It pays to employ immigrants

The number of immigrants who arrived in Finland increased almost tenfold in 2015. This sudden change also burdened the Government’s budget: courses in Finnish included in integration and other studies are a significant cost item. In spring 2016, Hansel took part in the tendering of project management related to the employment of immigrants.

The Ministry of Economic Affairs and Employment (MEAE) approached the challenging situation with a new operating model. Immigrants are offered labour-oriented education. The goal is to have the students enter working life after approximately four months of education. Training will continue at the workplace during work, and it includes studies in language, culture and professional capabilities.

“Traditionally, it takes immigrants with a refugee background a long time to find work. We want to speed up the process with this project. The situation in 2015 was an upheaval when TE offices received almost 7,000 new clients,” says Sonja Hämäläinen, the Director of integration of immigrants at the MEAE.

The three-year project is aimed at finding jobs for at least 2,000 immigrants with a refugee background.

“If this project is a success, it will benefit both immigrants and businesses. Jobs can be found in, for example, the construction, property, services, restaurant, nursing, and ICT industries,” Hämäläinen envisions.

Funding from private equity

The project is implemented with a performance-based financing agreement called a Social Impact Bond (SIB) model, which was imported to Finland by Sitra as part of impact investment. Investors fund the activity and bear the financial risks related to it.

Rapid employment saves labour market subsidy paid by the Government and costs of integration training, and increases tax revenues. If the goals of the project are attained, the Ministry will pay part of the savings accrued into a fund. Investors recoup their equity, along with a reasonable profit.

In 2015, the MEAE cast lots on two groups of immigrants who had arrived in Finland. For three years, the group being employed is compared with immigrants being integrated by means of the traditional model. The tax income generated by groups and their social subsidy expenses will be compared, and the project administrator will receive half of the savings obtained by the Government. In addition, the project administrator receives a small fee for every immigrant who passes a certain level of training.

In this operating model, investors have the opportunity to impact on the solution of a problem in society. The public sector only pays if employment goals are reached.

Hansel assists with competitive tendering

Hansel helped the MEAE with competitive tendering for a project administrator whose duties include, for instance, considering suitable services, finding instructors and jobs, and establishing an investment fund. The project administrator also markets the fund to outside investors, such as foundations and private individuals. After a sufficient amount of capital has been accumulated, the project administrator hires businesses that provide immigrants with training and finds jobs for them.

Hansel tendered the project with an impact focus, and the bidding process was innovative in many ways: “Suppliers were given exceptionally free rein in terms of the solution offered and procedures. Only the results would matter,” says Pekka Alahuhta, a Tendering Consultant at Hansel.

Procurement based on performance was a novelty for the MEAE, so new kinds of challenges were faced. Impacts loom in the future, and results depend on the activity of the project administrator.

“During the bidding phase, we had to carefully consider how to specify the impacts. We could not tender the price of production; instead, we had to put the whole package out to tender.

“Hansel’s tendering consultant was of great help to us.”

The project pays for the results and impacts of the work done, not for completing a performance at the lowest price.

The societal impacts of the project extend far into the future: “The Government pays half of the savings gained over a few years, but the immigrants stay at work until the end of their careers. This has also been a responsible project at the individual level, from the perspective of activation, employment, and preventing social exclusion,” Alahuhta says