LEDU: The Export Start Scheme

The Assembly's independent auditor, Mr John Dowdall, published a report today on the former Local Enterprise Development Unit's (LEDU) Export Start scheme. This was LEDU's primary scheme for assisting new, export-oriented companies which had growth potential. Although Export Start businesses are not major projects (with a total average grant offer of approximately £30,000 per business), the aggregate assistance offered under the scheme is substantial - from 1992 to March 2001, Export Start provided offers of assistance totalling £20.6 million to 613 companies.

With effect from April 2002, Invest NI became the single economic development agency within Northern Ireland. Although LEDU no longer exists, Invest NI will continue to fund small, export-orientated businesses with growth potential (through its 'Growth Start' programme). The Audit Office believes that the lessons from this study can add value to the work of the new agency.

The Audit Office examined LEDU's project appraisal process, its monitoring and performance measurement of projects and the overall effectiveness of the scheme. The review included a detailed examination of 15 Export Start projects and a survey of 186 companies supported under the scheme.

Main Findings

  • Export Start has been an important scheme to LEDU and has made a significant contribution to its strategic objectives. However, there are a number of areas where improvement in the operation of the scheme could further enhance its effectiveness within the Growth Start programme (Executive Summary, paragraph 2).

On LEDU's Appraisal Process (Part 2 of the Report)

  • LEDU had in place a structured appraisal process for assessing projects against a range of key criteria. The Audit Office notes, however, that there is scope to improve the standard of the appraisal process. The report highlights the extent to which information was incomplete in the business plans of the 15 projects examined and comments that the degree of challenge exerted by LEDU was not always clear or consistent. It also expresses surprise that the export potential of the proposals was not subject to a greater degree of scrutiny (paragraphs 2.1 to 2.6 and 2.17 to 2.24).
  • in its survey of 186 Export Start companies, the Audit Office noted that 45 per cent of those contacted had indicated that all or most of their competitors were based in Northern Ireland. This indicates a significant potential for job displacement in other local businesses (paragraphs 2.8 to 2.16).
  • the report notes that, in the 15 projects examined, there was no documentary evidence that the levels of public funding sought by businesses had been strongly challenged by LEDU. It also notes, from the Audit Office survey of 186 companies, that £1.9 million of Export Start grant was paid, between 1992 and 2001, to businesses which stated that they would have proceeded without LEDU assistance (paragraph 2.25 to 2.34).
  • in LEDU's view, this overstates the extent to which businesses would have proceeded without financial support. LEDU said that banks may have been unwilling to provide the shortfall funding required and that promoters may be reluctant to admit they would not have been able to proceed in the absence of LEDU funding. The Audit Office considers that LEDU should be prepared to give more consideration to promoters' views, since the potential savings of public monies, implied from the survey results, are substantial (paragraphs 2.35 to 2.37).

On Project Monitoring and Performance Measurement (Part 3 of the Report)

  • LEDU had in place a number of mechanisms to monitor projects and to measure its overall performance. From 1998, it had set objectives and targets in its Corporate Plan and reported on a range of key measures. The report does identify, however, a number of areas where procedures could be improved - client data on the management information system was incomplete and there is a need for greater consistency in target-setting and in the review of performance against targets (paragraphs 3.3 to 3.8).
  • the Audit Office expresses concern at the extent to which the monitoring information required by LEDU under the terms of its offers has not been provided by assisted companies. In its view, a much higher priority should be accorded to the effective monitoring of projects (paragraphs 3.9 to 3.20).

On the Effectiveness of Export Start (Part 4 of the Report)

  • the Audit Office found a lack of a comprehensive and consistent time series of data on key performance measures for the Export Start scheme. This made it difficult to assess the overall effectiveness of the scheme since its inception (paragraph 4.2).
  • the Audit Office also found that LEDU's reported performance figures included companies which had received Letters of Offer but had not, at the time of reporting, met their Offer prior conditions or received grant from LEDU. The report notes LEDU's comments that a substantial period of time can elapse before all prior conditions of an Offer are met but that these companies could nevertheless have commenced trading. The Audit Office considers that it would be preferable not to include performance data for companies until such time as all Offer pre-conditions have been fulfilled and the company is known to be trading (paragraphs 4.3 to 4.6).
  • the report also notes that a large proportion of the turnover and export sales data reported by LEDU was based on estimates. The Audit Office recommended that, given the uncertainty associated with the reported outcomes, LEDU should review its methodology to ensure performance figures are as accurate as possible (paragraphs 4.7 and 4.8).
  • at an aggregate level, Export Start has created a significant number of new jobs, with over 3,000 full-time employees being reported at June 2000. However, the overall employment figures masked a substantial under-performance by many individual companies, within which a significant number of projected jobs were not created (paragraphs 4.10 to 4.13).
  • Export Start companies were expected to achieve 25 per cent of sales outside of Northern Ireland within four years of start-up. Approximately 75 per cent of companies met this export target. However, there is a wide variation in the levels of turnover and exports by individual companies and the actual value of exports in some companies has been very low (paragraphs 4.18 to 4.23).
  • although Export Start was targeted on companies with most growth potential, the Audit Office found that 16 per cent of Export Start companies assisted were no longer trading while a further 13 per cent were no longer designated as high growth companies. Of those projects no longer trading, half had ceased trading within two years of the Offer date (paragraphs 4.24 to 4.28).
  • LEDU aimed to address issues of deprivation through the 'New Targeting Social Need' policy. Between 1992 and March 2000, 47 per cent of new Export Start businesses were set up in disadvantaged areas. The Audit Office considers this to be very encouraging (paragraphs 4.36 to 4.39).