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Dáil Éireann debate -
Tuesday, 12 May 1981

Vol. 328 No. 12

Industrial Development Bill, 1981: Second Stage.

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

Because this Bill and the Industrial Development (No. 2) Bill, 1981, both deal with changes in industrial development legislation, I propose with the permission of the Ceann Comhairle, for the sake of convenience to cover both Bills in my speech.

The provisions of the first Bill are explained in the memorandum circulated to Deputies on 1 May 1981.

The Bill provides for the revision of the statutory limit on the aggregate amount of grants and payments of a capital nature which can be made by and to the Industrial Development Authority and also of the limits, which may not be exceeded without prior Government approval, under various grants which the Authority may make to an individual undertaking.

The limit on the aggregate amount of grants and payments of a capital nature which may be made by the Authority and the aggregate amount of grants which may be paid to the Authority for this purpose out of moneys provided by the Oireachtas was increased to £750 million in the Industrial Development Act, 1978. The total amount of capital issued to the IDA at end April 1981 was almost £724 million and the Authority's capital allocation for 1981 is £196 million. I am now proposing, in section 2, subsection (1) of the Bill, a new limit of £1,500 million. This higher limit will permit the IDA to carry out their functions after the end of this month for a further three to four years. I am also proposing in section 2, subsections (2) and (3) an increase from £100 million to £125 million in the aggregate amount of loan guarantees which may be given by the IDA.

The Industrial Development Act, 1978, raised to £1.25 million the limit, which may not be exceeded without the approval of the Government, on the total amount of grants which the IDA may make to a particular undertaking towards the cost of fixed assets, purchased or leased, and towards the cost of factory rents. Because of the increasing cost of fixed assets it has been necessary to submit an increasing number of projects to Government for approval, particularly in recent months. This prolongs the period of negotiation with investors for projects which could not be considered as major or significant ones. Accordingly, I propose to raise to £2.5 million the limit on the amount of grant moneys which the IDA may make without reference to the Government.

As Deputies are aware, there was no legislative limit prior to 1977 on the amount of training grants which the IDA could make. The Industrial Development Act, 1977, provided for a limit of £850,000 on the amount of such grants which the Authority might make without prior Government approval to an individual undertaking. This limit was subsequently raised to £1.25 million in the Industrial Development Act, 1978. Training grants are and will continue to be an important component in the Authority's overall range of incentives. The major element in training costs is wage related and, therefore, I consider that the statutory limit on training grants should be increased to take account of increases in industrial wages since the previous limit was fixed in 1978. I am proposing, therefore, to increase to £2 million the limit on training grants which the Authority may make without prior Government approval.

The Industrial Development (No.2) Act, 1975, prescribed a limit of £500,000 on the amount of a loan guarantee of principal to a particular company without prior Government approval. Similarly, the Industrial Development Act, 1977, set a limit of £500,000 on loan guarantees for Industrial restructuring. I am now proposing to increase both these limits to £750,000 to take account of the change in money values since 1977.

I now turn to the loan guarantees and interest subsidies for working capital under the IDA's Enterprise Development Programme. This programme aids those persons wishing to establish an industrial undertaking who had not previously been the owner of such an undertaking. The limit on the guarantee facilities which the IDA could approve without prior Government approval was fixed at £150,000 under the provisions of the Industrial Development Act, 1977. Until then the volume of new projects promoted by first-time industrialists had been relatively few. The major barrier to enterprise had been the inability of the potential entrepreneur to raise the necessary finance to carry through the start-up situation.

During 1978-79 it was necessary for the IDA to guarantee approximately 50 per cent of bank borrowings with the banks taking the remaining risk on the basis of a charge on the assets. Because of the credit squeeze in 1979-80 and the current recession, the IDA had to guarantee a greater proportion of bank borrowings — in some instances up to 70 per cent — to enable promoters to successfully negotiate bank finance. Accordingly, the present legislative limit of £150,000 is unrealistic in terms of present day money values and, accordingly, it is proposed in this Bill to increase it to £300,000.

In this context I might mention here my continuing disappointment with the role of the banking system in industrial development, particularly its reluctance to finance new projects without cast iron guarantees. I wish our bankers would follow the example of bankers in countries such as Japan and the US and play a more prominent part in financing industrial development.

Investment in research and development to improve or develop products or processes is essential if Irish industry is to remain competitive. Overdependence on one product or a limited range of products can make individual firms vulnerable to market or technological changes. New production methods can reduce manufacturing cost significantly. Because of the pace of technological change the IDA has found that the present limit of £50,000 on grants for an individual R and D project is inadequate and I therefore propose in this Bill to increase it to £250,000. Grants in excess of this figure will continue to require Government approval and the statutory maximum of 50 per cent of the total approved costs will continue to apply. I believe the new limit should greatly help to advance technological development in Irish industry.

The IDA have in the past taken equity shares in a number of industrial projects. Prior to the Industrial Development Act, 1977, there was no legislative limit on the amount of such equity interest. The 1977 Act provided a limit of £1 million on the amount the IDA could commit without Government approval. I am proposing in this Bill to increase the limit to £1.5 million to take account of the movement in money values since the limit was first established.

I will now deal briefly with industrial development in general. Irish industrial policy has remained largely unchanged since the early sixties. During that time we have seen a dramatic switch in emphasis from agriculture to industry. If we are to provide employment for our growing population we must continue to ensure growth in the industrial sector. Despite the fact that the IDA had their most successful year in 1980 with 35,600 job approvals, we are still faced with a daunting employment challenge. Because of the amount of State money involved, the time has now come for us to ask ourselves if we are getting the best possible return on our investments in industrial development and whether policies that have served us well in the past are the most appropriate for the 1980s and beyond. For this reason the Government asked the National Economic and Social Council to carry out a review of our industrial policies. This review is nearing completion and I look forward to the conclusions of the council.

Of the record number of job approvals in 1980 about one-third of these came from the small industry sector, which continues to be actively promoted throughout the country. Small industry projects are quick to realise their employment potential and virtually all are Irish-owned and controlled. Investment in manufacturing industry in 1980 exceeded £600 million and this contributed significantly to the construction and related industries which were otherwise facing reduced demand.

I have impressed on the IDA actively to encourage the involvement of private sector investors in supporting the capital needs of new domestic ventures. I am pleased to see the new developments in the Irish Stock Exchange which make for easier access to public capital markets. I would hope that, to an increasing degree, this will be used for raising capital by manufacturing companies. I endorse the recent remarks of my colleague, the Tánaiste, in regard to the kind of activities for which money has been raised in recent months on the Irish Stock Exchange which, for the most part, are highly speculative. One would like to see that kind of money and that sort of interest directed towards manufacturing industry.

Private developer finance is also being successfully organised to provide industrial buildings not alone in the major centres but also in provincial towns. These developments can do much to supplement the already extensive IDA building programme and contribute to accelerated job creation. I look forward to an extension to these private sector activities.

The IDA have adopted an increased target of 36,000 job approvals for the present year. This target is being attempted against the background of little, if any, increase in output or investment in the developed countries, although some improvement is expected in the latter half of 1981. This Bill will provide resources to back the exceptional effort required to achieve this target.

Depressed business conditions in overseas markets, which were the worst since 1975, resulted in a high number of job losses in 1980. The manufacturing sector of our economy has, however, done well by international standards and increased its share of our total exports. The rescue programme of the IDA has, to its credit, prevented the closure of a number of firms which would otherwise have fallen victim to the savage world trade environment.

Of course viability can only be assured by having the production processes and the product right. This requires what is termed the "total business concept" and involves encouraging firms to engage in or expand their research and development and marketing effort from their Irish base. This programme will utilise the Authority's incentives and will involve the facilities available from some other State bodies, educational and scientific institutions and the private sector. I anticipate worthwhile results as this concept is put into practice.

An immense job creation effort is required to provide a sufficient number of jobs for an expanding population. The IDA's Industrial Plan for the period 1978-82 sets a target for the creation of 75,000 new first-time jobs in grant-aided manufacturing industry. The achievement of this target involves the approval of industrial projects with a job potential of 145,000 or an average of about 30,000 for each of the five years. In the first three years of the plan the annual targets have been surpassed, with total approvals of more than 100,000 jobs. Some of these jobs have already come on stream and many of the remainder will be coming on stream over the next few years.

Some of the more important features of the job creation effort in recent years have been the dramatic rise in the number of native people establishing manufacturing industries for the first time, and the growth in Ireland's importance in the electronics and pharmaceutical/ health-care sectors. The IDA are seeking to fulfil more than half of their job targets from domestic industry sources including small industries. Many of these small industries have been established as a direct spin-off resulting from the establishment of large-sized overseas projects here. The opportunities in this field are manifold for efficient and go-ahead Irish firms.

I would now like to speak about the second of the Industrial Development Bills. Our greatest natural resource is our young population. One of the Government's primary objectives has been and continues to be the provision of stimulating and worthwhile employment for these intelligent and well-educated people. The visionary approach to the task of establishing a healthy industrial base in Ireland which was adopted in the 1950s continues to be relevant today. However, such an approach is not simply a question of grant today and job tomorrow, but rather one of utilising our natural advantages and gearing our incentives to the direction in which future industrial and commercial development will go. Through our efforts down the years we have eliminated what was the greatest scourge and indeed very often the only prospect for young people of previous generations — the emigrant ship.

However, we must continually look to the future. The increasing sophistication of international trade and the rapid advancement of technological innovation have created a considerable demand for technical services worldwide. In 1973, the IDA introduced a pilot programme for the promotion of service industries. This programme has been moderately successful. Between 1975 and 1980, 6,300 service industry jobs have been approved for grant assistance by the IDA of which 2,000 have been created by mid-1980. But this sector has a much greater potential for generating high quality employment and substantial foreign earnings than has been our experience until now.

Critical to the development of technical services is good infrastructure, particularly in communications. We are, with great speed, putting this infrastructure in place. Equally, if not more important, of course, is the availability of people with the highest skills. Thanks to our second and third level educational institutions, we now have the best equipped young people in our history. The technical services sector depends, after all, on the intellectual skills of its people rather than the productive capacity of its machines. Located in Ireland are some of the world leaders in computer manufacture but we must now build up an equally strong software capability. Lest it might appear that the promotion of the services sector is the "icing" on the manufacturing cake, I should stress that unless we also develop a strong capability in technical services we will have failed to grasp many of the spin-off benefits arising from the advancement and diversification of our industrial base. In the computer area, for example, the provision of data processing and software services has now become much more expensive and, in fact, more important than the manufacture of computer hardware.

In order that we may share in the rapid growth of technical services, the Government have decided to give the IDA power to grant-aid service undertakings which contribute to regional and national development. Under existing legislation, the Authority can provide grant assistance towards fixed asset costs of manufacturing industry but, because of the relatively low fixed asset base normally associated with service industries, capital grant assistance is not the most appropriate or effective incentive.

Export sales relief, which the House will be aware has ceased to be offered from 1 January 1981, was also a powerful weapon in the promotion of design and planning services, which is one of the major sources of new grant-aided service industry jobs. It was, therefore, necessary to devise a completely new package of grant aid tailored specifically to meet the needs of the services sector. The new scheme, which is the basis of this Bill, will provide for the payment of employment grants to service undertakings which comply with certain criteria. The main difference between an employment grant and the normal IDA capital grant will be that an employment grant is related solely to the creation of employment and not to the acquisition of physical fixed assets. This new incentive will assist promoters of service projects to meet part of the substantial pay-related costs in the initial but critical phase of the project.

As will be seen from section 2 of the Bill, the amount of an employment grant will be subject to a limit which I will fix from time to time with the concurrence of the Minister for Finance. For the initial year of the scheme this limit has been fixed at an average of £5,000 per job created. Half of the employment grant approved will be paid to the service undertaking once the jobs have been created, with the balance of the grant being payable one year later on certification that the jobs continue to exist. As training is a vital aspect in the development of service companies, training grants will continue to be used by the IDA as a major part of the incentive package for this sector. The use of training grants has the advantage that 55 per cent of these grants are normally recoverable from the European Social Fund.

Before employing grants can be paid by the Industrial Development Authority it will be necessary for me to specify, by order, the service industries to which such grants may be paid. Furthermore, the service undertakings to be grant aided will have to contribute significantly, in the opinion of the IDA, to regional and national development. Eligible projects will have to be commercially viable, will have to have sound market growth potential and would have not been developed in the absence of an employment grant. As it is the aim of the new scheme to create high quality employment, the service industries which will be specified by order will have a high technical or professional content. Between them, the engineering architecture and computer service industries have accounted for 85 per cent of all the jobs already approved under the IDA's existing service programme. These sectors will continue to be promoted with vigour.

Other target sectors which will be specified by order include headquarters operations, commercial testing laboratories, medical care and contract research and development services.

This will not, of course, preclude worthwhile projects in other areas being assisted should it appear worthwhile to extend, by order, the list of specified service industries. When this new incentive scheme gathers momentum, the IDA expect annual service industry job approvals to rise to 5,000 by 1985. This would represent a three-fold increase on the present achievement.

EEC Commission approval for this scheme is required before it can become operative and such approval has been sought. When we get the "green light" from the Commission, I will make the necessary orders.

Through the promotional efforts of the IDA and Shannon Development, Ireland is now a major centre for electronic companies. These companies are mainly the result of the enormous strides that have taken place in the last decade in the development of micro-technology. The potential of these technologies is only now being realised. What is certain is that they will be a central force in generating a worldwide demand for technical services and informatics.

This new Bill will enable the IDA to take the fullest advantage of the opportunities in this and other rapidly growing service industries. What is required in this sector is brain power and skills. Our people have these in abundance, but we must now ensure that the outlets for their use are made a reality. This Bill is an important step in this direction and I believe that it marks an exciting beginning to a new chapter in our industrial development.

I welcome both Bills. In dealing with the Industrial Development Bill, 1981, the Minister gave details of increases in the maximum expenditure under different headings allowed by the IDA without Government approval. They are all very important. There is nobody in this House who would not welcome assistance for the efforts of the IDA. The value of money is changing in the wrong direction, unfortunately, so quickly that it is imperative that we update these limits from time to time to take account of exchange rates and values of money. This Bill provides that facility.

At this time it is of the utmost importance that we should try to increase the capacity of the IDA to provide and create new jobs. The Minister said, and rightly so, that the 1980 target set by the IDA was reached. The creation of something in the region of 36,000 jobs was achieved. However, one must be mindful of the fact that the net result by the end of the year was barely a plus inasmuch as as many jobs were lost as were created. This is the unfortunate record of the Government. While the IDA are making every effort to make progress, even their efforts cannot stem the job losses which are taking place. We admit that without them we would be in a much worse position. Their efforts are appreciated. The new limits of expenditure under the different headings are welcomed on this side of the House. They are necessary if the IDA are to continue to achieve the job creation targets they set themselves.

The Minister expressed his disappointment with the banks who, he said, could take a lead from banks in places like Japan and the US. That is so. Our banks are very slow to provide the venture capital necessary without cast iron guarantees in situations in which these guarantees cannot be given and at a time when the prospective borrower cannot possibly provide the kind of guarantees sought by the banks. If the banks are to reap the benefit of an expanding economy, they must be seen to play their part in providing the necessary venture capital to further the efforts of new industries and encourage individuals with entrepreneurial skills. The banks should look with favour on proposals of this kind.

The Minister referred to the new developments in the Irish Stock Exchange which make for easier access to public capital markets. He then endorsed what the Tanaiste said about this development and pointed out that much of the speculative money on the stock market could be directed towards the development of industry. I am not surprised the Minister made that statement. Much of the speculation on the stock market in relation to oil is due to the expectations raised by the Taoiseach in the minds of the public about the possibility of commercial oil finds. With that kind of statement coming from such a high source as the Taoiseach, there are bound to be speculative money dealings on the stock market. The Tánaiste and the Minister for Industry, Commerce and Tourism were correct in what they said, but they must be reminded that their Taoiseach is causing much of the speculation on the stock market in relation to oil and oil finds. The Minister made the point also that one-third of the record number of jobs created or approved in 1980 were in the small industry sector.

Debate adjourned.