Ms Sharon Higgins:

I thank the Chairman and committee members on behalf of the representatives of the business associations in IBEC in attendance and the broad membership of IBEC for giving us the opportunity to engage with them.

IBEC represents Irish business - home grown, multinationals, big and small, spanning every sector of the economy. The vast majority of our members are SMEs. To reflect the distinct interests of all our members, we have 60 business associations in IBEC. Our overall ambition is to work with the Government to help put more people back to work and make Ireland the best country in the world in which to do business. The IBEC 2014 policy priorities document, Ireland that Works, states our belief that the economy, underpinned and driven by a strong SME community, can grow by an average of 3% to 4% annually during the next 20 years or so. Access to finance for SMEs in a timely manner is a critical component of achieving that goal. At the broadest level, SMEs require finance for investment and-or working capital. The needs of SMEs are far from homogenous and depend on their size, market, product portfolio and, most importantly, stage of development. It goes without saying the recent economic climate has had a negative impact on many of them.

Evidence suggests lending to enterprise has dropped, in part due to Irish banks engaging in the repair of their balance sheets but also due in part to a lack of demand from enterprises as consumer demand fell. As the economy recovers, so will consumer demand; consequently, the demand from business for working capital to finance expansion of their operations will increase. A functioning competitive banking model is, therefore, crucial. However, our reliance on traditional banking is too high by international standards. We need to provide more options and improve credit flow to business by enhancing tax-based investment schemes, State-backed capital funds and the venture capital environment. We also need to communicate coherently the finance options open to companies and, very importantly, SMEs need to develop their management and finance skills.

I will outline our findings and proposals in more detail before I pass over briefly to my colleagues in the four sectors who will describe their members' first-hand experiences.

Irish companies continue to pay relatively high interest rates on bank loans. In January 2014 non-financial corporations in Ireland had to pay an interest rate on loans up to and including €1 million of 4.8%, one percentage point higher than the eurozone average. We expect that as the banking sector continues to recover and an improvement in economic conditions reduces the risk associated with business lending, these rates will converge to the eurozone average.

Credit conditions for financial enterprises and businesses remain tight. The Central Bank's lending survey conducted in quarter one of 2014 suggests respondent banks did not lower their credit standards for loans to SMEs. This means that while some or all of the credit sought by firms may have been obtained, the conditions attached to that credit remain strict.

Bank sector knowledge is improving and we welcome the advances made by banks in upskilling their teams to understand the different sector business models. This needs to continue and intensify. We believe the banks also have opportunities to develop services to deal with sectoral needs, for example, there is an opportunity for domestic banks to provide much needed funding for their technology clients, secured against the future receipts of research and development tax credits, while access to funding and grants, as is the case in Scotland, would help distilleries in their early years.

IBEC has previously identified that a State-backed enterprise or investment bank could usefully fill the gap in the market in financing growth-oriented smaller enterprises and start-up companies. An enterprise investment bank would provide the certainty of source needed to fund growing and high potential businesses and act as a catalyst to leverage funding from other equity and debt sources. Investments should be made efficiently without major friction costs by using information already available from existing State agencies and the banking network. The model of a State-backed enterprise or investment bank is established and used in Canada, the United States and Germany, to mention a few examples.

IBEC believes an improved employment, investment and incentive scheme, EIIS, could play a key role in encouraging the development of an alternative funding or investment culture among SMEs and the public. Budget Statement 2014 began addressing the issue, as the EIIS was removed from the high earner's restriction for a period of three years. IBEC recommends the following number of additional measures: the EIIS, as currently branded, does not seem to have a clear purpose. It is IBEC's continuing position that the scheme should be rebranded to make its purpose clear, that is, investing in Irish SMEs. We need to drop the employment or research and development restrictions under the EIIS. The purpose of the scheme has been confused by the inclusion of the employment growth and research and development spend restriction. IBEC recommends that the restriction be lifted, with a 30% upfront payment and an 11% payment over a three year period, regardless of how the funding is allocated. We also need to target non-traditional investors. The rebranded scheme would benefit from greater marketing and promotion to help smaller investors to become aware of the opportunities involved and allow them to easily find enterprises in which to invest. We need to reduce overall risk. Non-traditional investors have a different risk profile from the typical cohort or seasoned BES-EIIS investors and are currently not sufficiently encouraged to make investments in SMEs owing to relatively low value returns and a relatively high investment risk. In other European countries a number of methods, including guarantees against a proportion of losses, have been successfully used to promote investment schemes similar to the EIIS.

The take-up of the seed capital scheme has fallen in value terms in recent years. The scheme is likely to expand in size as the economy recovers, but growth will be limited unless a number of issues are addressed. Information on entitlements under the scheme is not reaching individuals starting a new company and should be prioritised through the new LEO system. The shareholding period for which the shares must be held, currently three years, is excessively long, given the high risk of company failure in the early years. A number of key venture and seed capital funds are running out of funds, with no new supply in place, leading to serious interregnums in funding flow. In order to reinforce Ireland's economic recovery, the Government decided to reorient the National Pensions Reserve Fund from a long-term pension fund to an investment fund focused on domestic investment on commercial terms that would support economic activity and employment. The new fund, the Irish Strategic Investment Fund, ISIF, to be established under legislation, must be prioritised and passed before the summer recess, as otherwise there are unlikely to be ISIF investments until the end of the year which, at best, will cause problems.

The capital gains taxation system in Ireland is no longer supportive of productive investment by domestic, indigenous entrepreneurs and should be reformed. We need meaningful incentives in the capital gains tax regime for reinvestment in order that entrepreneurs will invest in Ireland. It is much more attractive from a capital taxes perspective for someone to invest in Newry rather than in Dublin. The UK experience in providing targeted capital gains tax relief for trading enterprises should guide a fundamental reform.

Early stage companies require support to improve their commercial skills to make them investor ready and in preparing and presenting for follow-on funding. Supports from the Government via the local enterprise offices, LEOs, and online portals are very important.

It goes without saying the leadership and management of SMEs place a strong onus on themselves to upskill and source appropriate skills needed as they develop. Representative bodies such as IBEC have an important role to play to support that flow. I will ask each of our sector representatives to speak about the needs of their specific industry and access to finance and give context to our submission. The points they will make individually are, in many cases, relevant across sectors. Mr. Chamney, director of Walsh Whiskey and a founding member of the Irish Whiskey Association, will make the next presentation.