure of Government aid, though it may be, as the Telesis report contends, that the levels of grant need not be as high as they are in Ireland to attract foreign investors. But, in the case of Irish owned enterprises, particularly those using local resources and selling on the home market, it may be surmised that a number at least would have gone ahead without any assistance from job promoting agencies. To the extent that this effect exists, the jobs which are created in “deadweight” projects should be subtracted from the total jobs created by job promoting agencies. Again, the net result, as in the case of the displacement effect, is to increase the cost of (net) jobs created.

7.31It is extremely difficult to quantify the displacement and deadweight effects in any objective manner. However, a close examination of the products, markets, skill composition, and supplies of the projects aided by the state job creating agencies would help to suggest at least an order of magnitude of the scale of these two factors. Such an examination is clearly beyond the scope of this inquiry so no attempt is made to allow for these factors. However, the Committee recommends that such an examination be undertaken in the context of the study of the costs and benefits of industrial promotion already recommended particularly in light of the growing emphasis on the promotion of SII where the risk of displacement and deadweight costs are higher.

Recommendations

7.32The Committee recommends that job approvals, as a measure of performance, be dropped from the Company’s external reporting. However, the Company has contended strongly that the “job approvals” figure is an essential element in internal reporting. The Committee would urge caution in basing significant management decisions about personnel, data.

7.33Examination of the data shows that there is a gap between the ratio of grants approved to jobs approved on the one hand and grants paid to jobs created on the other, such that the reality turns out to be worse than expectations. The causes of this divergency should be analysed in detail by SFADCO. Meanwhile the Committee recommends that SFADCO should build in global factors, based on experience, to allow for this divergency, when it is making decisions about projects and in its published reports.

7.34In submissions to the Committee SFADCO estimated that the cost of creating a job in SII is £5,500 while in SFZI it is £19,800. The Committee does not regard the procedure involved in these estimates as satisfactory because the definition of costs is too narrow. It therefore recommends that SFADCo should include in its estimates of the cost of job creation the costs of its factory building programme and its current costs as well as its grant costs.

7.35The Committee also takes issue with the use of jobs as a measure of the return from job creation activity by SFADCo. Instead, the Commitee recommends that the appropriate measure should be value added. Data on value added should be collated by SFADCO from the companies it has assisted. With the aid of this data it is recommended that SFADCo undertakes cost benefit analyses from time to time to determine the effect of its programmes on the economy.

7.36A simplified estimate of the costs and benefits to the Exchequer from SFADCo’s industrialisation programme indicate that there is an average net benefit. However, the benefit is so small in relation to the estimated costs as to suggest that there may be diseconomies. The figures would indicate that the Company needs to find means of increasing the productivity of its efforts (i.e. to find more viable projects or reduce its average job creation costs) or face the necessity of being more selective in the companies it chooses to help.

7.37In any examination of the effectiveness of job creation programmes the Committee considers that it is of increasing importance that due weight is given to the possibility of ‘displacement’ and ‘deadweight’ effects. Either effects raise the real cost of job creation and both become an increasing risk as industrial promotion increasingly focusses in SII. Accordingly, the Committee recommends that, in considering the limitations of the six year rolling average system of measuring grant costs and job costs and the Committee’s proposal for measuring total costs of industrial promotion against the increased value added arising, an examination of the extent of these effects should be undertaken with a view to ensuring that the marginal impact on the Exchequer of such public expenditure is positive.

VIII TRAFFIC DEVELOPMENT

Strategy

8.1SFADCo’s function with respect to tourism is as a means of promoting traffic through Shannon Airport. It is not, therefore, an end in itself. The Company has no explicit responsibility for developing tourism in the mid-west region. The Company has invested money and effort in developing facilities in the region, as a means of promoting traffic through the airport. Much of SFADCo’s tourist packages embrace other regions, notably, the West and South West regions which are high in tourist potential and relatively close to the airport.

8.2The greatest part of SFADCo’s promotional efforts are directed at the North American market. Tourists from this market can be attracted to this country through Shannon Airport as the initial (or terminal) leg of a European holiday. North American tourists are also back tracking to the mid-west and other regions from Britain travelling in these cases by sea and air. The Company is also developing traffic with the continent.

8.3The Company’s strategy in developing tourist business arises from its traffic promotion role and consists of the following elements:

(i)The Mid-West was deficient in hotel accommodation when SFADCo was set up. Although SFADCo does not, and never has had powers to grant aid or to otherwise invest in hotel accommodation, it promoted tourism amongst potential investors.

(ii)SFADCo saw the Mid-West as having fewer attractions than some other regions such as the South-West, the West and Dublin region and commenced a programme of investment in castles and other projects of historical interest. This programme, which has cost a total of £2 million, excluding losses and promotion costs, is still in progress.

(iii)The Company promotes tourist business in North America and elsewhere by arranging attractive holiday packages for tour operators and airlines using Shannon, who retail them to the general public.

(iv)In association with the Shannon Castle Tours division of Aer Rianta, SFADCo arranges ground handling facilities for overseas tour operators. These facilities comprise the transport and courier services for operators who lack the resources to provide them themselves.

Resources

8.4The costs of the Company’s traffic development activities are shown in Table 11. The figures take account of the profits or losses of SFADCO’s 50% share of the Shannon Castle Tours business. The cost increased by about 100% in money terms or by 50% in real terms over the 6 year period. Table 11 also shows the breakdown of this expenditure by main category for the period 1980-84. The amount is split evenly between salaries and overheads on the one hand and promotional expenditure on the other. Promotional expenditure includes the cost of brochures, expenditure on participation in fairs and exhibitions, travel and subsistence costs of sales people, financial and other support for operators, consultancy and market research fees and advertising.

8.5The total number of persons employed in the traffic section is 24 of whom 8 are assigned to the Operations Division which deals with the development of the physical facilities owned by the Company (i.e. the Castles). The remainder are in the Traffic Development Division and about 10 of these function in a sales capacity or in direct support of sales; the remaining six are in research, planning and administration

Trends

8.6Table 12 shows some trends in traffic and related indicators of tourist activity in the mid-west region. As can be seen terminal traffic through Shannon Airport is on the increase after a period of decline which was largely attributable to the recession. The recovery reflects the recovery in the U.S., the strengthening of the dollar and attractive pricing on transatlantic routes.

Benefits

8.7Although there is a general relationship between the Company’s promotional efforts and traffic volumes, to quantify an exact causal relationship would be impossible. Many of the visitors entering or leaving the country through Shannon Airport cannot be “credited” to SFADCO promotional efforts because:

(b)they are part of the ethnic Irish market and would also have visited the country anyway. (About 13% of U.S. visitors to Ireland were born in Ireland or are first generation Irish-Americans);

(c)they are responding to advertising and promotional efforts directed at the country as a whole by BFE or Aer Lingus/Aer Rianta.

Of course, SFADCo could also claim credit for many tourists visiting Ireland other than through Shannon Airport who are making second and subsequent visits to Ireland the first having been as a result of SFADCO’s promotional efforts.

8.8About the nearest direct measure of the effectiveness of SFADCO’s promotions that can be arrived at is through the Company’s finding that about 185,000 North American terminal movements (i.e. departures and arrivals) in 1984 were attributable to tour operators associated with SFADCO programmes. Likewise, about 80% of the 54,000 continental European movements at Shannon in 1984 were from charters by operators which SFADCO had assisted. This would probably work out at about 100,000 North American and 21,500 continental visitors. North American visitors entering through Shannon spend more than twice as much as the average North American tourist in Ireland because of a longer (15.2 days) stay than the average of the rest (6.8 days). In 1984 this would have meant an average “spend” of about £660. In the case of continental visitors the average for the country was £218. Applying these values to the tourist numbers and discounting for the North American “ethnic” visitor suggests a national gain in gross tourism earnings of the order of £60 million.

8.9Not all of the £60 million represents a net gain to the economy. The tourist industry generates imports and consumes other resources which have alternative uses in domestic economic activity. On the other hand these figures do not include the net benefits to the economy arising from IAL’s share of the traffic. But without pursuing the matter into detail, the figures suggest that SFADCO’s investment in promoting Shannon Airport and developing the tourist infrastructure in the mid-west region has yielded a good national return.

Conclusions

8.10The probability that SFADCO’s promotional outlays generate positive returns does not mean that the Company might not get the same result from lesser expenditures or more from the same. It has been put to the Committee that the national bodies charged with tourism and air traffic could take on SFADCo’s role in this area more cost effectively. The validity of such a proposition would depend on whether the Shannon Airport and the Mid West Region could continue to attract tourism and that there could be savings derived from avoidance of duplication confusion or conflict.

The Committee considers that this element of the SFADCo programme has been successful in establishing the tourist infrastructure in the Mid-West and the tourist traffic through Shanhon and that better results could not be derived from scarce public funds by a rationalisation and reassignment of roles as between Aer Rianta, Bord Fáilte and SFADCo.

8.11SFADCo has no operating role in the airport. Its role is to undertake the promotion of that part of the traffic which can be persuaded to get off at Shannon (terminal) as distinct from the promotion of transit or touch down traffic which is inter alia the task of Aer Rianta. Aer Rianta believe that they could do their job better and more cost effectively if this distinction were no longer made. This Committee accepts that.

The means by which SFADCo has undertaken to promote terminal traffic is of course through the promotion of tourism and the packaging of tours involving Shannon Airport as the terminal.

The Committee recommends that the SFADCo role in tourism promotion be assigned to Bord Failte provided they enter into an agency agreement with SFADCo for the promotion of tourism in that region on the lines of the agreement operating between SFADCo and IDA.

The Committee understands that this question of role overlap has been under consideration by Department officials for some time and now urges prompt action.

Overall Conclusions

In the course of its review of SFADCo the Committee had the opportunity to see some of the excellent work being undertaken through State-sponsored agencies in the pursuit of national objectives of developing infrastructure and promoting economic development.

In fact the work of SFADCo has been acknowledged internationally as highly successful and presenting a useful development agency model.

This derives in part from the open brief and comprehensive range of authorities assigned to SFADCo but more especially from the innovative and enterprising approach pursued by its staff.

The Committee in making its recommendations for the better use of scarce public funds wishes to record its support for the innovation and enterprise of SFADCo.

But SFADCo cannot stand still and precisely because it was successful in building up the tourism infrastructure in the region and thereby increasing the terminal traffic through Shannon Airport, it is now appropriate to rationalise public expenditure on airport management and traffic promotion, and on tourism promotion. The Committee’s recommendations are designed to ensure that the job can be done for less cost.

SFADCo has piloted many new approaches to job creation from the time of its first involvement in establishing the Shannon Free Zone including in recent times community involvement in job creation, job sharing and new approaches to part-time farming and to the food industry. In common with other industrial promotion agencies it is now necessary to look at the cost of job creation not only in terms of the grant costs but also in terms of the considerable and growing promotional and overhead costs associated with grant agencies. The Committee’s recommendations are designed to improve the data base on which the cost effectiveness of industrial promotion can be assessed and the relative value we get from the different type of agencies engaged in this work in Ireland. This is very important for the future when indigenous industry is likely to be increasingly the target of industrial promotion agencies.

In recent years SFADCo has set up new agencies some with national application to assist in industrial promotion. SFADCo has also become involved directly in commercial operations and as an investor in associated companies. The Committee makes a number of recommendations which are designed to improve the level of information available to the public on new Semi-State bodies established and to provide for increased transparency in the presentation of accounts so that commercial operations clearly stand on their own feet and the impact of SFADCo on its various briefs can be more clearly measured.

SFADCo has been responsible for the management and maintenance of Shannon Town. The 1984 White Paper on Industrial Policy has indicated a Government decision that this responsibility should transfer to Clare Co. Council. The Committee supports this approach and is somewhat concerned by the fact that no visible progress has been made to this end despite the Government decision.

SFADCo activities have included the promotion of property development projects, equity participation in the nursery trading business, the provision of loans for purchase of factories and a sale and lease back arrangement on warehousing. The Committee considers that authority to undertake such activities is not necessary to achieve SFADCo’s objectives and that such authority should accordingly be circumscribed.

SFADCo on the basis of its present investment in industrial property and commercial operations is almost 50% self-financing. The Committee can see no reason why the extent of its financial self-sufficiency should not be progressively improved until SFADCo is capable of meeting its full promotional and overhead costs from its own resources within a decade. On that basis the national industrial promotion policy should be geared to being i a position to meet the claims of other regions for a regional development agency in time.

Recommendations

The key recommendations of the Committee detailed in this report are set out hereunder.

Traffic Promotion and Tourism

1.Aer Rianta should be given responsibility for the promotion of all traffic through Shannon Airport.

2.Bord Fáilte should be given responsibility for all public expenditure on tourism promotion and development and should undertake an agency agreement with SFADCo on the lines already in place between IDA and SFADCo.

3.SFADCo should assign the full promotional costs of its commercial tourist activities to those activities and should seek to improve their commercial performance. Consideration should then be given to inviting equity participation in these projects or to realising the investment with a view to applying the funds in pursuit of SFADCo’s regional development brief.

4.In any event the offices of SFADCo and Bord Fáilte in New York should be rationalised with a view to avoiding confusion and maximising cost effectiveness.

5.These changes which have been under consideration in the past should be implemented with a minimum of delay.

Cost of Job Creation

6.The Committee recommends that SFADCo undertakes the survey work necessary to measure the effectiveness of its industrial promotions activities compared with the added value arising, having given due weight to redundancy displacement and deadweight effects, and meanwhile that the 6 year rolling average system devised by the Management Committee on Industrial Policy be amended to reflect not only the grant cost of jobs created but also the total cost to the Exchequer per job created for Each promotion agency.

7.The Committee recommends in light of the question posed by the data over the marginal value of SFADCo’s industrial promotion programme and the growing importance of SII that this be the subject of an immediate comprehensive study.

8.The Committee also recommends that the Management Committee on Industrial Policy give consideration to a simple and reliable system of verifying the real cost of capital expenditure submitted for grant approval. The Committee recommends that consideration be given to compiling a panel of industrial valuers to be drawn on by the client at the discretion of the agency.

Annual Report and Accounts

9.That SFADCo’s annual report and accounts comply in full with the Standard Statements of Accounting Practice, indicating where they are not in compliance and the reasons therefor.

10.That overheads be apportioned as fully as possible between the various operations being reported on.

11.That each commercial activity be separately reported on including building activities, property management and tourism operations.

12.That each subsidiary be fully and separately reported until such time as separate arrangements are made for their funding and reporting. This applies in particular to the Innovation Centre and the National Micro Electronic Application Centre.

13.That some suitable arrangement be devised so that IDA grants paid by SFADCo be shown in the SFADCo Annual Report.

14.The method of calculating the cost of job creation is the subject of separate recommendations. The cost per job taking these recommendations into account should be shown in the annual report.

Shannon Town

15.The Committee recommends that the Government decision conveyed in the 1984 White Paper on Industrial Policy for the transfer of Shannon Town to Clare County Council should be implemented forthwith.

SFADCo Authority

16.With the exclusion of Shannon Town from its remit the Committee sees no reason why SFADCo should continue to engage in banking and accordingly recommends a restatement of the authority of the Board which effectively excludes it from providing loans or otherwise funding the use of properties through arrangements such as sale and leaseback.

DÁIL COMMITTEE ON PUBLIC EXPENDITURE

SHANNON FREE AIRPORT DEVELOPMENT COMPANY LTD.

1 SUMMARY

Scope of Report

Functions of SFADCo

Duplication

Strategic Options

SFADCo Annual Report

Commercial Activities

Job Creation: Measures of Performance

Cost of Job Creation

Tourism/Traffic Promotion

II INTRODUCTION

Orders of Reference

Work done by the Committee

Acknowledgement

III BACKGROUND

Origins and Purpose

Airport Management

Tourism Development

Transit Traffic Development

Industrial Promotion: Shannon Free Zone

Regional Industrial Development

Small Industry Development

Urban Development

Urban Redevelopment

SFADCo Incentives

Conclusions

Recommendations

IV LINKS WITH OTHER STATE BODIES

Industrial Development Authority

(a) SII

(b) Shannon Free Zone

(c) Conclusion

Aer Rianta

CIE

IIRS

Recommendations

V SFADCo FINANCE AND ACCOUNTS

Financing

Accounts

Recommendations

VI SFADCo COMMERCIAL ACTIVITIES

Structures of Company

Shannon Castle Tours

Innovation Centre

National Microelectronics Application Centre

SFADCo Building Operations

Recommendations

VII JOB CREATION

Definitions

Job Approvals and Job Conversion Ratio

Redundancy Ratios

Cost of Job Creation

Displacement and Deadweight

Recommendations

VIII TRAFFIC DEVELOPMENT

Strategy

Resources

Trends

Benefits

Conclusions

Overall Conclusions

Recommendations

Traffic Promotion and Tourism

Cost of Job Creation

Annual Report and Accounts

Shannon Town

SFADCo Authority