Tuesday, 10 December 2019
OECD Report on SME and Entrepreneurship Policy in Ireland: Statements
Before I start, it would be useful to set the scene by explaining the rationale behind the OECD review and the Government's focus on improving SME productivity in our whole-of-government plan, Future Jobs Ireland. As we know, the financial crisis tested our people and businesses, sometimes to the limit of their endurance. However, our country has made great strides since the dark days of the recession. Through resilience, talent and determination, we overcame enormous challenges. Unemployment has fallen from 16% to 4.8% and there are more people working in Ireland today than ever before. Exports by Enterprise Ireland companies increased by 6% last year to €23.8 billion. According to the IMD business school, we are the seventh most competitive economy in the world and the second most competitive in the euro area. Today, the UN has ranked us the third best country in the world for quality of life.
Nevertheless, with global challenges facing us, there is no room for complacency. Every generation needs to shake up its enterprise and jobs model, otherwise it falls backwards. Through Future Jobs Ireland, the Government wants to nurture entrepreneurship and support our businesses and workers to prepare now for tomorrow's world. Some 70% of our workers are employed by an SME, which highlights the crucial importance of Ireland's indigenous businesses to stability and growth in every region. That is why I commissioned the OECD to undertake a detailed review into Ireland's SME and entrepreneurship policies in March 2018. That review, which I published on 31 October last, is about looking to the future from a position of strength and deciding what we can do better. The OECD review has provided a very useful contribution to the policy direction of my Department in the vital areas of SMEs and entrepreneurship. We have always supported Irish businesses and we have excellent agencies like Enterprise Ireland and the local enterprise offices, which work hand in glove with thousands of indigenous small firms to help them scale and grow.
Our strengths include the whole-of-government approach we take to SME policy and how actively we involve stakeholders in decision-making. We now need to bring all of those supports, policies and programmes together and drive forward one comprehensive unified framework for Irish businesses.
The OECD's recommendations will not sit on a shelf. Instead they will form the building blocks of an ambitious new national SME and entrepreneurship strategy, which I intend to bring forward in the coming months. That strategy will set out key targets and performance indicators across a range of areas such as targeting a 50% increase in the number of SMEs exporting, achieving a step-up in financial skills and knowledge among our SMEs, ramping up supports so that Irish businesses can embrace the digital revolution, simplifying the process for accessing the R&D tax credit so that more SMEs can benefit and supporting our small firms in the transition to a low-carbon economy. It goes without saying that SMEs are fundamental to regional development. That is why we will also broaden the remit of the local enterprise offices, LEOs, to ensure that no ambitious Irish company is left behind, because they find themselves falling between their LEO and Enterprise Ireland. It is also why I launched nine new regional enterprise plans earlier this year and it is why I have announced €60 million so far under the regional enterprise development fund to foster a collaborative approach in each region. Indeed, the OECD has specifically identified the example of the go-cluster initiative of the German Federal Government which focuses on the development of local clusters. The Boyne Valley Food Hub, which received support through the regional enterprise development fund last year, is a great example of the strong local networks that we want to develop. That kind of regional dimension is vital to our enhancing the capability of SMEs across Ireland.
I hope to support more projects like that under the next round of the fund which I hope to announce in the coming weeks. Typically in Ireland our foreign-owned firms are highly productive while our indigenous SMEs lag behind. The Government wants to close that gap and strike a better balance. I absolutely value the crucial role that foreign direct investment, FDI, plays in Ireland's economic success and how indigenous companies can leverage that investment. For every ten jobs that are created in FDI firms, there are eight spin-off jobs in other companies here. For that reason, the question should never be about FDI or indigenous, but rather how we can maximise the benefits for both. There are many great examples of partnerships between domestic companies and foreign multinationals to everybody's benefit. This is something I want to see more of into the future and it is why I have made SME involvement a prerequisite when applying for the Government's €500 million disruptive technologies innovation fund. I am acutely aware that our indigenous Irish companies are the engine of our economy and I want to ensure we are doing everything in our power to support them. In the past, smaller firms have sometimes felt overlooked by governments and I want to change that narrative. Abraham Lincoln said "the most reliable way to predict the future is to create it". Our new SME and entrepreneurship strategy will focus on creating the future we want by ensuring that Irish SMEs are given the red carpet treatment they deserve.
Again I thank the Business Committee for the opportunity to speak on the OECD review and roadmap. They are excellent documents which include best practice examples from countries facing similar challenges to Ireland's, whether Malaysia's masterplan for SMEs and entrepreneurship or Germany's go-cluster initiative, which increases collaboration between mittelstand companies and research institutions. I look forward to hearing the views of all Deputies on what they feel is working well and what we can do better as my Department and the Government works to develop a robust and enduring framework for Irish SMEs.
I welcome the opportunity to contribute and thank my colleague, Deputy Michael Moynihan, who pushed it at the Business Committee to ensure the OECD report would be debated here. I welcome the Minister’s statement that she is going to start listening to SMEs. She acknowledged that she felt they have not been listened to and said she will extend the red carpet to them. It is worthy that after nine years the Government realises how important this sector is to the economy. Over 250,000 SMEs in the country account for 99% of all business enterprises in Ireland, employing in excess of 1 million people. They are the backbone of this economy but unfortunately over recent years they have not felt that their concerns have been listened to or addressed.
This report confirms that Ireland is less innovative, productive and export-oriented than foreign-owned counterparts. Alarmingly the OECD states that Ireland lacks a unified SME and entrepreneur policy document, that despite there being 1 million employed by SMEs we do not have a business strategy at Government level. Without that strategy it is hardly surprising that Ireland has fallen to its lowest ranking, 24th of 190 economies in a 12-year history of the World Bank's rating for ease of doing business. Among our competitor countries the UK ranked eighth, Denmark fourth and Sweden tenth. Ireland lags behind top performing economies: in enforcing contracts it is 91st; registering property, 60th; and getting credit, 48th. One of the biggest challenges facing not just SMEs but businesses and the community sector are the spiralling insurance premia. My party leader raised this on Leaders Questions today. We have no concrete data collected on public liability insurance but the anecdotal evidence presented to me and my colleagues in all political parties is that premia are increasing by between 100% and 300%. In reply to a parliamentary question on the completion of the action plan the Minister said that of the ten actions none has been completed. They are all "in progress", "in train" and "yet to be completed". That shows the laissez faireattitude of this Government to dealing with the high cost of insurance. In 2017, Ireland's energy costs ranked among the top ten most expensive countries in the EU. Despite their quantitative dominance and employment creation record SMEs are struggling in many respects and delivering very poor productivity according to wide research.
This report is not reinventing the wheel. SMEs want to know when the key recommendations of this report will be implemented and whether they will be implemented in a timely manner. Critical to this is the first action, the need for a unified strategy across Departments. When can we expect that strategy to be published? I understood it was to be published before the end of this year. In her contribution the Minister said it would be published within months.
We can go back to the Official Report of the Dáil. The Minister said months. This Government may not have months to publish this. It is coming belatedly, after nine years in government and failure to produce a comprehensive strategy.
Many pre-budget submissions by ISME and SFA have called for reform of our research and development regime. The OECD report points out that between 2011 and 2015 the research and development tax credit to large firms increased by 300% but only by 14% for SMEs. I hope that whoever is in government when the next budget is being prepared will make comprehensive changes to the research and development tax credit so that it is less cumbersome for SMEs to avail of it. The action taken to introduce a pre-approval procedure is very welcome and is something that will be of benefit to SMEs.
Skills shortages are identified in financial management, IT capabilities, marketing and professional development. I am sure the Minister has read the report prepared by Mr. Jim Power on behalf of ISME which deals with the issue of introducing QQI accredited courses for people working in the SME sector. In order to incentivise people to go down that route, we must introduce tax incentives or tax credits, similar to what is available to people in the agriculture sector when they complete a green certificate. We must ensure that people working in the SME sector have the required skill sets and the only way to do that is to provide courses for them to complete.
On the issue of the LEOs, the Minister spoke about what she is doing from a regional perspective but the OECD report is clear that the current LEO model is not fit for purpose. That is not to say that the LEOs do not do great work for many small businesses but as the OECD points out, many SMEs are falling between the two stools of the LEOs and Enterprise Ireland. It identifies a gap for established firms with between ten and 249 employees that are not export driven and that gap must be addressed by the Department. I hope the Minister gets an opportunity to correct the record of the House and clarifies exactly when she will publish her strategy.
I should state at the outset that I own a small business and have a good understanding of how small businesses operate in this country. I welcome the fact that the Minister will roll out the red carpet for SMEs. It is hard to believe that over 1 million people are employed in the SME sector in Ireland. We must see full tax equalisation for the self-employed, with PAYE credits. We must also ensure that our capital gains tax rate is competitive. Our employment and investment incentive scheme, EIIS, regime must be capable of competing with the UK equivalent. We need a State-backed enterprise bank for small businesses, many of which are finding it very difficult to secure credit from high street banks. An enterprise stabilisation fund must be made available to the worst-affected and most exposed firms in the context of a hard Brexit. I know that a fund of €300 million is in place but just over 15% of SMEs have applied to it, which indicates that it is not working. More support must be provided to SMEs to enable them to benefit from that fund.
The biggest problem facing SMEs today is the cost of insurance. This was raised in the Dáil earlier today by my party leader, Deputy Micheál Martin, and it has been mentioned in this debate. I understand that the Perjury and Related Offences Bill 2018 has been through the Seanad and is due to be introduced in the Dáil. While that legislation is probably years too late, at least it is coming. The quicker that Bill is brought into this House, debated and passed, the better. Currently there is nothing to deter people from making false insurance claims. We all know that there are genuine claims being made but there are also a lot of fraudulent claims being processed. Claimants can just walk away and those paying insurance premiums have to bear the cost. It is time for the Government and this House to stand up for small business owners, community groups, hall owners and so on who are struggling to survive in rural Ireland. We must stand up for once and for all and do whatever we can as quickly as we can to ensure that this nonsense stops.
This OECD report outlines serious deficits in this Government's policies vis-à-visthe SME sector. It draws attention to the fact that our over-reliance on foreign direct investment, FDI, has led to disparities in regional development. Our tax system is also over-reliant on a small number of multinational corporations, with 45% of the total corporation tax take in 2018 coming from just ten companies. Foreign-owned multinationals paid 77% of the €10.4 billion corporation tax intake last year. This has left our economy heavily exposed to changes in global markets and in the international political climate.
SMEs are a critical pillar of the Irish economy. The OECD report points to a 2016 estimate of approximately 250,000 active enterprises in Ireland, virtually all of which are SMEs. These firms account for 56% of manufacturing employment and 74% of services employment in Ireland but currently both wages and productivity are lower for domestic SMEs. Clearly we need to redress the balance because the current set up is unsustainable.
A key issue that must be addressed is strengthening the LEOs. This was identified in the OECD report which said that LEOs have an important role to play but that we need to provide additional supports to them, including building local enterprise networks, particularly in remote regions. We must increase the scale and ambition of the LEOs and my colleague, Deputy Quinlivan, and I have devised a plan to do just that. We propose to establish a new Irish enterprise agency which would incorporate the existing LEOs, with a national headquarters, board and executive committee established. We propose to recruit 100 additional staff for the agency's head office which would co-ordinate activities across all 31 regional offices. This new organisation would provide the Government with advice and guidance on what SMEs, retailers and other enterprises need in order to grow their businesses. The agency would ensure that the uptake of State support and assistance is of an equal standard across the State because currently there are significant variations across LEOs. We also propose to introduce 100 mobile business advisors who would travel to businesses to provide on-site advice on business plans, grants, investment strategies and so on. The reality for many small business owners and entrepreneurs is that they cannot afford to take time off to visit LEOs so this would ensure access to services for all businesses.
The OECD report identified key areas that must be addressed including increasing productivity growth, the business start-up rate and business dynamism in the SME sector. It also makes reference to facilitating entrepreneurship among women, young people and migrants; scaling up microenterprises; generating more medium-sized firms; and increasing SME activity in foreign markets. The report identifies the need for a strengthening of SME internationalisation and this is clearly an urgent priority in the context of Brexit. Our direct SME export levels are very low by international standards, with only around 6% of Irish SMEs directly trading across borders. On top of this, a high share of SME exporters trade only with the British market. This is the most exposed sector in the State, namely small exporting businesses for which Britain is their main or only market. We must support these businesses to expand their markets beyond Britain.
The Government's current policy of offering loans to businesses has not been a success.
We need to take the reality of SMEs into account when creating solutions for the challenges of Brexit. For many, taking on additional debt in a time of uncertainty is simply not feasible. Many SMEs have reflected this and this is also reflected in the low uptake of loans. We also need to incentivise start-ups. The Minister needs to change her priorities. Instead of lobbying for tax breaks for millionaire CEOs of foreign companies, perhaps she could consider lobbying for incentives and support for small start-ups.
Finally, I refer to the Border region, which I represent. The report notes strong disparities in the regions. Approximately 30% of the State's employees live in Dublin and income per head is substantially higher in Dublin than in the rest of the State. According to the figures presented in the report, disposable income per person in Dublin is 15% above the State average, and the Border region is 13% below this average. The Border region has the lowest rate of disposable income per person - 28% below Dublin. This, again, demonstrates the disparity between Dublin and the rest of the State. Given that the Minister represents a Border constituency, I ask that she might give special attention to business and enterprise along the Border. Amendments I tabled to the business section of the Brexit omnibus Bill have ensured that the Border gets priority in the allocation of business supports. The Government needs to take a similar position to ensure the region will weather the storm of Brexit, and outside of that, grow and thrive to improve the living standards of people living along the Border.
The OECD report highlights how vital SMEs are to our economy, outlining the fact that 92% of enterprises operating here had fewer than ten employees, which shows that microbusinesses are the engine of our economy.
However, one would not know this from the approach of Ministers, who focuses all their attention on cutting big ribbons at multinational headquarters. Multinational investment in this State is important, but it should not come at the expense of neglecting small indigenous businesses that are the engine of the economy.
Sinn Féin has proposed a policy that would begin a process of rebalancing the State's industrial strategy by supporting and growing indigenous businesses. I launched that policy recently with my colleague, Deputy Munster. We propose to reorganise the current LEO structure into a larger centrally-led national agency, with the scale and ambition to help grow indigenous businesses. The purpose of this new jobs agency would be to grow domestic businesses, providing balance to our economy, our workforce and our public finances.
With the prospect of a no-deal Brexit still in the mix, it is vital that we strengthen the domestic economy now in order that it can both withstand the impact of Brexit, but also continue to expand under the new circumstances. A new jobs agency focused on our domestic businesses can help achieve this.
Sinn Féin recognise the importance of FDI, but we also recognise the risks an over-reliance on this sector alone brings. Some 45% of the total corporation tax take in 2018 came from just ten companies, while foreign-owned multinationals paid 77% of the €10.4 billion corporation tax take that year. That is just is not sustainable. While we are still supportive of maintaining FDI and export-led growth as key pillars of our industrial strategy, it is imperative we grow our indigenous and co-operative sectors to provide balance to our economy and to our public finances. A new stronger jobs agency focused on micro and small businesses can lead that change. In addition to providing business support to SME owners, this agency would encourage good pay and working conditions for employees and develop remote working hubs on derelict sites to address the decline of many town centres, giving workers the option of working from their own communities, if they so wish.
LEO staff have done excellent work to date with the resources they have been given, and we believe an opportunity now exists to build on their experience and knowledge by creating a larger, more ambitious State body focused solely on indigenous Irish businesses.
We have also proposed re-establishing the co-operative development unit in the Minister's Department. We encourage her to consider that, as the unit would encourage the growth and development of co-operatives that are currently rare enough in this State. I also encourage her to examine our proposals, which aim to build on the good work of LEOs and increase the level of support to micro and small businesses.
I welcome the opportunity to discuss this quite large but important report from the OECD. We need the recommendations to be implemented. I welcome the fact that the Minister intends to publish her plans soon. Could she define what "soon" is? We are all aware that we may not be in the current Dáil for all that much longer and it is important that this be addressed.
By and large, the report points to many strengths in SMEs but also to challenges and issues that need to be addressed. As has been said, they represent a large sector of our economy and employ a large number of people in the workforce. As the Minister said, 70% of our workers are employed by SMEs. This does not always get the attention they deserve. Job announcements in large multinationals receive a great deal of attention whereas the same number of jobs may be provided by in a large number of SMEs in the same area but they are seldom mentioned. It is important to stress the large role they play in our economy, particularly in local economies and in the regions. We need to redress the balance between the small number of large companies, primarily multinationals, and SMEs and provide the opportunities that are recommended in this report for small businesses to scale-up. That is central to many of the recommendations.
They point to a number of issues and one of the key findings is access to finance. This should not be such an obstacle, given the presence of the Strategic Banking Corporation of Ireland, for example. The commercial banks have been put on a healthy footing, thanks to the people, at a huge cost. They should be more proactive in providing funding. Many pension funds are investing but they do not always invest in productive economic activity. There needs to be more of an effort to address that. As has been mentioned, the cost of insurance is a significant barrier as well and progress has been far too slow in addressing that issue. We have had opportunities to debate that but it is a key factor.
Small businesses are particularly worried about taking risks and taking out loans. Wherever it is possible, loans should be guaranteed or it may be preferable to provide grants rather than having the risk of a small company being worried about being able to pay such loans back. If loans are the option, these should be issued on favourable interest rate terms. All of these issues are important to small companies willingness to invest in developing and becoming larger.
An issue that is clearly highlighted, which has been referred to by previous speakers, including the Minister, is the gap between the LEOs and Enterprise Ireland. We will be aware of this in our local areas. We all know people who are trying to get a small company up and running and are trying to get certain support from the LEOs. They then find, as they try to scale up, that they are not big enough for Enterprise Ireland but too big for the LEOs. That is a problem. Some practical measures need to be put in place in that context. Consulting people in the sector is crucial as they know exactly the challenges that are facing them. They can often identify exactly what kind of supports would be suitable to help them to grow.
If a large number of small companies can grow, that would make a major difference in respect of employment opportunities in local economies and generally in respect the economic health of the country. We do not want to be as dependent as we currently are on multinationals for jobs.
We have a healthy jobs economy, but it is over-dependent on large multinationals.
Brexit uncertainty is an obvious issue. We have had the opportunity in parliamentary questions and so forth to raise the concerns and uncertainties that still exist about the effect of Brexit. Perhaps there will be more clarity by the end of this week in that regard.
Regarding spin-offs, many of the smaller indigenous companies are set up as a result of people working in multinational companies and seeing an opportunity to start their own business. I see it in my region where a large number of companies have been established in that way. They need support. The ones that start in incubation settings in higher education institutions tend to have good support due to how they start and where they are situated, but those that start outside that setting and in the community are probably more exposed. Perhaps there is a way they can get greater support. The Minister referred to clusters. My area has both a university and an institute of technology which are good at supporting and incubating companies that develop out of the institutions. I am sure that is the case in other parts of the country. However, there are many entrepreneurial individuals in Ireland who set up companies and do not have that type of structure. If possible, they should be linked into the higher education sector that is already doing that type of work.
The Minister mentioned the need for us to move to a low-carbon economy. That is a crucial requirement and it obviously must be on a large scale. There are opportunities in that regard and many of them are locally based because, by definition, one wishes to produce things in the local area rather than having transportation costs and the effect that has on the carbon footprint. We must put more emphasis on supporting businesses operating in that sector, and this is mentioned in the report. There are many such businesses. By and large, they are highly motivated but they need specific supports. They can potentially make an enormous difference to our economy and, indeed, to the air we breathe and the future of our planet. There should be a particular focus on those companies.
I looked at the selected recommendations in the executive summary. They have largely been covered in all the contributions this evening. They refer to identifying local cluster challenges and bringing together a network of regional enterprise network managers. We also have regional skills organisers in the eight regions. They come through the Department of Education and Skills and link local businesses with higher education institutions. They have an important role to play. There is also a reference to building up apprenticeships. I have often spoken about apprenticeships. There is huge potential in that regard. Again, it is driven primarily by the Department of Education and Skills, but there are now apprenticeships across a variety of sectors in the economy. They provide an opportunity for SMEs to develop their workforce and give opportunities to people in a variety of sectors to develop very good careers as well as stronger businesses.
It is important that these recommendations are implemented and in a way that involves consulting widely with the people directly involved in the businesses. They know more than probably any Member of the House what the challenges are and what would help them to scale up their businesses and be sustainable for the future.
I am delighted to have the opportunity to speak briefly on the OECD report on SME and entrepreneurship policy in Ireland. I welcome that it has been put before the Dáil. Hopefully, the Minister will move forward quickly and publish her unified strategy document for the future.
Small and medium-sized enterprises are a vital part of our economy and employ over 70% of the workforce of 2.3 million people. That is quite typical of the European Union where approximately two thirds of all workers work for SMEs. Even in the UK, approximately half the workforce is in SMEs. Medium-sized companies have 250 employees or less, small companies have fewer than 50 employees and microenterprises have ten or less. Like many Deputies, I have worked in small and medium-sized enterprises in the past. I was a director of a community enterprise centre and was involved in training local entrepreneurs on the north side of Dublin for more than three decades. Throughout that time there have been many initiatives by organisations such as area partnerships, which in the case of Dublin Bay North include the Northside Partnership, Pobal, SOLAS, the Revenue Commissioners, the Department of Employment Affairs and Social Protection, the Department of Business, Enterprise and Innovation and local enterprise offices in Dublin City Council and Fingal County Council. They have all played a vital role over the years in supporting the development of small business. What the Minister must do in the new unified strategy is try to address some of the deficiencies in the sector, particularly with Brexit looming over it.
It is welcome that the Minister commissioned this report last year. I looked through the various themes and actions and there are many common-sense initiatives that could be taken. I welcome that the Minister has established the interdepartmental consultative group, which is chaired by the Minister of State, Deputy Breen. The 11 actions under the six themes refer to the work that has already been put in place to develop small and medium-sized enterprise. For example, action 2 calls for an online business diagnostic tool, to be able to benchmark small businesses and improve their access to finance and their skills in recruitment and marketing their products. One of the areas where SMEs are sometimes squeezed out, and other Deputies have referred to this, is with regard to tax credits in the research and development area. Action 3 recommends a simplified pre-approval process. It is skewed towards the large companies at present and this would give smaller companies, partnerships and even small co-operative businesses a chance in this regard.
Action 5 refers to the slow rate of digitisation and the fact that the LEOs could play a strong role in helping small businesses in that area. There is also reference to clusters, which have been successful not only in this country but also in Germany and in some sister jurisdictions in the European Union. Obviously, there must be access to credit. The trading online voucher programme is mentioned, as well as the fact that SMEs need better resources to be able to pursue such implements to develop their businesses. Action 9 refers to access to finance through the microenterprise loan fund and so forth.
Action 10 refers to tax reliefs for non-domiciled new hires by Irish SMEs. That involves the special assignee relief programme, SARP, but there are many concerns at the Committee on Budgetary Oversight, and I indicated them in my budget submission, about how SARP works, how it discriminates, how the programme has expanded and how it has been taken advantage of by some larger companies. I am not sure if it is the right implement for SMEs. Another area highlighted in the report is the levels of productivity. The National Competitiveness Council mentioned this in its productivity statement in 2019.
We need measures and supports to boost productivity in SMEs and the National Competitiveness Council has also drawn attention to this. There is more than enough evidence to show that Irish SMEs must be supported better in the future and we have a roadmap in this report to help us to do it. I welcome the report and urge the Government to implement its key recommendations as soon as possible.
I welcome the opportunity to contribute to the debate on the OECD report. It is interesting that in Ireland, the idea of an SME among members of the public is not an enterprise with up to 250 people employed. In the Donegal context, that would be looked on as a very large employer. When we talk about this, we should talk about small enterprises because that is the reality in rural Ireland. In regard to the supports that are available to such companies, we should concentrate on that level because it is those indigenous industries which can grow and develop and perhaps get to the point where they can contribute and compete.
We are caught by the fact we have a very small population so businesses and enterprises cannot grow internally to a stage where they get the critical mass that allows them to export or grow internationally. This happens in other countries, such as Belgium, which has a population of 11.5 million, or the Netherlands, with a population of 18 million or 19 million, but Ireland has a population of just 4.5 million. Small industries here do not get the chance to grow and develop internally and then be able to export abroad and grow. We should focus on very small industries - we should drop the M and just talk about SEs. This would be very important from a policy point of view and is something that could happen.
I carried out a business survey in the last couple of years in County Donegal. There were 105 responses to the survey and 75% were businesses that employed between one and five people. Some 75% of them were online and depopulation and the threat to rural services were of concern for 83% of them, given that is what impacted on them and on their ability to survive and keep going. More worrying, and this is a point that should worry the Minister, is that more than 80% of the businesses were unaware of any Government support for them. That was their response to the survey I put out, which is very worrying for us. Since the recession, almost 50% of businesses have seen their business decline or not improve. We should be targeting our resources to ensure those businesses can grow.
The first of the report's key findings is telling. It states:
...business dynamism and the start-up rate are relatively low, Irish SMEs are not very active in international markets, and SME productivity growth is stagnant. There are also weaknesses in SME management skills, capital investment levels and technology adoption.
This is vital. It shows the difficulties with Ireland Inc., as we do not have the critical mass of population to allow SMEs to develop and grow due to the domestic environment. This is what we are missing. We need to find a way to replace that and ensure SMEs can develop and grow. We need to drop the M altogether and focus on SEs.
I am happy to speak on this matter. SMEs are a critical part of our overall economy, as the Minister said. While corporation taxes and the high visibility of the multinationals get almost all of the attention, it is our SMEs that generate most of the work in this country. SMEs are particularly important for the labour market in Ireland, no more so than in the Minister's county of Monaghan. They generate more than 70% of all jobs in the non-financial business economy and this is approximately four percentage points more than the EU average, which is a good thing.
That said, it is clear, and has been clear for some time, that Irish SMEs still face significant challenges, especially around bureaucracy, red tape and high costs, in particular the cost of insurance, which the Government has failed abysmally to deal with in any way. The OECD report accepts that while Ireland is a successful generator of SMEs and the sector is innovative, business dynamism and the start-up rate are relatively low. Irish SMEs are also not very active in international markets and SME productivity growth is reported as stagnant.
Two of the greatest challenges for SMEs in the last number of years have been the commercial rates system and the rejection level for bank finance applications from SMEs. The rates are crippling and people get nothing for them. They pay the rates but the whole appeals system is bureaucratic. With regard to the rejection level for bank finance applications, the banks are dúnta, they are closed. They are not operating for small businesses or for anyone else, except big business. This is after we bailed them out, which is ridiculous. It is rejection after rejection. They are not open for business, whether it is for business loans, for householders or for people trying to buy homes. It annoys me that they have these big campaigns, with 300 people in a hotel, talking about all the money they are going to roll out. They are dúnta, they are shut for business, they are not working. However, the Government is blind to that, like the last Government and the one before that. The Central Bank, in its report on this matter earlier this year, highlighted the rejection rate as being about 15%. The experience of many SMEs, however, is that the rejection rate is well above this.
As for the current commercial rates system, we know that in the last two years alone, local authorities collected more than €4 billion in rates. What do small business people get back for that? Zilch. There was a time when they would get services, such as refuse services and the salting of the roads, but they get nothing now. The county councils have literally abandoned the people. Just like it banished big Phil the destroyer, the Government has banished all the local town councils. It has taken away democracy from the people and given nothing back. They get nothing for the rates, and the Minister knows that better than I do. They have to pay them, whereas bigger businesses can put up a sign to say a business is for rent or for sale, and they get back a massive rebate. Tipperary County Council acknowledged this and tried to change it at its most recent budget meeting.
Small businesses like those in Tipperary town have literally been facing ruin because they cannot get exemptions or decreases in rates, even when there is a collapse in business due to the activity of the local authority with roadworks. They spent the last year digging up the streets in Tipperary town. Would the council contact or notify people, or listen to them? No. It is pure arrogance. They can get these rates like a punitive tax and people get nothing in return. Despite the fact businesses are closing down or staying open by the skin of their teeth, there is no support for them. SMEs need support. They must be listened to and respected for what they do. They are the key provider of employment in towns and villages in rural Ireland, and they include many small farms, which are also SMEs. They need less Government interference and the adoption of measures that can make a difference in the real world but they are bogged down with endless red tape or complicated application processes for grant support.
We have all of these roll-outs. The Minister, Deputy Ring, is great at announcing money for this, that and the other, but getting it is another thing. Live horse and you will get grass, it is said, but the money is going back unspent. Self-employed people are getting tired of the bureaucracy, of Revenue, of the sheriff and of punitive charges. They are fed up with the banks because the banks are not functioning for them. We all paid our taxes to bail out the banks and our grandchildren will be paying for that but we get nothing back from the banks and they are not even listening.
Ministers are heedless of the situation for small businesses but they will know when they go to the election because the people are waiting for them. Some of them are waiting with pitchforks and any other weapons they have to make sure the Government will not come near them. Ministers do not understand, do not listen and are not interested in the people, good, bad or indifferent. The Minister can shake her head all she likes but that is the fact of the matter. They are asleep at the wheel. Businesses are under savage pressure and there is mental illness and everything else because of the pressure of trying to compete, pay PRSI, pay this new charge, that new charge or this new course.
If it is not hazard analysis and critical control point, HACCP, it is something else coming down on top of them - not HIQA, which operates in the hospitals, although it will not look at the trolley crisis. It is bureaucracy. There are legions of people going around with briefcases. They cannot help the businesses. There is the National Employment Rights Authority, NERA, as well as everything else. These bodies are there to close down and punish businesses. They never come in and ask whether they can help them, whether there is any way an open day could be held or whether they could give a little advice on the problems the businesses have. These bodies tell the businesses what is wrong and when to get it fixed. If they do not get it fixed, they face heavy and punitive fines. These struggling people are the backbone of our business, our industry. Of course I welcome the multinational businesses coming here but the small business people do not get the huge enticements to come here yet they stay here. They have been here for the long run but they are growing very tired now. You can bring the horse to water but you cannot make him drink. If the Minister does not wake up and do something, many of these businesses will disappear.
I do not know how I will follow that. I welcome the opportunity to speak on this matter. As we know, SMEs are a critical part of the Irish economy. The OECD report tells us, "There were approximately 250 000 active enterprises in Ireland in 2016." It states that SMEs make up as much as 56% of manufacturing employment and 74% of services employment in Ireland. Unfortunately, however, Ireland's direct SME export levels are very low by international standards, with only 6% of Irish SMEs directly trading across borders and with a high share of SME exporters trading only with the UK market. However, SMEs may contribute to exports indirectly by providing multinational firms with components and services. This is of particular concern to these companies with Brexit fast approaching. Many companies have invested heavily to support exporting over recent years. These companies need reassurances that the State will stand by them and provide assistance in the event of a hard Brexit.
The report's executive summary outlines in its key findings, "Ireland offers a favourable regulatory environment, low taxation, extensive R&D support and good physical infrastructure." I am not sure about the last one. In rural Ireland we are constantly fighting for investment in our roads, public transport and broadband. I have continuously pleaded with the Government since I was elected a Deputy for investment in our roads in west Cork. It is a fine thing I talked to Shep, the dog at home, because no one here listens. The report seems to contradict itself in chapter 3, calling Ireland's physical transport infrastructure sub-par.
The report also states:
access to finance remains problematic and incentives could be strengthened for investment in SMEs and entrepreneurship. Skills shortages are also rising, implying a need to monitor the success of recent apprenticeship and skills development policies.
I brought up this issue of skills shortages in November of last year and nothing has changed since. There is no doubt but that we have a lack of young people taking up apprenticeships. The 2018 Construction Industry Federation, CIF, report entitled the Trades & Apprenticeships Skills Survey identifies a lack of skilled tradespeople and apprenticeships as small firms struggle to take on apprentices. In the report the CIF states this is a clear warning sign to the Government and that the shortage is so severe that there exists the potential for long-term problems. If the Government wants to see more people taking up trades, it will have to better support young people. The report goes on to state, "Many firms in the past employed apprentices, however currently do not due to firm downsizing, lack of government incentives and onerous legislative obligations." All this has caused a shortage of qualified construction tradespeople across the construction trades and apprenticeships. This is a big concern that needs to be addressed. Contractors feel that the legislative and Government requirements surrounding apprenticeships are burdensome and put them under pressure. The Government needs to tackle this crisis now, not wait for things to escalate further. We have many thousands of talented tradespeople and professionals who emigrated during the recession. The Government should be doing all it can to make moving back to Ireland more appealing. However, with rising rents and shambolic health services, this would seem an uphill battle. Without Government action on this, we cannot expect the trend to change.
The OECD report outlines that the higher education system plays an important role in providing skills that are relevant to the labour market. The report also outlines, however, that the Irish economy would benefit from wider participation in lifelong learning programmes. I would like to see more incentives for people who have left the education system to return to it or take up a trade. I would like to see those who are in full-time employment and who want to continue upskilling given more opportunities to take part in short-term courses. When holding down a full-time job and supporting a family, many people cannot commit to courses that run for years. There should also be more incentives for companies to send their employees on upskilling courses in the form of tax relief for the employer, incentivising companies to invest continually in their employees, in turn benefiting both.
I welcome the opportunity to make a short contribution on this important report. My colleagues, Deputies Troy and Scanlon, dealt with some of the details of the report earlier. I wish to refer specifically to the needs of the Border region. Through parliamentary questions and other debates in this House, we have discussed the particular challenges facing small and medium-sized enterprises in the Border region due to Brexit. As we know, such enterprises are the backbone of our economy and our region, on both the southern and the northern side of the Border. I know that some supports have been put in place but I again appeal to the Minister to ensure that additional supports are put in place to assist our companies through the transition that will happen post Brexit. That uncertainty, unfortunately, has not gone away. Brexit has been out of our daily vocabulary for some time because of the British general election, but we must deal with the reality that there will be adverse impacts of Brexit and, unfortunately, no benefits for our region.
In the past I have advocated, as have other public representatives and Members of this House, an all-Ireland industrial policy and business policy. It is a shame we have not established additional all-Ireland implementation bodies. In 1998, with the signing of the Good Friday Agreement, six all-Ireland bodies were established. The premise at the time was always that additional bodies would be established in the area of trade promotion and health education. Sadly, we have not developed on that maximising of the potential of the Good Friday Agreement. In the areas the Minister, the Acting Chairman, Deputy Breathnach, and I represent, we know very well that many of our companies are cross-Border, all-Ireland bodies. They should be assisted by agencies that have an all-Ireland remit. There is a great case to be made at this time, due to Brexit, that we have all-Ireland industrial, business and trade promotion policies. This can only do good for business in the North and in the South and all-Ireland businesses. I would love to see this issue moved on.
Again, our economy, be it in Cavan, Monaghan, Fermanagh, Armagh, Tyrone or that general area, is very heavily dependent on small and medium-sized enterprises. Thankfully, with the assistance given in the past by the county enterprise boards and more recently by local enterprise boards, some of our small and medium-sized enterprises have become international corporations still based in our region. I note that at one point in the report the OECD states that the local enterprise offices are not fit for purpose. I have a great rapport, as I know the Minister does, with our local offices in Cavan and Monaghan. They have had great personnel working in them over the years. I sincerely hope, whatever additional systems or restructurings are put in place, that those personnel are given the resources to ensure they can continue to assist employment, generate jobs and grow the economy in our region.
With those few words, I appeal to the Minister to give further consideration to the points I have outlined in the past as well as this evening.
I thank all the Deputies who spoke, particularly those who had very constructive contributions. To respond to Deputy Brendan Smith, I fully understand, as he does, the difficulties Border businesses face in the context of Brexit. We have been working very hard in the Border region to provide all the supports and information we can. We have had a number of meetings in the Border counties specifically to inform businesses in the region of the challenges Brexit presents. Deputy Smith mentioned an all-Ireland trade policy. He and I both hope the Northern Ireland Executive will get up and running as quickly as possible. When it does, I do not see any reason why we should not look at trade on an all-island basis. He is absolutely right: jobs created in Armagh and Fermanagh benefit people in Cavan and Monaghan and, vice versa, jobs in Dundalk, such as the ones we announced in WuXi only a couple of weeks ago, another 200 jobs on top of 400, will benefit people in Northern Ireland. There is an all-island approach to this and it is something we can pursue when the Northern Ireland Executive is back again.
I have been listening to SMEs since I took up this job. I regularly meet them. I engage with all the representative bodies regularly. I also chair the retail consultation forum and have held Brexit meetings with businesses right across the country.
Deputy Troy specialises in cheap political shots as opposed to solutions. Any right-minded person will agree that SMEs are in a better place now than they were in 2010, when many were forced to close. The issue of access to credit was raised. We have the future growth loan scheme and it is flying out the door. Some €101 million was sanctioned and it was only lodged in April. A third of it is gone already. That is a good source of finance for people who want to look at the future growth loan scheme as a possible option to obtain finance. We also have the credit guarantee scheme and Microfinance Ireland, which provides finance.
The current model of LEOs is working very well. I have already said that I want to expand the role and remit of the LEOs. Last year, I increased their budget by a further €5 million, or in excess of 20%. I want to continue to support the LEOs. They do a really good job. One of the issues that the OECD raised was that we should expand the remit of the LEOs and I absolutely agree.
I am also working closely with Enterprise Ireland to encourage more women entrepreneurs, which I think is important. I am well aware of the issues affecting the Border region. Only yesterday, I turned the sod on a new IDA Ireland advanced technology building in Monaghan. That is part of the IDA Ireland property programme. There are also factories for Sligo and Dundalk. Foreign direct investment is very important too. It helps to create jobs in the local economy. For example, 2,000 people will be employed by WuXi during the construction stage in Dundalk. A lot of people and local providers will be involved, which is very important in the surrounding counties. It is not about foreign direct investment versus indigenous business but how we can maximise the benefits of both. Last Friday, I published a comprehensive report on remote working that was compiled by my Department. That is a matter of funding digital hubs and co-working facilities under the regional enterprise development fund. There is a particularly good one in Cavan and it is working extremely well.
Deputies Jan O'Sullivan and Broughan raised the issue of clustering, which is very important. It develops the links between institutes of technology and SMEs. Last Friday, the Minister for Education and Skills, Deputy McHugh, and I launched a fund of €4.8 million. It is called the regional clustering fund and it is to encourage SMEs to engage with the local institutes of technology and to help them to work closely together to benefit SME strategy. I intend to publish the new strategy on SMEs and entrepreneurship by the end of January or in early February.