Heather Humphreys (Cavan-Monaghan, Fine Gael) | Oireachtas source

I thank the Chairman for giving me the opportunity to present to the select committee my Department's Supplementary Estimate for 2018. I convey the apologies of my colleagues, the Ministers of State, Deputies Halligan and Breen, who, unfortunately, cannot attend owing to other engagements.

I understand my officials have provided the committee secretariat with a briefing note which sets out the background to the Supplementary Estimate. I propose to spend a few moments in bringing committee members through the detail of it. As they will have seen in the briefing note, the Supplementary Estimate does not involve the provision of additional Exchequer moneys over and above the €870.96 million voted to my Department in the 2018 Revised Estimates Volume; rather, permission is sought to redistribute €26.37 million in savings in the Department's Vote this year to support a number of enterprise and innovation initiatives. The Supplementary Estimate is technical in nature, as the aforementioned package of €26.37 million was provided for from within the moneys already voted to my Department. As advised, it is proposed that the €26.37 million package be redistributed to fund a number of focused enterprise and innovation initiatives. Specifically, the Supplementary Estimate will provide an additional €15.63 million in enterprise supports, including funding of €15 million to roll out the first phase of the future growth loan scheme, as well as additional funding of €160,000 to support the credit guarantee scheme and €470,000 to support the local enterprise offices. The remaining €10.74 million of the Supplementary Estimate package will be targeted at supporting the Department's innovation programme, including by providing additional capital funding of €8.74 million for Science Foundation Ireland to fund critically needed research projects and a further €2 million for the programme of research in third level institutions to discharge liabilities in cycle 5 of the programme.

As announced in the budget, my Department has worked with the Department of Finance and the Department of Agriculture, Food and the Marine and in conjunction with the Strategic Banking Corporation of Ireland, SBCI, and the European Investment Bank group to develop a long-term credit facility for businesses to enable them to invest strategically in a post-Brexit environment. To that end, the future growth loan scheme will provide funding of €300 million for eligible businesses to meet their long-term credit needs for investment purposes. The Exchequer contribution to the scheme will involve funding of €37 million from my Department and €25 million from the Department of Agriculture, Food and the Marine which will allow the SBCI to leverage an overall fund of up to €300 million from the European Investment Fund. Under the scheme, a percentage of the loan portfolio will be guaranteed by the State, thereby increasing the risk appetite of the finance providers.

The scheme will also leverage a counter guarantee from the EIB thus reducing the overall risk of exposure to the State. In this regard, 80% of the loan portfolio would be guaranteed by SBCI supported by funding from my Department and the Department of Agriculture, Food and the Marine. It is intended that this will be offset by a 64% guarantee from the EIB group through the European Fund for Strategic Investment reducing the overall cost to the State. Due to the bespoke nature of the proposed arrangement with the European Investment Fund, I, as Minister for Business, Enterprise and Innovation, together with the Minister for Agriculture, Food and Marine, will need to enter into a mandate agreement with the European Investment Fund. This represents the first time the Ministers have entered into such an agreement and as such, will require primary legislation.

The committee will be aware that necessary legislation permitting Ministers to enter into such agreements has been introduced in the House and I look forward to discussing details of the legislation with members on Committee Stage next week. With the co-operation of the committee, it is hoped that the legislation will be enacted before the end of the year, which, in turn, will facilitate the introduction of the future growth loan scheme in early 2019. The scheme will provide low-cost loans for terms of between eight and ten years, which are currently not readily available on the market. No collateral will be required for loans of €500,000 or less. The scheme will include the primary agriculture and seafood sectors and will be easy to access, competitively priced and contain more favourable terms than current offerings on the market. An open call process to select the participating finance providers for the future growth loan scheme is expected to start before year end. The provision of €15 million through the Supplementary Estimate will ensure that the necessary funding is in place to roll out the first phase of the scheme, which is expected to launch in 2019. The scheme is expected to run for three years from its launch date. The new future growth loan scheme represents a significant addition to the suite of existing finance supports that have been developed by my Department to specifically meet the identified needs of businesses, particularly those SMEs and micro-enterprises impacted by Brexit, including the revised credit guarantee scheme, the Microfinance Ireland scheme, the Enterprise Ireland seed and venture capital scheme and the short-term Brexit working capital loan scheme.

In terms of existing supports, provision is also being made in the Supplementary Estimates package to provide an additional €160,000 in 2018 to support the revised credit guarantee scheme. The credit guarantee scheme provides for State risk sharing with the banks thereby supporting SMEs in accessing bank finance. Over the past five and a half years, the scheme has encouraged banks to sanction 580 facilities and approve over €93 million in loans and thus has helped to create and maintain more than 3,650 jobs. A detailed review of the scheme was undertaken to make the guarantee more accessible to SMEs and open to other finance providers and products. The revised scheme was formally launched in July 2018. The revisions of the scheme focused on encouraging more lending to SMEs and in particular, addressing a number of identified barriers to SMEs accessing mainstream finance, including difficulties in proving adequate collateral, novel business markets and re-financing requirements arising from the exit of an existing SME lender from the Irish market.

Some of the key features of the revised scheme include the availability of a facility of between €10,000 up to €1 million, terms of up to seven years and the availability of different types of facilities such as term loans, demand loans and performance bonds. The figure of €160,000 being provided through the Supplementary Estimate will in part further support the guarantee under which claims from the finance providers are paid in respect of any increase in defaulting loans arising from increased activity under the revised scheme. The additional funding will also help to cover the once-off set-up costs arising from the launch of the revised scheme.

The other enterprise support in the Supplementary Estimate relates to the local enterprise offices, which are being provided with an additional €470,000 in capital moneys to enable them to meet the increasing demand for their services, particularly in the area of mentoring, training and development programmes. The local enterprise offices are one of the primary regional enterprise supports for entrepreneurs, early stage promoters, start-ups and small businesses looking to expand. The local enterprise offices are focused on helping people to deliver on their business ideas thereby ensuring the development of local enterprise putting local micro-businesses and small businesses at the heart of job creation in Ireland. The additional €470,000 will be targeted at specific Brexit-related requests for support from the local enterprise offices. These include increasing requests for technical assistance from micro-exporters, supporting market diversification in qualifying businesses and developing new export market opportunities. They also include a greater demand for LEAN for micro support to help businesses to adopt lean business practices and increase competitiveness together with the roll out of additional Brexit seminars and raising businesses' awareness regarding their exposure and to develop robust Brexit plans.

As advised, the Supplementary Estimates package includes an additional €10.74 million in innovation supports. It is intended that this additional funding will be directed at two important innovation programmes, namely, Science Foundation Ireland's research infrastructure programme and cycle five of the Programme of Research in Third Level Institutions. This will provide much-needed additional capital investment into the research system and in particular into our universities and colleges. This €10.74 million will be distributed by providing an additional €8.7 million for Science Foundation Ireland's research infrastructure programme and a further €2 million to meet existing commitments under cycle five of the Programme of Research in Third Level Institutions. Research infrastructure is a vital tool for our research communities in conducting research and fostering innovation in their fields. Included here is specialist equipment that is essential for high-quality research, particularly in STEM disciplines. The Science Foundation Ireland research infrastructure call is currently the principal mechanism for funding research equipment needed by our colleges. We are keen to support as many of the high quality proposals that have been reviewed for quality and impact by Science Foundation Ireland. The additional €8.7 million will allow Science Foundation Ireland to fund a number of additional projects from its 2018 research infrastructure call over and above those that will be funded through Science Foundation Ireland's existing capital allocation. The host institutions - NUI Maynooth, Trinity College Dublin, the Tyndall National Institute at University College Cork - will benefit from the increased allocation. The additional €2 million for cycle five of the Programme of Research in Third Level Institutions will address existing financial commitments under that programme. The Programme of Research in Third Level Institutions has facilitated Ireland's higher education institutions to produce world-class research in strategic areas such as biomedical sciences, ICT, energy, environment, advanced communications and materials and has been a very important programme for creating the foundation investment upon which investments by Science Foundation Ireland and our other funding agencies now build. A total of 33 capital building projects were funded under cycle five and are all complete. A total of 13 structured PhD programmes were also funded providing over 330 PhD student places. The payment of €2 million from the Supplementary Estimate will further reduce our outstanding commitments under cycle five of the Programme of Research in Third Level Institutions. The additional €10.74 million being provided to the Department's innovation programmes through this Supplementary Estimate will help us to deliver on our Innovation 2020 targets and commitments and will contribute to job creation and enterprise growth. This investment can be considered alongside recent increases in the past number of budgets in the funding for the Department's innovation programme not least in budget 2019, which has ensured that the Department is in a position to roll out. Regarding the commencement of the new €500 million disruptive technologies innovation fund through an allocation of €20 million in 2019, a new programme of investment in PhD research through Science Foundation Ireland centres for research or training takes over from what has been a key element of the previous cycle five of the Programme of Research in Third Level Institutions.

Regarding other investment in Science Foundation Ireland research centres and programmes, we have increased investment through international bodies such as the European Space Agency and the European Southern Observatory. Taking this investment together, I am happy to report that we are making very solid progress in delivering on the Department's commitments under Innovation 2020. All of this is complementing private sector investment in research and development, which is a point that also needs to be borne in mind.

As advised, this Supplementary Estimate is technical in nature and involves the redistribution of €26.37 million in savings from within the Department's 2018 voted allocation of €870.96 million. To put it in context, the Supplementary Estimates package represents approximately 3% of our overall gross allocation for 2018. The majority of the savings funding the Supplementary Estimate arise with regard to Enterprise Ireland's enterprise development programmes. In this regard, Enterprise Ireland is expected to generate savings in the region of €24.4 million on these programmes in 2018. Enterprise Ireland takes equity shares in the companies it supports. On an annual basis, this typically yields significant funding called agency own resource income. In recent years, this has been in excess of €70 million per annum. Subject to the approval and sanction of the Minister for Public Expenditure and Reform, Enterprise Ireland is permitted to retain and use own resource income in support of enterprise development.

This year, 2018, has been another good year for Enterprise Ireland's own-resource income, with the generation of a significant quantum of own-resource income expected by the year's end. Under public expenditure rules Enterprise Ireland is required to expend return on investment, ROI, before it draws down Exchequer funds. Accordingly, this surfeit of ROI generated by EI in 2018 means that it will not need to call on its full Exchequer capital allocation of €63 million under subhead A.7 of the Department's Vote. Consequentially, there will be a saving on this subhead.

Aside from the additional ROI which EI expects to generate in 2018, a number of other factors contribute to the saving on this subhead, including slower than anticipated drawdown of grants by EI clients. In this regard, it is important to appreciate that the grants to EI client companies are demand-led and are typically multi-annual in nature, usually spread over a three-to-four year period. Grant expenditure is therefore dependent on the Enterprise Ireland client companies adhering to and delivering on certain terms and conditions associated with the Enterprise Ireland grants, such as delivering a certain number of jobs or export sales etc. Good corporate governance in regard to the public finances means that Enterprise Ireland cannot and should not pay out grant funding until expenditure claims have been submitted by the client companies and property vetted by Enterprise Ireland. Furthermore, some client companies will choose to submit their funding request to Enterprise Ireland when it best suits the company's own cashflow needs. Therefore, Enterprise Ireland is not in full control of all elements relating to expenditure across its grant programmes. This adds complexity to the management of the public moneys provided for in a single financial Estimates year running from 1 January to 31 December. As far as grants experience in 2018 is concerned, while grant approvals have been in line with targets, the level of claims received from clients for approved projects has been lower than forecast. It is expected, however, that these claims will be received in the course of 2019.

The other savings contributing to the Supplementary Estimates concern the INTERREG enterprise development programme, an EU programme designed to promote cross-Border research and innovation initiatives for the period from 2016 to 2022. My Department provides matching funding in co-operation with our counterpart Department in the Northern Ireland Executive, the Department for the Economy. The Department of Business, Enterprise and Innovation has committed to paying €21 million over the seven years of the programme, 85% of which will eventually be reimbursed by the EU. Funding of €3 million was allocated to INTERREG for 2018, of which just €1.03 million will be spent by the year's end. The amounts drawn down in each year can fluctuate due to a range of factors. The rate of drawdown is usually slower in the earlier years, with more funding being drawn down from the middle to the end of the seven-year period. However, an underspend in any year will result in an increased spend in subsequent years. Accurate forecasting for INTERREG can be problematic because it is a multi-annual seven-year programme with the Special EU Programmes Body, which runs the programme, working with three different accounting timeframes. More specific difficulties have arisen in the 2016-2022 programme due to the political situation in Northern Ireland. There were significant delays in getting projects up and running due to administrative delays in the Northern Ireland system. The Brexit decision caused an eight-month delay which had a knock-on effect on the programme up to the latter part of last year. This made accurate forecasting for the 2018 spend more difficult. Implementation of the INTERREG programme will catch up with the original schedule over the next few years and all projects will be completed in full by 2023. This delay, which caused the underspend, merely changes the sequencing of payments. It will not impact on the successful completion of the programme. It should be noted also that completion of the programme will not be affected by the UK leaving the EU, as the UK Government has committed to providing funds to replace the EU contribution after 2019. I will leave it there, a Chathaoirligh. I am happy to answer any questions that the members of the committee may have.