John McGuinness (Carlow-Kilkenny, Fianna Fail)

I move: "That the Bill be now read a Second Time."

I am pleased to introduce the Industrial Development Bill 2008 and outline its main provisions. The Bill provides for the transfer of shares held by Shannon Development to Enterprise Ireland and it amends sections of the Industrial Development Acts of 1986 and 1993. These amendments relate primarily to the statutory limit on aggregate payments by the Minister for Enterprise, Trade and Employment to the enterprise development agencies, and to certain thresholds above which agency grant payments to individual companies require Government approval. The amendments also seek to address an anomaly that has arisen regarding grants to small companies in parts of the BMW or Border, midland and western region. Finally, the Bill provides for the transfer of all property of the Minister for Enterprise Trade and Employment held under section 19 of the Industrial Research and Standards Act 1961 to Enterprise Ireland.

It is important to stress at the outset that the changes proposed in the Bill are of a technical nature 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 it examines the annual Estimate and by the Committee of Public Accounts 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. Whereas the provisions of this Bill are of a technical nature, they are important in that they facilitate implementation of the national development plan and the Framework for Sustainable Economic Renewal — Building Ireland's Smart Economy. Overall the Bill will allow the enterprise development agencies to continue to respond to the needs of industry, thereby adding to the policies aimed at increasing employment and reducing unemployment.

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 past 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 the course of 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 the country is well positioned to progress when the global economy starts to pick up. Although any job losses are deeply distressing for those concerned and are very regrettable, we still have an historically high number of people at work today compared to a decade ago, with over 2 million people working. We are still creating high-value jobs across the economy, as evidenced by Hewlett Packard's recent announcement of its intention to create 500 jobs this year in an expansion of its plant at Leixlip, County Kildare, and plans to double the new jobs created with a further 500 positions over the coming two or three years.

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 recent years, economic growth in Ireland has been driven by domestic demand 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.

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 needed for viable companies selling on the home market.

Enterprise Ireland client companies are estimated to have achieved exports gains of up to €1 billion 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 and 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 €100,000 and €2 million annually will be met or exceeded. The year 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 €60 million 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 while 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 a significant concern. Job retention and creation is a priority for the Government and Enterprise Ireland. The agency strives to retain and create jobs in existing companies by improving their competitiveness and access to overseas markets. It focuses 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.

With regard to foreign direct investment, the 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 and development and innovation projects, while the overall level of investment secured in 2008 was approximately €2 billion. More than 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 1,200 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 IDA Ireland-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 and 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 IDA Ireland 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 and development and 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 a part of the Johnston & Johnston company, the cosmetics company Oriflame and financial services companies Citi and Aon also made significant research and development and 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, IDA Ireland continues to see good opportunities for foreign direct investment and is confident that a number of key project announcements will be made over the next three to four months.

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 focused on maintaining and enhancing our framework competitive conditions, and promoting new areas of competitive advantage, including developing our research and 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 €25 billion, with €8.2 billion earmarked for delivery of the strategy for science, technology and innovation 2006 to 2013 to achieve our goal to become a leader in research and development and innovation. A €3.3 billion investment is proposed specifically to support the development of the indigenous and foreign direct investment enterprise base, while a €13.7 billion 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 upskilling 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 Ireland, FÁS and the city and county enterprise boards, will continue to focus on productivity enhancing investments such as research and 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 reposition 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.

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 macroeconomic and sound enterprise policies are in place to restore our public finances and confidence in our economy. The Government is committed to taking the necessary difficult decisions over the next few weeks to ensure the economy overcomes the current 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, low taxes on business and workers, and our balanced regulatory regime, the Government is committed to ensuring that we continue to build an environment for enterprise that remains among the most favourable in the world.

I will now summarise the main provisions of Bill, which will be examined in more detail on Committee Stage. 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 2007-13. 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 Committee on Enterprise and Small Business when it examines the annual Estimate and by the Committee of Public Accounts when dealing with the Appropriation Accounts 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 sets out a number of definitions relating to specific terms used in the body of the Bill. Section 2 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 regard 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. Due to 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 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 grant in each case is made by the board of the agency involved. While the Government must approve larger grants before the agency can finalise the grant agreement with the company, it does not have power to initiate or 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 respect of a particular case.

Section 3 proposes an increase in the current thresholds above which Government approval is required from €5 million to €7.5 million in each of the following cases — employment grants to industry, training grants, power to purchase shares and total investment grants to one company. I should mention at this point that for the sake of dealing with related provisions of the Bill together a similar threshold increase in respect of capital grants is contained in section 4(b).

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

Research and development grants provided by 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. When making investment grants, namely, grants towards the cost of building or extending a factory, the Industrial Development Agency and Enterprise Ireland often use a number of the above grant types in combination, namely, capital 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 million for €10 million.

On resolution of an anomaly in a BMW region by extending the designated areas, the relevant subsection addresses an anomaly that has arisen regarding grants to small companies in parts of the BMW, 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 area 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 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 varies 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 obtain the same treatment as small companies in the remainder of the BMW region.

Section 4 proposes two amendments to the Industrial Development Act 1993, namely, increasing aggregate grant limits and, 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 nearing the existing statutory limit set in 2003 at €3.4 billion. It is proposed to increase the limit to €7 billion 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. However, there are also other legislative controls, including the upper limits on individual grants to companies approved at agency level and these are addressed in section 3. Also, there are further Oireachtas controls, such as the annual Estimates process and the work of the Committee of Public Accounts. In the Estimates process, the Dáil 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 but annual spending under these headings will still have to be agreed by the Government and voted by the Dáil. The aggregate grant limit of €3.4 billion currently in place will be reached in April of this year. It is expected that the new ceiling will be reached in four to five years time on the basis of the programmes in the national development plan.

Section 19(1) of the Industrial Research and Standards Act 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. A number of such patent applications are still pending. Some of these applications-patents and associated intellectual property rights, also covered by section 19, have been licensed to Irish companies 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 rights being licensed.

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 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 the Bill to the House.

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