International Engagement Inquiry
The next item is consideration of a briefing paper from the Parliament’s financial scrutiny unit on the international spending of the Scottish Government and its agencies. Members will recall that, in June, we considered a briefing from the FSU on the costs of international activity and agreed at the time to seek further information, primarily on the benefits that derive from international expenditure. That additional information is included in the papers for today’s meeting.
I welcome Ted Brocklebank to the meeting.
Before I ask the FSU team to give us their briefing, I draw members’ attention to the letter that we have received from Fiona Hyslop, the Minister for Culture and External Affairs. I am sure that everyone has read the letter, in which a number of concerns are expressed. Simon Watkins will give us an update on the matter.
In order to brief members, we have been trying to ascertain which aspects of the FSU briefing, “Impact of International Expenditure”, the Government is still concerned about. Our understanding is that it is content with the main text of the international development and China sections and that its outstanding comments relate to certain aspects of the costs of the United States and Brussels offices. It is worth pointing out that the comments relate only to the section on Scottish Government direct spending, which is only one of the report’s four sections; the others deal with the Scottish Qualifications Authority, VisitScotland and Scottish Development International. We should know either late this week or early next week what the Government’s specific concerns are.
Thank you, Simon. I am sure that members have questions on the matter, but I remind everyone that we will discuss the report in private at the end of this meeting. You will certainly have a chance to raise issues at that time.
I welcome to the meeting the FSU team who have prepared the briefing under consideration this morning—Simon Wakefield, Scherie Nicol and Nicola Hudson—and invite them to make some opening remarks.
Simon Wakefield (Scottish Parliament Research, Information and Reporting Group)
Thank you, convener, for inviting us to prepare the briefing paper and make this presentation. Scherie Nicol, Nicola Hudson and I are from the financial scrutiny unit, which is one of the Scottish Parliament information centre’s three research teams. Scherie will introduce the briefing and provide an overview of the results for SDI; I will summarise information on the Scottish Government’s spending and VisitScotland; and Nicola Hudson will sum up on findings about the SQA.
Scherie Nicol (Scottish Parliament Research, Information and Reporting Group)
The committee asked us to examine the impact of international expenditure as a follow-up to the briefing that the committee requested from us on the value of international expenditure. Before we go any further, I should clarify what is meant by an impact. Essentially, we are measuring returns on Government investment. Although returns can be measured in, for example, environmental, social and cultural terms, our paper focuses on economic impacts in light of the Scottish Government’s current purpose of increasing sustainable economic growth.
We focused on the four organisations that accounted for 93 per cent of international expenditure in 2009-10: Scottish Development International, the Scottish Government, VisitScotland and the Scottish Qualifications Authority. We compiled the briefing using information that was provided directly from those organisations.
Measuring the impact of international expenditure has been a complex and difficult task, but one of our key findings is that, in general, organisations are meeting internal output targets that relate to international activities, such as on the number of high-value jobs assisted and the return on investment for specific tourism marketing campaigns. The Government’s international expenditure is, however, just one of a multitude of factors that influence overall outcomes in areas such as exports, tourism numbers and international poverty reduction. Factors such as economic growth, exchange rates and natural disasters have all had a much larger influence on outcomes. That makes it difficult to disentangle the effects of individual public sector interventions.
I will now look at the impact of international expenditure by organisation.
Scottish Development International spends more public money overseas than any other organisation, and its international spending has risen by 47 per cent since 2004-05. Its spending goes on two main streams of work: promoting exports and attracting inward investment. Its targets for both of those work streams are set by the organisation on an annual basis and agreed with the Scottish Government. It can be seen from figures 1 and 2 in the briefing that, over the period that was analysed, SDI always performed within the set target range or above it and has thus delivered outputs in line with internal targets. The target levels show that SDI works with a small number of jobs and businesses in the overall economy, but it focuses its support on high-value jobs and key companies that it recognises as important in the strategic development of a sector.
Tables 1 and 2 in the briefing show that, throughout Scotland as a whole, the number of inward investment projects has decreased over the period, but the value of exports has increased. Those external trends have much to do with exogenous factors that are outwith SDI’s control, such as relative tax rates and global economic conditions.
On benchmarking SDI’s performance against England’s regional development agencies, table 3 shows that, although SDI has favourable returns on investment on export promotion, its performance is not as strong in other areas, particularly cost per job. However, given that the differences are of a relatively small scale, it can be concluded that, in general, the impacts of SDI’s spend are in the same ball park as those from spend by the regional development agencies.
One area in which SDI has performed very favourably relative to similar agencies is the quality of service delivery. Figure 3 shows that SDI was ranked as the sixth best performing agency out of more than 210 that were assessed across the world in a recent study by the World Bank.
Simon Wakefield will now consider the impact of spend by the Scottish Government and VisitScotland.
The Scottish Government’s direct spending overseas has two main components. The majority of it—more than two thirds of it in 2009-10—is allocated to the international development fund. Most of the remaining funding is spent on promoting Scotland, and specifically on running the offices in Brussels, Washington and Beijing.
Since 2005, £36 million has been allocated to 258 international development projects. Those figures are set out in table 5 in the briefing. Funding from the Government currently provides resources to six elements, as figure 5 illustrates. The Malawi programme accounts for the largest share of resources—around £5 million in the current financial year. Obviously, we are aware that many members of the committee have direct experience and knowledge of the Malawi programme and that many of their projects run through it. The other programmes include the south Asia and sub-Saharan Africa development programmes, and support to two networking organisations and the Scottish Fair Trade Forum. Finally, the Government has provided support to deal with the humanitarian crises in Gaza, the Democratic Republic of the Congo, Haiti and, most recently, Pakistan.
The most useful performance information on international development is provided in a review of Scottish Government projects focused on Malawi that was published in early 2009. The review concluded that 32 of the 39 projects that were selected were relevant, had been efficiently delivered, were effective in meeting their planned outcomes, had secured impact and were relatively sustainable. Some of the lessons learned were on the need for effective consideration and understanding at the outset of the initial problem, good quality needs analysis and the need to consider fully the planning process all the way through. However, overall, the review reported that the international development fund is making real contributions to the achievement of the millennium development goals in Malawi.
On the Scottish Government’s other direct spending, it is difficult to identify the specific impact of the overseas offices, not least because of the nature of the work in which they are involved. The offices clearly have a significant role in delivering the Europe, USA and China plans. The committee recently heard evidence on the 2010 annual report on the Europe plan.
Although it is difficult to link the impact of Government policy to outcomes in the area, it is perhaps worth noting the results of the nation brands index, which has included Scotland in the past couple of years. The results are shown in table 4 in the briefing. The index is based on interviews with people from 20 countries, examining six dimensions of what is called national competence in terms of favourability and familiarity with the countries. Questions are asked about people’s perceptions in relation to each country of exports, governance, culture, people, tourism and immigration and investment. Overall, according to the index, Scotland is ranked 14th out of 50 countries on its brand, which puts it marginally ahead of countries such as New Zealand, Denmark, Finland and Ireland.
VisitScotland’s international spending buys a programme of international marketing campaigns and a range of public relations activities. VisitScotland measures what it terms the return on investment of its international campaigns, although I should point out that it uses a slightly different definition of “return on investment” from that used by SDI. VisitScotland measures the value of additional tourism spending that results from a specific campaign and a ratio of the additional tourism spend relative to the cost of the campaign. It calculates that using survey evidence. Broadly speaking, respondents to a campaign are asked whether they visited Scotland and, if so, whether the VisitScotland marketing materials influenced them a lot or a little. If they were influenced a lot or a little, they are considered to be additional visitors and their spend is counted as additional visitor spend.
Tables 6 and 7 in the briefing show the figures on returns on investment. Table 6 expresses that as a ratio of tourism spending to VisitScotland’s campaign costs. For example, in 2004, the campaign in France generated £38 of visitor spending for every £1 that VisitScotland spent on the campaign. Table 7 expresses the same thing but as the total additional spend resulting from the campaign. So taking the same example, the France campaign of 2004 generated a total of £14.2 million of additional spending from the additional visitors. Broadly speaking, the data indicate that some campaigns in the European markets have achieved a higher rate of return on investment, given the ratios of the campaign costs to the spend generated. The tables also indicate that VisitScotland has been successful in hitting its own targets for the campaigns.
Looking at the performance of the Scottish tourism industry as a whole, figures 8 and 9 illustrate the fluctuations in visitor numbers and visitor spend in recent years. Figures 10 and 11 indicate that, compared to other parts of the United Kingdom, between 2000 and 2009, Scotland performed above the UK average on international visitor numbers but slightly below the average on international tourist spending generated.
I will pass over to Nicola Hudson.
Nicola Hudson (Scottish Parliament Research, Information and Reporting Group)
I turn to the Scottish Qualifications Authority. As with the other bodies that are covered in our report, the SQA’s international activities aim to promote and build the reputation of Scotland overseas, although the SQA focuses specifically on the Scottish education system. The SQA also aims to generate surplus income through its international activities, which is used to support the SQA’s core activities and role in Scotland.
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Surplus income generated by the international activities is seen as important to the SQA at a time of increasing pressures on the public purse and with forecasts of declining income from Scottish learners because of demographic factors. In 2009-10, international income accounted for 5 per cent of all income generated by the SQA. The two main strands of international activity are international awarding of SQA qualifications, with the main market being China, and international consultancy projects, undertaken on behalf of international development agencies and foreign Governments. Both areas of activity have grown substantially over the past five years. The SQA monitors the performance of its international activities through analysis of financial information and activity data. That information is reported internally to the international and commercial committee and to the board of management. The overarching international strategy is reviewed annually.
Reflecting the aim to generate a surplus from international activities, financial performance is a key factor in monitoring performance. Current figures show that in 2009-10, income from international activities exceeded the costs of delivering those activities by £0.2 million. Of that total, two thirds was accounted for by consultancy activities and a third by awarding activities. Income and activity levels have grown significantly in individual countries, most notably China, but the scope of international activities has also broadened. The SQA now undertakes awarding activities in 10 countries and has undertaken consultancy activities in 23 countries.
It is difficult to benchmark the SQA’s international activities against those of other awarding bodies because of the differing remits and status of those organisations. In international markets, the SQA is often in direct competition with private-sector organisations and the commercial nature of those activities means that accessing comparative data is not possible. It is also worth noting that although the financial imperative influences the SQA’s international activities, the wider aims of its international activities are also important, such as reputation building and awareness raising, but those are much harder to evaluate in quantitative terms.
Our review has gathered the available impact information for the four organisations that together account for over 90 per cent of overseas spending by Scotland’s public sector. We found evidence that those bodies are having a positive impact in the areas in which they operate and are generally meeting internal performance targets. We also found that there is sometimes limited information available, partly reflecting the costs and complexities of producing such information. The different types of international activities covered means that it is impossible to produce an overall impact figure, even sometimes for a single organisation.
In a wider context, it is difficult to disentangle the effects of individual interventions from the impact of wider economic factors, such as exchange rates and international economic performance. It is worth noting that the Scottish Government’s international strategy has a range of aims and objectives, including awareness and reputation building, increasing and sharing knowledge, and changing attitudes. Those wider objectives can be difficult to evaluate in purely financial terms.
In that context, it is impossible to draw definitive conclusions in respect of the overall value for money of the Scottish public sector’s overseas spending. As our report has highlighted, that can be done meaningfully only at an individual programme or project level.
Thank you for listening; we hand over to the committee for questions.