Address by the Minister for Innovation Policy, Michael Ahern TD, at IRDG Seminar “the Key Issues for Industry R&D” and launch of the IRDG Guide to R&D Tax Credit Scheme

Heritage Golf and Spa Resort, Killenard, Co Laois

Thursday 20^th September 2007 at 2:30pm

Good afternoon Ladies & Gentleman,

I am delighted to be here at the Heritage Golf and Spa Resort today to open this Seminar on “the Key Issues for Industry R&D” for members of the IRDG and to launch the IRDG Guide to the R&D Tax Credit Scheme.

The profile of the Irish economy has changed radically over the last decade. Ireland is now a developed economy with a challenging cost base, operating in the global market place.

There is also rapid change occurring in the environment in which Irish companies are operating. Increasing international competition is creating pressure for improvements in efficiency, quality and productivity and a growing need to innovate.

As time goes on, these pressures will increase and intensify. The pace of change and the needs of customers, now more than ever, require companies to be flexible and adaptable.

To survive and prosper, Irish companies must develop innovative and relevant products and services, which are targeted at the right geographic markets and supported by the appropriate sales structures. A wide range of approaches is required to meet this challenge, and it is in this context that investment in Research and Development becomes an all-important factor for success.

As you are aware, in July 2006 the Government published its Strategy for Science, Technology and Innovation (SSTI), which covers the period up to 2013. The Strategy aims to make Ireland “Internationally renowned for the excellence of its research” and to ensure that Ireland will be at the “forefront in generating and using new knowledge for economic and social progress”.

Over the lifetime of the current National Development Plan 2007 – 2013, the State will invest €8.2 billion in Science, Technology and Innovation. This is a tripling on the spend provided for under the National Development Plan 2000 – 2006. This expenditure, it is hoped, will bring Ireland into line with R&D performance in leading countries and also enhance the development of a knowledge-based economy.

A central theme of the Strategy is the collaborative relationship between enterprise and the research institutions. Significant levels of funding increases, provided through Enterprise Ireland, Science Foundation Ireland and the IDA are aimed at exploring, promoting and developing the networks that bring companies and colleges together. We want to see more of our research result in commercial successes.

Even at this early stage, we can assert that the Strategy for Science Technology and Innovation has been very well received - but of course the challenges lie in maintaining future results. There are early and encouraging signs of success.

Total R & D spending across all sectors of the economy reached €2.33 billion in 2006, up over 14% on 2005.

Between 2004 and 2006 gross expenditure on research and development (GERD) increased by over 26% in nominal terms. Notwithstanding rapid economic growth, the overall GERD / economic activity intensity ratio rose to 1.56% of GNP compared to 1.48% in 2004.

This suggests a real turning point has occurred which places research and development; innovative activity; and the commercialisation of knowledge as a real driving force behind our future well-being.

Rigorous enterprise targets were included in the Science Strategy for delivery by 2013. This requires that the enterprise agencies work closely with companies to enhance their competitiveness, driven by greater investment in R&D.

It is very encouraging to see that R & D expenditure in the business sector grew strongly in 2005 and 2006. R&D spending in the business sector (BERD) rose by almost 10% from 2004 to 2005 - and is estimated to have increased by a further 17.3% in 2006 to reach €1.56bn.

BERD intensity as a % of GNP is growing too - from 0.82% in 2004 to 0.90% in 2006. This reflects a robust R&D spending performance by both Irish and foreign owned firms.

A recent EU report published in June noted that EU R&D intensity has been stagnating but recognises that Ireland is amongst a small group that is catching up. Like many aspects of change in Ireland, this catch-up is happening very rapidly.

The establishment of a strong research base in Ireland is proving to be a vital driver of major investment decisions by both overseas and indigenous companies. Investment in R&D continues to increase.

Enterprise Ireland has set a target of more than doubling the number of indigenous companies doing in excess of €100,000 per annum in R&D and to increase five fold the number of indigenous companies spending in excess of €2m per annum on research by 2013. This upward shift has already started. The IDA will also double its numbers, increasing from 213 companies doing minimum scale R&D in 2003 to 520 in 2013.

Similarly, its targets are for 150 Foreign Direct Investment companies to be performing significant R&D in excess of €2m per annum by 2013 compared to 60 in 2003. Achieving these targets will represent a very real change for the Irish Enterprise base and both EI and IDA have shown that they are making real progress.

The challenge facing us is to re-focus and re-double our efforts in the areas of building a world-class research system. I see this being achieved by taking SFI investments to a higher plane; by increasing in-company R&D levels; building effective collaborative industry/third level research; helping SMEs innovate to stay competitive and, particularly important, commercialising the outputs of our growing research base.

A number of new initiatives are being prepared, or are already underway, that will progress this objective. Over the next months, we will see the launch by EI and IDA of their new simplified R&D offerings to companies. These new schemes bring together, under a single heading within each agency, financial supports for company-led research projects, providing an integrated and unified approach capable of meeting company needs flexibly and efficiently.

Earlier this year, the Innovation Vouchers initiative was launched. In the first pilot phase of this initiative 194 companies were each awarded vouchers, worth €5,000 each, which will allow them explore a business opportunity or problem with a public research body, thereby facilitating knowledge transfer to their business.

In March the Competence Centre programme was launched. The Competence Centre programme is a new and important bridge on the spectrum of taking basic research to commercialisation. This industry-led research centre scheme has attracted significant interest with 25 industry groupings responding in May to the first call for Expressions of Interest. Competence Centres will fill a gap on the continuum from often academic led basic research to applied or company led research, while ensuring greater commercialisation opportiunities.

It has been particularly encouraging over the last number of years to see the increasing attractiveness of Ireland as a location to conduct research by virtue of the general strengthening of the research system and such initiatives as the R&D tax credit. It is essential that we keep highlighting Ireland as a location of choice for R&D.

In this context, IRDG, as a representative organisation for companies in Ireland who are engaged in product and process research and development, has made a very valuable contribution to the goal of ensuring both a high degree of competitiveness and product excellence.

This has been achieved by helping and advising its client companies about the value of undertaking R&D, as well as project selection and planning, the installation of R&D management processes and the preparation of R&D funding proposals. I know that the IRDG, along with other private sector firms, was successful in the R&D Advocates competitive process run by EI, and now can offer support to companies getting into R&D for the first time. As an approved provider of the Advocates for R&D Awareness programme, the IRDG can provide up to three days technical consultancy to help companies to understand the R&D process, establish the right strategy, identify the right project(s), develop a project plan and apply for funding. I would like to commend you for this work.

I would now like to turn to the IRDG “Guide to the R&D Tax Credit Scheme” which is being launched here today. I understand that the Guide has been produced by the IRDG after in-dept discussions with the Revenue Commissioners, and a series of workshops held jointly between the two organisations. I must also say a word of appreciation in respect of this good work of the IRDG together with the Revenue Commissioners.

I know this document will prove to be a valuable guide to industry in understanding and benefiting from the tax incentive. It will, I am sure, prove to be a tangible assistance to companies in managing the R&D tax credits generated in the course of your business, and will help ensure you derive the maximum benefit from the scheme as Government intended.

Since the tax credit was introduced in 2004 it has proved to be a progressive fiscal incentive to encourage R&D investment. Much of the credit was modelled on the Canadian system, which was widely regarded as an industry friendly model.

Take up in terms of tax foregone has been well ahead of our initial projections and clearly the tax credit is seen as a real incentive, supporting both the building of R&D facilities and incremental spend.

The tax credit incentive was improved upon in the 2007 Finance Act and there is a commitment in the Programme for Government to further improve this incentive. My Department is already working on the detail and is in regular contact with IRDG through Dick Kavanagh, to help us formulate the most beneficial and workable proposals.

Tax incentives are widely used to stimulate business R&D in other economies, and their effectiveness in doing so is now well established. As a general tax measure, the tax credit does not constitute State Aid and can, therefore, be availed of by companies on top of the range of R&D grants and supports offered by EI and IDA.

This is, of course, an immensely valuable proposition to companies, and the existence of these incentives has encouraged a sustained rise in business R&D expenditure, to complement the major state investment now underway to strengthen public research infrastructure and capabilities.

In conclusion, I would like to say that Ireland has a unique opportunity to ensure real coordination and coherence in its efforts to build a knowledge-based society, and be at the forefront in generating and using new knowledge for economic and social progress.

Our ambition must be to reach a level that generates international renown for Ireland as a base for research, and I believe the structured implementation of the Science Strategy, supported by organisations such as the IRDG, is playing, and will continue to play, a very valuable role to enhance our economy and society.

I would like to wish you success in your deliberations at this Seminar today and I look forward with interest to the discussions that will take place. Thank you.

Ends/IP7