Speech by Mr. John McGuinness, T.D.,Minister for Trade and Commerce, Industrial Development Bill 2008,Second Stage Dáil Éireann

Economy:

The Irish economy is one of the most globalised in the world. As a consequence, the global downturn created by the current international financial crisis has had a very significant impact. We have seen significant job losses over the last 12 months as the ongoing turmoil in the financial markets leads to a significant contraction in global demand for goods and services. The Irish economy is now expected by commentators to contract by about 6% in 2009.

It is inevitable that we will experience further job losses in the next 12 months. My Department and its Agencies have a vital part to play in ensuring that the country is well-positioned to progress when the global economy starts to pick up. While any job losses are deeply distressing for those concerned and are of course very regrettable, we still have a historically high number of people at work today compared to a decade ago, over 2 million. We are still creating high-value jobs across the economy, as evidenced by Hewlett Packard’s recent announcement of their intention to create 500 jobs this year in an expansion of its plant at Leixlip, Co Kildare and their plans to double the new jobs created with a further 500 positions over the coming two or three years.

Industrial Policy:

Despite the current global turbulence the Government is committed to maintaining and enhancing our framework competitive conditions, and promoting new areas of competitive advantage, including by developing our Research and Development base, investing in critical physical and communications infrastructures, and promoting tertiary education and lifelong learning. Over the period of the National Development Plan the Government will invest significantly to support the development of the indigenous and Foreign Direct Investment enterprise base. Over the last number of years, economic growth in Ireland has been driven by domestic demand and not by international competitiveness. As domestic demand has weakened we must look to exports for a sustained economic recovery. Exporters are and will continue to be critical in the achievement of future economic stability and job maintenance and growth in the Irish market.

Indigenous Industry:

A principal focus, therefore, is on supporting the growth of a cohort of Irish companies with the ambition, leadership and innovation necessary to achieve global scale. To support industry and the economy as a whole, a targeted focus must be placed on sustaining and creating exports. In directing this focus, the development agency, Enterprise Ireland, has a dedicated task force, which is actively working to respond to the changed economic environment. This will ensure that the supports offered to companies are the most relevant and effective in addressing the current realities facing businesses across the manufacturing and internationally traded sectors throughout Ireland. It is critical that we continue to invest in the companies upon which our economic recovery depends.

To that end, an Enterprise Stabilisation Fund was announced by the Taoiseach in early March. This will allow for meaningful additional assistance to be provided to basically sound internationally traded companies, that would otherwise struggle to survive the global downturn. The fund will operate in conjunction with the banks and will supply direct financial support to eligible, internationally trading enterprises which are undertaking development expenditure to reduce costs and gain sales in overseas markets. The fund will complement the banks' commitment to Small and Medium-Sized Enterprises under the recapitalisation scheme and should facilitate much of the restructuring that is needed for viable companies selling on the home market.

Enterprise Ireland client companies are estimated to have achieved exports gains of up to €1bn in 2008 despite the unprecedented global economic environment. That this was achieved in the face of contracting international markets, and a negative currency environment, is a credit to the tenacity and resilience of those Irish companies that compete for and win new business overseas.

In the coming year, international sales will be hard won. It is innovation, quality and value that will set Irish companies apart from their international competitors. Continuing focus and investment in these three areas will be crucial. Those companies that combine value-adding, innovative products and services with efficiency and productivity are the ones that will thrive in the face of the challenges of 2009.

Irish companies continued to invest in Research and Development in 2008. Strategic targets for the numbers of companies engaged in Research and Development projects involving investments of €100k and €2m annually will be met or exceeded. 2008 saw the biggest investments to date in Research and Development by large companies, and a greater number of small companies engaged in high level Research and Development.

Building competitiveness in existing industry has become a priority in the face of growing international competition.  The newly established €60m Growth Fund is designed to assist Enterprise Ireland’s small to medium sized clients achieve greater competitiveness by improving their export potential.  This will be achieved by increasing gross output and productivity whilst also providing new employment or maintaining existing employment levels in clients throughout all counties.

Job losses, precipitated by recent factors such as the global credit crunch and economic downturn, are of course a significant concern. Job retention and creation is a priority for the Government and for Enterprise Ireland. The agency strives to retain and create jobs in existing companies by improving their competitiveness and access to overseas markets. It focusses on the creation of new jobs through supporting entrepreneurs in setting up new high potential start up companies. Start-ups continued strongly in 2008 with 70 new high export growth potential companies established. These were in sectors as diverse as life sciences, medical devices, software, services and food.

Foreign Direct Investment:

In relation to Foreign Direct Investment, Industrial Development Agency Ireland has continued to be successful in attracting new investment to Ireland, even in the current economic climate. In 2008, a total of 130 Foreign Direct Investments Projects were won, with new investment up 14% on 2007 and the number of new companies investing in Ireland for the first time up 16% on 2007. There was a 22% increase in Research Development and Innovation projects, while the overall level of investment secured in 2008 was approximately €2bn. Over 8,800 new jobs were created in a variety of sectors, across a range of skills and spread throughout the country. Regrettably however 10,000 jobs were lost in the same period giving rise to a net loss in 2008 of 1200 jobs. Many of these job losses are due to the move from low value manufacturing, and we are also seeing an increase in short term working arising from the credit crunch for example in the motor components sector. At the end of 2008 full time employment in Industrial Development Agency supported companies stood at 136,043.

It is particularly encouraging to see many of the world’s leading companies continue to invest in Ireland in areas such as high-end manufacturing, global services and Research Development and Innovation projects. Leading companies investing in Ireland for the first time include GOA (a subsidiary of France Telecom), and Facebook in Dublin, Zimmer in Shannon, PPD in Athlone and Lancaster laboratories in Dungarvan.

Existing Industrial Development Agency clients undertaking significant expansions in their manufacturing operations included Cook Medical in Limerick, Coca Cola in Wexford, Genzyme and TEVA in Waterford, Cameron in Longford and Microsemi in Ennis. A strong growth in Research Development & Innovation investments included Information and Communications Technology companies such as IBM, EMC, ON Semiconductor and Business Objects/SAP. Life Sciences companies such as Boston Scientific and DePuy, part of Johnston & Johnston, cosmetics company Oriflame and Financial Services companies Citi and AON also made significant Research Development & Innovation investments.

The global economic turmoil makes it difficult to predict the outcome for Foreign Direct Investment in 2009. Global Foreign Direct Investment will decline and almost all economic commentators are predicting an extremely difficult year in 2009. At the same time, it is important to recognise that even in turbulent economic times there is still Foreign Direct Investment to be won and our competitors will not be slow in targeting opportunities. Building on the successes achieved in 2008, Industrial Development Agency continues to see good opportunities for Foreign Direct Investment and are confident that a number of key project announcements will be made over the next three to four months.

Competitiveness:

Maintaining the competitiveness of the enterprise sector in Ireland is a priority issue for my Department and our development agencies. In order to sustain and grow the enterprise sector, Irish based enterprises will be encouraged and assisted to continue the progression to high value added sectors and activities, and to continue to increase productivity through investments in human capital, technology and innovation. Our comparative advantage will increasingly lie in the production of knowledge-intensive goods and services. With that in mind, a range of policies are being pursued to enhance competitiveness and improve the business environment for both manufacturing and services.

Creating the best framework conditions to enable innovation to flourish, which in turn leads to increased productivity and competitiveness, will continue to guide our overall policy approach to tackling the competitiveness challenges ahead. Current Government policy contains a range of commitments focussed on maintaining and enhancing our framework competitive conditions, and promoting new areas of competitive advantage, including developing our Research & Development base, investing in critical physical and communications infrastructures, and promoting tertiary education and lifelong learning.

The National Development Plan projects a total investment of over €25bn with €8.2 billion earmarked for delivery of the Strategy for Science, Technology and Innovation 2006-2013 to achieve our goal to become a leader in Research & Development and Innovation. €3.3bn investment is proposed specifically to support the development of the indigenous and Foreign Direct Investment enterprise base, and €13.7bn investment is proposed on skills development. Due to the current shortfall in Exchequer resources, the Strategy for Science, Technology and Innovation is now running at about €160 million behind National Development Plan projections. These reduced allocations will create challenges in ensuring that the benefits arising from the Strategy for Science, Technology and Innovation are maximised. The economic environment is more challenging than we have seen for many years. However the implementation of these strategies will ensure Ireland remains a key location for leading edge research and development, and the quality jobs it can deliver. Achieving higher growth rates in productivity than our competitor countries will be important for international competitiveness and securing sustainable wage growth.

To underpin long- term competitiveness, the Government’s objective is to ensure that we build up the productive capacity of the economy through investing in people. We are doing this directly through the Skills Strategy. We will continue to pursue policies to promote lifelong learning and up-skilling to improve labour market flexibility. Where necessary, we will ensure that appropriate training supports are provided for workers in sectors that are no longer competitive, should they need to find alternative employment. Our priority remains the creation of high quality, sustainable employment, driven by companies with higher profitability, that are more technologically advanced and fit with the competitive characteristics of our economy.

Innovation, and the productivity gains that flow from it, are the foundations for maintaining competitiveness. The Enterprise Development Agencies under the aegis of my Department, Science Foundation Ireland, Enterprise Ireland, IDA, FÁS and the City and County Enterprise Boards, will continue to focus on productivity enhancing investments such as Research & Development, innovation, better use of Information and Communications Technology, and training and management development.

The next few years can be seen as a period where we seek to re-position ourselves in terms of our national competitiveness, and to place ourselves in the optimal position to benefit from an upturn in the international economy as well as from our longer-term investments.

Conclusion

We must all realise that these are the most challenging of times for our economy. It is therefore vital that the right mix of good macro-economic and sound enterprise policies are in place to restore our public finances and confidence in our economy. This Government is committed to taking the necessary difficult decisions over the next few weeks, to ensure the Irish economy overcomes the present challenges and is placed on a secure and more sustainable footing. Through our pro-enterprise policies, ongoing investment in critical infrastructure under the National Development Plan, our low taxes on business and workers and our balanced regulatory regime, the

Government are committed to ensuring that we continue to build an environment for enterprise that remains among the most favourable in the world.

Technical Changes

It is important, as I said at the outset to stress that the changes proposed in this Bill are of a technical nature aimed at updating monetary limits, in line with the policy already set for the period 2007 to 2013. They do not reflect a new policy direction. Principles and policy for the period are set out in the National Development Plan and were discussed and approved at political level at that time. They are also considered annually by the Enterprise and Small Business Committee, when they examine the annual estimate, and by the Public Accounts Committee when dealing with the Appropriation Account or with other industrial development issues. The agency programmes for the period are also set out in the National Development Plan and were thus adopted when the Plan was approved. The amounts and thresholds proposed in this Bill will allow us to efficiently and effectively implement the principles, policy aims and programmes set out in the National Development Plan for the 2007 to 2013 period.

Section 1 Definitions

Section 1 of the Bill sets out a number of definitions relating to specific terms used in the body of the Bill.

Section 2 Transfer of Shares

Section 2 of the Bill makes arrangements for the transfer to Enterprise Ireland of Shares currently held in 28 companies by Shannon Free Airport Development Company Limited.

Up to 2007, Shannon Development, in addition to its responsibilities in the Shannon Free Zone, provided various supports, including taking shares, to indigenous companies in the Mid West Region. Following a change in the Shannon Development mandate in 2007, Enterprise Ireland took over Shannon Development's responsibilities in relation to indigenous industry in the region. Shannon Development holds shares in 28 client companies and it is now necessary to transfer ownership of this equity to Enterprise Ireland. The majority of the 28 companies subject to the draft legislation are designated by the agencies as High Potential Start-Up companies (HPSUs). The flow of innovative HPSU companies into the economy is deemed critical to the future growth of the economy. Taking shares in these companies is one of the methods used to provide financial support to them.

Because of the technicalities surrounding the transfer of shares by a shareholder to a third party it was deemed necessary to enact legislation as the only practical means of effecting this transfer, and of substituting Enterprise Ireland for Shannon Development in the various Shareholder Agreements and other documents relating to those shares.

Shannon Development and Enterprise Ireland are in agreement with this approach.

Section 3 Increasing Thresholds on Grants requiring Government Approval and Extension of “Designated Areas”

Section 3of the Bill amends the Industrial Development Act, 1986, by increasing the thresholds above which Government approval is required on grants paid by the development agencies. The grant instruments provided for in the 1986 Act which are updated are for use by the Enterprise Development Agencies to support spending by individual industrial companies on building or extending factories, employing additional workers, training workers, or carrying out research and development work.

It is important to note that the decision to award a grant, and the amount of the grant in each case, is made by the Board of the agency involved with each case. The Government must approve the larger grants before the agency can finalise the grant agreement with the company, but the Government does not have power to initiate or to increase the grant proposed. The purpose of the requirement for Government approval is to allow Government to monitor the implementation of the scheme, and to draw any appropriate conclusions on enterprise policy or on the scheme concerned, rather than in relation to a particular case.

Section 3 proposes an increase in the current thresholds above which Government approval is required, from €5m to €7.5m, in each of the following cases:

• Employment grants to Industry
• Training Grants
• Power to Purchase Shares
• Total investment Grants to one company

It should be mentioned here, for the sake of dealing with related provisions of the Bill together, that a similar threshold increase in respect of Capital Grants is contained in Section 4(b) of the Bill.

Research and Development Grants to companies

Previously, Research & Development grants of €2.5m or more to any one company had to be approved by Government. The new threshold of €7.5m reflects the growing importance of Research & Development activities to the Irish economy and the fact that Research & Development grants above existing thresholds have become more commonplace. This increase would ensure that the right number of Research & Development grants are subject to Government approval. Research & Development grants above the threshold are now quite common and it is considered appropriate to apply the same threshold as applies to the other similar types of grant.

Research & Development grants provided by the Enterprise Development Agencies to their clients are now a key component of the strategic objective of encouraging companies to move up the value chain. Such grants help to embed overseas companies in Ireland, thus helping to ensure their long term survival and growth in Ireland. They also serve to increase the strategic importance of the Irish operation within the parent group.

Aggregate Threshold Limits

When making Investment grants, ie grants towards the cost of building or extending a factory, Industrial Development Agency and Enterprise Ireland often use a number of the above grant types in combination, for example capital grants and employment grants. The 1986 Act also contains an aggregate threshold for Government approval in such circumstances which it is now proposed to amend by substituting “€15,000,000” for “€10,000,000”.:

Resolution of an anomaly in BMW Region by extending the Designated Areas

This sub-section addresses an anomaly that has arisen regarding grants to small companies in parts of the BMW or Border, Midland and Western region. It extends the Designated Areas in the BMW Region to the entire region by adding the counties of Laois, Louth, Westmeath and most of Offaly which, up to now, have not been Designated Areas.

The 1986 Act provides that the maximum capital grant that can be given to a company outside the “designated areas” is 45% of the cost of the assets. The counties of Laois, Louth, Westmeath and Offaly (apart from the townland of Derrinlough) are not “designated areas”, as defined in the 1986 Act, but they are in the BMW region.

Under EU State Aid law and the Regional Aid Map for Ireland for 2007-2013, approved by the European Commission in 2006, the maximum grant rates for capital assets vary between 0% and 50% depending on the size of the company and the region of the country in which its undertaking is situated. EU State Aid rules permit capital grants for Small Companies in the BMW region of up to 50% of the cost of the assets. As a consequence, although EU rules would permit capital grants of up to 50% in these counties, national legislation limits the maximum grant to 45%.

The proposed amendment is to deal with this anomaly, and to ensure that Small companies in these counties can get the same treatment as those in the rest of the BMW region.

Section 4 Increasing Aggregate Grants Limit

Section 4 proposes two amendments to the Industrial Development Act, 1993 a) increasing aggregate grant limits and b) increasing the threshold for capital grants referred to earlier under section 3.

This section of the Bill amends the Industrial Development Act 1993 by increasing the existing legislative limit on the aggregate amount of money which can be paid by the Minister for Enterprise, Trade and Employment to Forfás and its agencies, Enterprise Ireland, Industrial Development Agency and Science Foundation Ireland for use in discharging their obligations and liabilities. This increase is necessary because expenditure to date is now nearingthe existing statutory limit set at €3.4bn in 2003. It is proposed to increase the limit to €7bn., to bring it into line with spending proposed in the National Development Plan up to 2013

It has been the practice that aggregate spending for these purposes is capped in legislation at a level which is raised from time to time to allow the agencies’ operations to continue.

The ‘cap’ ensures that the Houses of the Oireachtas have an opportunity to review policy and spending on industrial promotion. There are, however, also other legislative controls, such as the upper limits on individual grants to companies approved at agency level - these are addressed in Section 3. Also, there are further Oireachtas controls, such as in the annual Estimates process and the work of the Public Accounts Committee. In the Estimates process, the Dail takes decisions which determine the annual allocation of money to the agencies for the purposes covered by the longer term legislative aggregate limit set in this Section. In setting this higher aggregate there is no irrevocable commitment that the money will actually be paid to the agencies. Legislative clearance for aggregate payments up to the level of £7 billion is proposed here, but the annual spending under these headings will still have to be agreed by the Government and voted by the Dáil. The aggregate grant limit currently in place of £3.4bn will be reached in April of this year. It is expected that the new ceiling would be reached in four to five years time on the basis of the programmes in the National Development Plan.

Section 5 Transfer of property in certain Discoveries and Inventions to Enterprise Ireland

Section 19(1) of the Industrial Research and Standards Acts 1961 provides that any discoveries/inventions resulting from research carried out by or on behalf of Eolas, Forbairt, Forfás and Enterprise Ireland and the Institute for Industrial Research Standards are the property of the Minister.

There are a small number of cases where patents (arising from research covered by Section 19) were applied for by the agencies and were granted in the names of the agencies rather than in the name of the Minister. There are a number of such patent applications still pending. Some of these applications / patents and associated Intellectual Property Rights (also covered by Section 19) have been licensed to Irish companies who are carrying out further research based on the applications/patents.

It may create a serious problem for these companies if their title to any new Intellectual Property Rights subsequently developed is shown to be defective. In some cases the Irish companies have sub-licensed aspects of the Intellectual Property Rights to other companies. In most of these cases the licensee will have relied on a warranty that the licensor had good title to the Intellectual Property Rights being licensed.

Conclusion

In conclusion, while the provisions of this Bill are of a technical nature, overall they will allow the development agencies to respond to the needs of industry, thereby supporting employment and reducing unemployment. These provisions are very important in that they facilitate implementation of the National Development Plan and the Framework for Sustainable Economic Renewal – Building Ireland’s Smart Economy.

I commend this Bill to the House.

ENDS/TC364