Hundreds of millions of dollars later, the Provincial Growth Fund has not decided how to measure success

Monday, 13 May 2019

It is meant to create 10,000 jobs and unlock the potential of the New Zealand's regions. But after allocating hundreds of millions of dollars, halfway through the electoral term, the Provincial Growth Fund has not yet determined the measure of success.

Robert Pigou, a former banker who now heads the Provincial Development Unit, the team behind the administration of the Provincial Growth Fund, was being as clear as possible.

In a slow monotone, which may have been an attempt to take up as much of the hour long media-briefing as possible, he ran through the publicly stated objectives of the billion dollar a year fund. How many applications had been accepted for funding and how many had been rejected. Which ministers made funding decisions.

But when it came to questions, specifically how the fund would know for sure it was doing the job it set out to do, he danced. Many of the projects were of a nature that it would take 'some years before the full impact of those benefits is realised', he said.

Regional Development Minister Shane Jones has a reputation for florid language and self-promotion, once describing himself earlier this year as 'the Sonny Bill Williams of politics'. But at the first ever media briefing on the Provincial Growth Fund, Jones appeared somewhat chastened, almost apologising for the attention the fund was attracting, claiming it was his style rather than any deeper structural problems.

Did that mean we would just never know? Pigou changed course, pointing to the example of work dredge the mouth of the Greymouth River, improving navigability. 'The benefits to the broader community were realised quite quickly in that instance.'

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While his political master, Regional Development Minister Shane Jones, may have been able to use barnstorming rhetoric to overwhelm questions, Pigou got to the answer eventually.

Robert Pigou (left), head of the Provincial Development Unit which oversees the Provincial Growth Fund and senior official Ben Dalton (right) flank Shane Jones at Monday's media briefing.

So far, when the PGF is attempting to measure success, it goes to the groups that it has awarded millions of dollars to, and asks them to tell it how they are doing.

'As part of contractual arrangements we have with every successful applicant, they're being asked to provide us with data, on a regular basis, about the benefits that they have seen or are directly attributable to their projects,' Pigou said.

Asked if the recipients, as the recipients of taxpayer funds may have an interest in providing positive feedback, Pigou agreed.

'Yes. We are getting very positive feedback.'

For anyone following the fund, won by NZ First as part of coalition negotiations, this should not be a surprise. It is almost identical to the answer given to Dr Eric Crampton, chief economist at the New Zealand Initiative, about a month ago, about how many jobs the fund had created.

Dr Eric Crampton, chief economist at think tank The New Zealand Initiative asked how the Ministry of Business, Innovation and Employment came up with its estimates of how many jobs had been created by Provincial Growth Fund. MBIE took two months to respond, until eventually admitting that the figures were based purely on what applicants had said they might create.

In February, Crampton demanded to know the basis upon which Pigou said that the fund was 'on track to create thousands of jobs' and that 'over 10,000 jobs may be created as a result of PGF investment'.

Pigou's statement came shortly after the National Party released figures claiming that just over 50 jobs had been created by the PGF in a year.

More than two months after Crampton asked the question, MBIE revealed it had based the job creation figures on the estimates provided by the applicants. No work had been undertaken to assess whether the claims were credible.

Where the PGF has made claims about job creation, it has not been able to say exactly how many jobs are full-time, part-time or temporary, or whether all of the workers are employees or contractors.

National's regional development spokesman Paul Goldsmith said it was 'appalling' that officials could not give clear guidance on how the Provincial Growth Funds' success or failure would be measured.

Crampton said asking people who were applying for money to speculate on the impact of a project may encourage applicants to exaggerate.

'If they think they're more likely to be funded if they make bolder claims about the likely job creation, then they might be tempted to make bolder claims about the job creation effect' of their proposals,' Crampton said.

Act leader David Seymour went further, claiming MBIE's figures were 'likely to be highly suspect given applicants want to present their projects in the best possible light'.

On Monday, asked if he was encouraged by the anyone in the Government to make the claim that the PGF was on track to create so many jobs, Pigou said there had been no contact from the Beehive.

But he admitted Jones' claim that the fund would create 10,000 jobs 'was never going to be achieved in this term of Government'. He did not say when the jobs would be created.

When it came to evaluating spending, Pigou said a more formal way of measuring the impact of the fund would come in time.

'We are looking at formalising an evaluation framework, including economic expert input into that, within the next six months.'

But he is already dampening expectations about how much can be measured or even what the metric used to determine success might be.

Asked whether the success metric would be one based on job creation, or a return on equity, or improved productivity, or something else, Pigou was unclear.

'The framework's not finalised at this stage, but what I would say is that I would imagine, given that it's 2020, we'd probably have very few completed projects that you could evaluate in that context.'

Audits begin

In April, the Office of the Auditor-General (OAG) announced that it will review the fund.

Both Regional Economic Development Minister Shane Jones and Pigou have already had meetings with the Auditor-General, both men confirmed yesterday.

In his opening statement to the media briefing, Jones even said Auditor-General John Ryan 'is currently conflicted' however the OAG confirmed Ryan was simply unable to have anything to do with work related to the Ministry for Primary Industries, where he previously worked.

Shane Jones has previously described himself as the 'champion of the provinces'.

The reference to the conflict allowed Jones to mention that MPI had previously been 'pinged' by the Auditor-General over a scheme which gave funding to private companies several years ago. Jones also revealed something he had said the the OAG, which has the power to make damning fundings about taxpayer funds.

'I think the Auditor-General's very aware that I am incredibly alert to any suggestion that just because this came from NZ First that it should suffer a more intense level of inspection, or because I have wandered around with a megaphone, somehow that means something not quite kosher is going on,' Jones said, prompting accusations of bullying by both National and Act.

Overall, Jones seemed unusually downbeat. He came close to apologising to the assembled officials about the attention the fund was attracting, putting it down not to problems with structures or even the size of the fund, but to his personal style which attracted political attacks and made it seem like he was in conflict with the media.

Economists are warning that there is less to the PGF than meets the eye.

Because officials do not know exactly what it is trying to achieve, it is not possible to know how successful in that aim.

Brad Olsen, senior economist at Infometrics, said it was natural for those receiving money to give positive feedback. But even if the projects were having a positive impact, that did not mean they were necessarily good use of taxpayer funds, as spending money on one thing meant something else would miss out.

'The evaluation needs to be, 'is it doing better than something else', rather than saying, 'is it doing better, full stop'. Because anything will do better than no action,' Olsen said.

'If I'm spending $10 million on project A, is it better than the opportunity cost, which might be doing project B or C that weren't funded?'

Crampton said focusing on jobs may be the wrong thing to do.

'As I understood the pitch around the Provincial Growth Fund, it was unlocking the potential and getting rid of some of those bigger barriers to regional development that might be more over-arching than one little scheme that hires a few people,' Crampton said.

'The point was [meant to be] less about the employment in any one of those projects, rather than the potential that could be unlocked if you were thinking about this properly.'

Crampton said it was not too late for the fund to change into something closer to what it set out to be, although he had not seen that gave him confidence it would. He was 'greatly looking forward to whatever comes out of the Auditor-General's report'.

Olsen said the jobs may not be sustainable, or other projects which might of themselves create no jobs may make an area more productive.

But in any case, a measure of success needed to be established.

'If we're not clear on what we're trying to achieve, whether it's additional jobs, or protecting jobs or increased productivity, or all of them and it's just a general economic development angle, there still needs to be a call made on what the measurement is and what is success.'

Paul Goldsmith, National's regional economic development spokesman, said the party's attempts to investigate the PGF showed very little in the way of defined objectives.

Documents about the plans to plant a billion trees showed that the objective, beyond the trees, was to create 1000 jobs, reduce soil erosion and make money from carbon credits.

'That's all it is, that's all they've said,' Goldsmith said.

'I haven't seen any details, at all, other than sort of broad political statements of intention, rather than anything in particular.'

Goldsmith said the PGF was precisely why the Auditor-General existed.

'When we have very large sums of money being spent, that's the first thing they ask, what is the framework that you use to measure success, and the fact that they haven't been able to give a clear answer to that is appalling.'