Mary Coughlan (Donegal South West, Fianna Fail)

Tá lúcháir orm bheith anseo inniu. Tá súil agam go mbeidh díospóireacht mhaith againn. I am pleased to bring before the House the Industrial Development Bill 2008 and to outline its main provisions. The purpose of this Bill is to provide for the transfer of shares held by Shannon Development Company Limited to Enterprise Ireland and to amend sections of the Industrial Development Acts of 1986 and 1993. These amendments are of a technical nature and 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. In addition, it is proposed to address an anomaly that has arisen regarding grants to small companies in parts of the Border, midlands and west region.

While the provisions of this Bill are of a technical nature, they are nevertheless important in that they facilitate implementation of the national development plan and the framework for sustainable economic renewal, Building Ireland's Smart Economy. It will allow the enterprise development agencies to respond to the needs of industry, thereby adding to the policies aimed at increasing employment and reducing unemployment.

The Irish economy is now one of the most globalised in the world. As a consequence, the global downturn created by the current international financial crisis has had a significant impact on our economy. 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. With the Irish economy expected to contract in 2009, it is inevitable that we will experience further job losses in the next 12 months. My Department and its agencies have a vital role to play in ensuring that the country is well positioned to progress when the global economy starts to pick up. While any job losses are deeply distressing for those concerned and very regrettable, we still have a historically high number of people — more than 2 million — at work today compared with a decade ago and we are continuing to create high value jobs across the economy.

Maintaining the competitiveness of the enterprise sector in Ireland is a priority for my Department and our development agencies. 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. 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 communication infrastructure and promoting tertiary education and lifelong learning. The national development plan projects a total investment of more than €25 billion, with €8.2 billion earmarked for delivery of the strategy for science, technology and innovation. To achieve our goal of becoming a leader in research and development and innovation, €3.3 billion is being invested specifically to support the development of the indigenous and FDI enterprise base and €13.7 billion is being spent on skills development. Although the economic environment is more challenging than we have seen for many years, we have the foundations in place for long-term economic growth and the implementation of these strategies will ensure Ireland remains a key location for cutting edge research and development and the quality jobs these can deliver. Achieving higher growth rates in productivity than our competitor countries will be important for international competitiveness and securing sustainable wage growth.

The report of the high level group on manufacturing, which was launched in March 2008, identified the focused actions needed by employers, employees and the Government to respond to challenges and take advantage of opportunities to further develop the sector in Ireland. The report contains 26 recommendations directed at key areas of innovation and productivity and leading to transformational change, re-skilling and management development for the innovative firm and increasing awareness and take up of existing supports. The social partners agreed, as part of the recently concluded review of Towards 2016, that a manufacturing forum should be established in line with the recommendations of the high level group. This matter is currently being progressed by my Department in consultation with the Department of the Taoiseach and the social partners.

In the future, a major impetus for growth will come from expansion of our services sectors. We continue to be one of the world's leading service exporting countries. Over the next ten years, services will be one of the key drivers of Ireland's economic success and job creation strategies. The report of the services strategy group, Catching the Wave: A Services Strategy for Ireland, sets out new policy proposals on how we can ensure continued development and growth in the sector. The report outlines ways to maximise the future returns to the country from services activities in all enterprises, both current and potential. This report will guide the development of our services policies and strategy into the future with a view to fully exploiting the opportunities this sector presents. In particular, the strategy will focus on maximizing the performance of companies that are already active on export markets, encouraging companies that are currently only trading locally to expand their markets abroad and fostering a new breed of start-up services companies with exporting potential. Implementation of the recommendations of the services strategy group, some of which are already being acted upon by the enterprise agencies, will enable Irish service companies to exploit new and exciting opportunities, such as e-learning, business and financial services, professional and consultancy services and others.

In summarising what I want to say, I think we would all agree that competitiveness is the most important issue we will have to address over the coming years. The work we are currently doing will provide an indication internationally of the Government's resolve in dealing with this issue. As we are living in challenging times, innovative solutions will have to be found.

Foreign direct investment is hugely important. We continue to maintain a strong pipeline for investment and this legislation will be more than helpful in that regard. I am equally determined to maintain our focus on developing indigenous industries. I take the view that they offer significant opportunities in terms of increasing exports through research and development, with the support of Enterprise Ireland and the innovation vouchers it can offer. We are also working with universities and institutes of technology to address the needs and concerns of industry.

I will summarise the Bill for clarity. Section 1 deals with the transfer of shares and sets out several definitions related to the 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. Following a change in the Shannon Development mandate in 2007, Enterprise Ireland took over Shannon Development's responsibilities regarding 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.

As a result of 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.

Shannon Development, as a limited liability company, has the power under its memorandum of association to take shares in other companies. Under Section 7(1 )(h) of the Industrial Development (Enterprise Ireland) Act 1998, Enterprise Ireland has the power to make investments in and provide support to industrial undertakings.

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, as we know, to the future growth of the economy. Taking shares in these companies is one of the methods used to provide financial support to them.

Section 3 amends the Industrial Development Act 1986 by increasing the thresholds on grants paid by the agencies to companies above which Government approval is required. It also addresses an anomaly that has arisen regarding grants to small companies in parts of the BMW region by extending the designated areas in the BMW region. Industrial incentives and grant aid has played a key role in the successful development of the economy and continues to be an important aspect of ongoing enterprise strategy.

State support specific to enterprise and job creation is channelled through the industrial development agencies. IDA Ireland has responsibility for promoting Ireland and its regions for inward investment and Enterprise Ireland is concentrating on developing the indigenous sector. Shannon Development is responsible for regional economic development in the mid west region, whereas the county enterprise boards offer assistance to micro-enterprises employing fewer than ten people.

The overall mix of incentives varies from fiscal policies such as the 12.5% corporation tax rate that all productive companies can avail of to targeted supports or incentives designed to stimulate specific types of business activity. These incentives include funding for capital investment, job creation, research and development, training, marketing, and management development.

The level of incentives or supports to eligible companies depends on a number of factors. Support is limited to activities that are in line with European and national development objectives for example, research and development, training, scaling or expansion of firms. All activities supported must be new or additional to what the company is currently doing. The size of the company is a factor, with some supports available only to small and medium sized enterprises. This is due to the particular market failures and barriers to development which face SMEs.

Examples of these supports include the business expansion scheme and supports for trade fair participation. The level of support is higher for companies in the BMW region than the southern and eastern region, and a return to the economy is required on public investment; all major projects supported by the agencies are subject to a detailed cost-benefit analysis. This analysis calculates the return to the State by calculating the impact of investments supported on employment taxes, corporation taxes and spend on goods and services in the economy. The grant instruments provided for in the 1986 Act, which are updated in section 3 and 4 of this Bill, are for use by IDA or Enterprise Ireland to support spending by individual industrial companies on building or extending factories, training workers, or carrying out research and development work.

Section 3 updates existing provisions relating to the powers of IDA, Enterprise Ireland and Shannon Development to give grants to companies in the manufacturing and internationally-traded services sectors. The Industrial Development Acts empower the agencies to make a range of grants and other incentives to client companies, subject to Government approval where specified thresholds are exceeded. This allows the Government to monitor the work of the agencies on a project by project basis, for each large project where the grant proposed exceeds the applicable threshold. These thresholds are kept under review and have been increased periodically in the past, most recently in 2003. Taking inflation into account, there has recently been a significant increase in the number of projects which require Government approval. A further increase in the thresholds is now warranted to ensure the Government deals with only the more important and strategic projects. An increase of 50% is being proposed in most cases.

An exception is the threshold for research and development grants, which is currently set at 50% of the thresholds applying to other grants such as capital, employment and training grants. This reflected the position in the past, when the types of research and development projects being assisted by the agencies were much smaller than they have become in recent years. Research and development grants provided by IDA or Enterprise Ireland 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 here. They also serve to increase the strategic importance of the Irish operation within the parent group.

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 would ensure that the right number of research and development grants are subject to Government approval, mirroring the thresholds for the other grant types.

The overall objective is to get more firms involved in doing research and development, increase the amount of research and development from existing performers and raise the quality and sophistication of the research and development being performed. This should facilitate a planned progression for companies carrying out research and development, thereby improving in-firm technological capacity and capability over time. These provisions aim both to encourage an increase in the amount of research and development by companies in Ireland and make Ireland an attractive destination for further inward investment.

The mix of supports and incentives offered is geared towards bringing about a qualitative and cultural change in enterprise in order to bring about the shift from an investment-driven economy to an innovation and knowledge-driven economy. Ireland has developed a reputation as being a top location for ground-breaking research. Company-to-company collaboration and partnership between our third level institutions and companies are at the core of this. Projects already under way include research on combating disease, improving communication technology and developing products of the future. This approach to producing high-quality research and development will ensure that Ireland remains a base for high-tech quality jobs in the years ahead.

Research and development grants above the threshold are now quite routine and it is considered appropriate to apply the same threshold as applies to other types of grant. The increases proposed are as follows. Employment grants to industry will move from €5 million to €7.5 million; training grants to industry will move from €5 million to €7.5 million; research and development grants to industry will move from €2.5 million to €7.5 million; and purchase of shares will move from €5 million to €7.5 million. The threshold for capital grants to industry is also being increased from €5 million to €7.5 million and, as this originates from the 1993 Act, it is included in section 4 of this Bill.

It is considered that these levels strike the right balance between, on the one hand, allowing the Government to see the larger grant proposals emerging from each agency, and in this way to monitor the spending involved and raise any policy issues it sees fit, and, on the other hand, keeping the number of such cases on the Government agenda to a number that is not too high. It may be suggested that if too many cases went to Government, the efficiency of the Government as well as the agency and company awaiting the decision would be impaired, although I do not agree with such an argument.We would be more than delighted to see as much as we can.

The 1986 Act also provided an aggregate threshold for all investment aid to one company, above which Government approval is required. This was set at €10 million in the 2003 Act and it is now proposed to increase it to €15 million. In the explanatory note accompanying this Bill, the amounts quoted in respect of the proposed increase in respect of the aggregate limit for investment aid are incorrectly stated as "from €5 million to €7.5 million", whereas the proposed increase is from the existing €10 million to €15 million.

Investment aid is aid to support the building of a new factory or the extension of an existing factory. It is paid either as a capital grant, an employment grant, equity participation in the form of ordinary shares or preference shares, or through a combination of these three instruments. For each of these instruments a Government threshold of €7.5 million is now proposed, and when they are used in combination an aggregate threshold of €15 million is proposed.

Section 3 also proposes to expand the designated areas in the BMW region. The 1986 Act provides that the maximum capital grant that can be given to a company outside the "designated areas" 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.