Deirdre Clune (Cork South Central, Fine Gael)
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Question 4: To ask the Minister for Enterprise, Trade and Employment the way he will reverse the low level of research and development activity carried out by Irish owned companies; and if he will make a statement on the matter. [4416/08]

Michael Ahern (Cork East, Fianna Fail)
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The strategy for science, technology and innovation, SSTI, which was published by the Government in July 2006 noted that, for a country whose performance is dominated by high technology industry, there is a disjuncture between an impressive performance overall and the level of research and development conducted by indigenous and multinational firms in Ireland. The principal objective of the strategy is to address this imbalance by making Ireland internationally renowned for the excellence of its research and ensuring we will be at the forefront in generating and using new knowledge for economic and social progress.

Although growing from a low base, business expenditure on research and development, BERD, has improved considerably over the past decade. It is encouraging to see that research and development expenditure in the business sector grew strongly in 2005 and 2006. Research and development spending in the business sector rose by almost 10% from 2004 to 2005 and is estimated to have increased by a further 17.3% in 2006 to reach €1.56 billion. BERD intensity as a percentage of GNP is also growing, from 0.97% in 2004 to 1.05% in 2006. This reflects a robust research and development spending performance by both Irish and foreign owned firms. Investment support in the area of research and development has been the subject of significant financial commitments under the strategy for science and technology. This investment is already beginning to have a measurable impact, which should become more significant with enhanced investment. The most recent survey of business sector performed research and development in 2006 shows BERD in Ireland is 1.05% of GNP, compared to the OECD average of 1.54%. While Ireland lags behind competitors, bringing BERD in line with the OECD top performing partners is our goal. It must be acknowledged, however, this is a significant challenge for Ireland.

Additional information not given on the floor of the House.

In regard to Irish owned companies, the level of BERD has grown from €155 million in 1995 to €480 million in 2006. Over the period 1995-2005, the number of indigenous firms active in research and development grew from 806 to 1,025. Therefore, the trends of engagement by Irish owned companies in research and development are positive. These trends can be directly attributed to the impact of Government policy to date.

The current national development plan recognises the need for a step change increase in the investment in technology, innovation and scientific research and there is a firm commitment to a significant level of investment in this area over the lifetime of the plan. The positive trends that can be identified to date are encouraging but we will remain focused on the challenges arising from the effort to improve competitiveness through innovation. The SSTI sets ambitious targets for growth in BERD to €2.5 billion by 2013, two thirds of which should come from the business sector, and includes the following goals: the number of indigenous companies with meaningful research and development activity and annual expenditure exceeding €100,000 should increase from the 2003 level of 462 to 1,050 by 2013; and the number of indigenous companies performing significant research and development with annual expenditure exceeding €2 million should increase from the 2003 level of 21 to 100 by 2013. The programme of investment in the NDP commits €8.2 billion in the period 2007-13 for building the skills needed for a modern knowledge based economy, strengthening Ireland's research base and driving research and innovation in enterprise.

The 2008 Vote of the Department of Enterprise, Trade and Employment has provided over €326 million for the furtherance of these objectives, a 13% increase on the 2007 figure of €290 million. In excess of €640 million was allocated to six Departments in 2007 for expenditure in the area of science, technology and innovation. This funding will allow Ireland to continue to build its research base and improve competitiveness through the development of innovative products and at the same time build the knowledge base that will establish our economy as an attractive place in which to do business in a competitive climate. This funding supports a wide range of specific policy actions aimed at ensuring business can significantly increase the level of research and development undertaken.

Enterprise Ireland has a specific policy remit of supporting indigenous industry and in 2008 received a specific science, technology and innovation budget amounting to €132 million. It is delivering a broad range of programmes aimed directly at increasing the level of participation by indigenous firms in research and development. These schemes are under constant review to ensure they deliver on the ambitious goals of the SSTI. Of particular note are the revised research and development grant offering, innovation vouchers and competence centres. In January I launched the revised simplified research and development grant scheme to be operated by Enterprise Ireland and the IDA. The new scheme will see these agencies invest more than €500 million in support of research and development. The funding will be made available over the remainder of the Government's SSTI. The scheme provides supports in a more client-focused way and is easier for firms to access. The innovation voucher initiative, launched in March 2007, provides €5,000 vouchers to firms which may be used to purchase specialist innovation support from a number of research providers. This is an imaginative effort to encourage small and medium sized enterprises to take their first steps in research and development. By the end of 2007 a total of 428 vouchers had been issued. It is anticipated there will be five calls under the scheme during 2008. Competitiveness centres represent a major new initiative designed to create a number of industry led centres of excellence in research areas of key relevance to consortia of businesses with common research needs. It is expected that the first centres will be established during 2008.

On a broader level, the fiscal environment for research and development investment has been significantly improved since the research and development tax credit was introduced in 2004. The Finance Act 2007 enhanced the tax credit in a number of ways, in particular by fixing the base year at 2003 for seven years until 1 January 2010. Budget 2008 went further than this and fixed the base year at 2003 for ten years until 2013. These changes have moved the scheme in the direction of a volume-based credit and it should be noted that as the tax credit stands, expenditure on buildings is allowed on a volume basis. This represents a significant support to firms undertaking research and development and should act as a real stimulus to activity in the research and development area.

Taken collectively, these initiatives represent a significant and coherent set of policy initiatives designed to stimulate research and development in the business sector.

Deirdre Clune (Cork South Central, Fine Gael)
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The Forfás survey on business expenditure on research and development which was published in 2007 indicated that funding for firms with fewer than 50 employees had decreased between 2003 and 2005. Have the barriers been identified for Irish firms investing in research and development and what measures are being introduced to overcome them? Ireland is probably more reliant than our competitors on multinationals for employment and innovation, which makes us more exposed to the downturn in the US economy and challenges from Asia. There is a low level of activity in research and development in Irish firms.

Michael Ahern (Cork East, Fianna Fail)
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As the take-up by indigenous companies has not been as high as we hoped over the past several years, new programmes have been introduced to increase the level of participation. Enterprise Ireland has a number of programmes of particular relevance to research and development. The programmes are aimed at stimulating research and innovation among companies which are new to product, process and service development activities. These financial supports, which include research and development stimulation grants, allow companies to explore how research and innovation can drive their future development.

The research and development fund supports innovation in services, products and process in companies which are ready to progress to larger projects. Companies which want to set their own research agendas can apply to Enterprise Ireland's research and development fund, which supports market led innovation in manufacturing and services companies. Companies can also get funding for collaborative research projects.

In addition to financial supports, companies can avail of the guidance of a team of professional experts in building research projects, innovation management and creating value from intellectual property.

Deirdre Clune (Cork South Central, Fine Gael)
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Is the Minister of State confident that Enterprise Ireland has the necessary skills and programmes in place to engage with indigenous firms? We have seen the fall in the figures.

Michael Ahern (Cork East, Fianna Fail)
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I have total confidence in the expertise and skills available from Enterprise Ireland through my experience of working with the agency over the years. It has now been given other tools to ensure indigenous firms have the chance to grow and develop.

Deirdre Clune (Cork South Central, Fine Gael)
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I presume the Minister of State's full reply will be made available.

Brendan Howlin (Wexford, Labour)
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I try to keep debate going but if a Minister's six-page reply is read into the record there is no time for questions.