I move: "That the Bill be now read a Second Time".
The purpose of this Bill is to establish the National Development Corporation, which is an integral part of the Government's industrial and job creation strategy. It is a body with the task of investing in enterprises which might not otherwise develop or even get off the ground.
Businesses, new and old, in Ireland are starved of investment funds in the form of share capital. They have to rely to an unhealthy extent on money borrowed from banks. The resultant disproportionate requirement to pay interest and repay capital on bank loans, makes the business unduly vulnerable to temporary setbacks and fluctuations in market conditions.
Likewise there are investment opportunities in which the corporation itself alone can take a lead or set up an enterprise, given that its financial and developmental perspective is longer term than that of private sector venture capital agencies acting on their own.
The National Development Corporation is an integral part of the Government's strategy for innovation. New products and new processes are essential to our national economic growth, because markets are changing all the time and a country or a firm which fails to adapt will go into decline. New products need the investment of "patient" money which can wait for a profit while the product is being developed and tested. On its own, and in conjunction with others, the National Development Corporation will provide such crucial support to the process of innovation in Ireland.
It will work alongside other initiatives taken by the Government to provide investment funds for industrial and economic development. I will briefly describe these measures and the background to them.
Critics and observers of the economic scene in this country are unanimous in their view that in order for industry to flourish, and particularly for small indigenous owned industry to flourish, there must be a shift away from the traditional reliance on bank borrowings to finance start-ups and expansions. A much greater emphasis must be placed on the need for equity style investment. The development of this environment will be a gradual process requiring a significant change of attitudes, not only on the part of investors, to encourage them to be less risk-adverse, but also on the part of entrepreneurs and businessmen, to encourage them to be more receptive and understanding of the advantages of relinquishing part ownership of their business in return for equity finance.
The existence of a thriving venture capital market has often been cited as being a major, if not the major, contributing factor to the industrial strength of the United States in the past decade or so. Our capital markets are not as well developed in this direction, but the momentum is there and, with Government encouragement will, hopefully, build up a substantial flow of funds for venture capital in the years ahead. To achieve this we have introduced the business expansion scheme which provides income tax relief to eligible individual investors. In response to suggestions this scheme has been further improved this year. The BES is conservatively estimated to have resulted in excess of £3.5 million of new investment in industry during the 1984-85 tax year. The scheme has recently been strengthened by the passage of the Designated Investment's Funds Act in the last Dáil session.
Following the publication of the White Paper on Industrial Policy, I asked consultants employed in my Department to undertake a study into potential measures for the development of a more active market in the stocks and shares of Irish industry. Among the recommendations contained in the consultant's report was one dealing with the establishment of an over-the-counter, or OTC, market to facilitate trading in the shares of smaller, less developed, enterprises. In response to this recommendation, the Stock Exchange have now submitted proposals to me for the setting up of a third tier market to complement the facilities already provided by their full and unlisted markets. I will be examining these proposals closely and, indeed, hope to meet representatives of the exchange in the next week to discuss their ideas further.
I am also aware that certain private interests have expressed a willingness to become involved in the operation of OTC markets. I am, of course, anxious to provide for proper regulation of such markets as may operate outside of the Stock Exchange framework, to ensure that we can protect adequately the interest of investors.
Following the success of this initiative, I propose to ask the same consultants to undertake a new study. This will be to examine the potential for generating a greater level of institutional investment in industry. The pension funds and life assurance companies have annual funds available for investment which are estimated at about £400 million. I am anxious to see a greater amount of these funds directed towards the productive sectors of the economy. The consultants are at the early stage of preparing the framework for this study but if the fruits of their labour are as significant as previously we will all have cause to be well pleased.
I am also hoping to shortly renew my dialogue with the principal banking concerns in the country to discuss their potential contribution to our future industrial prosperity.
For some time past, I have been promoting the cause of profit sharing and worker shareholding in industry. This Government have introduced significant tax incentives which exist for profit sharing and worker shareholding. This is a means not only of encouraging harmony and accelerating the process of innovation in industry, but it will provide a source of funds for development.
I am concerned also that we should keep abreast of measures being taken to develop the capital markets in other countries, particularly Europe and the US. Officials of my Department recently held extremely useful discussions with Government authorities and financial representatives in the city of London which is reckoned by many to be the nerve centre of the most developed venture capital market in Europe. I am concerned to ensure that we fully participate in and draw on developments in foreign financial markets to the benefit of our economy.
The development of a venture capital market which is capable of making a significant contribution to industrial expansion is as much an educational process as anything else. I am convinced that the measures and initiatives outlined above will accelerate this process and lead us to a greater understanding and appreciation of the intricacies of industrial financing.
The National Development Corporation, the structure of which is defined in this legislation, is to be a further vehicle for State involvement in, and promotion of, industrial development. The principal objective of the NDC will be to assist, by means of investment in industry, in the creation of the maximum amount of viable employment in the State. It represents a new approach in many respects but in particular, I would highlight that it is not designed to be a grant-giving body such as the IDA. It will be an investment vehicle which will be seeking to earn a reasonable return on any investment made by it.
I want to allay any fears that there may be about an overlap or duplication of functions between the NDC and the IDA. It is my intention that there should be an operating agreement drawn up between the two bodies which will be subject to my approval. This will allow the NDC and the IDA to co-ordinate their respective functions and to act in complete harmony thus ensuring the creation of the maximum number of viable jobs.
It also represents a new approach because, unlike existing State agencies such as the IDA, CTT, the Irish Goods Council and so on, all of whom provide excellent assistance to industry, the NDC, where it identifies a particular niche or gap in the market place which the private sector is not yet exploiting, will be empowered to establish a business on its own initiative to meet that demand. One of the key elements of the role of the NDC is that it will be required to establish a revolving investment fund thereby enabling it to roll over its resources and continually reinvest in new enterprises offering new employment opportunities. The corporation will not be restricted in terms of the type of enterprise it might invest in and the definition of enterprise in the Bill is quite broad. Opportunities exist in all sectors of industry, manufacturing, services, tourism, agriculture, natural resources and so on. The NDC will be in a unique position of being able to exploit all such opportunities. Obviously, its remit will be to invest in enterprises which are, or are capable of becoming, profitable and efficient and offer reasonable prospects for development and the provision of viable employment.
The enterprises established or supported by the corporation will of course often compete with other companies both Irish and foreign. It will do so on a strictly commercial basis. It is my intention however that it will concentrate wholly on the traded sector of the economy where the main competition will be companies operating from other countries. Its aim will be to develop new markets, and to strengthen existing Irish industries by prudent equity investment as is provided in the Bill.
It is intended that the NDC should operate as a commercial entity which will invest in enterprises, establish them on their own initiative, unlike the IDA, and then dispose of them in accordance with normal commercial prudence. The NDC's ability to do this profitably will be a major factor in determining its success. The framing of this legislation is designed to take account of the fact that the State has limited resources and must aim to get maximum return in terms of employment from every pound it spends. As part of its normal investment criteria, the NDC will set at the outset of each investment time limits for its involvement in that investment. They will further be required to notify me of the time limits so set and of any subsequent decision to extend them.
The Government's employment objectives can best be achieved not by artificially increasing employment figures at the expense of unsustainable Government borrowing and deficits, as was done in the past, but by selective investment of available resources in modern viable industries. It is important to remember that the new technology of the mid-eighties will be outdated in the mid-nineties. We cannot afford to tie up our resources permanently in the technology of the mid-eighties. We need to have a constant stream of funds available to invest in new technologies as they arise over the next 20 years. The NDC, by operating a revolving investment fund, will be in a position to stay on the frontiers of technology and provide the jobs required by our young and increasing population without the need for a continuous source of new funds from the taxpayer.
As a further measure to ensure that the maximum number of investments is encouraged, the NDC will be empowered to enter into joint ventures with the private sector. This involvement of private enterprise partners in NDC investments is an important means of increasing the level of funds available for investment. It is also a means of encouraging a greater level of risk investment on the part of the private sector. Indeed, syndication of investments, as such joint arrangements are called, is an important and growing feature of the risk business and it is unlikely that the NDC could operate to its full potential if it were to be restricted in this regard. As a consequence, it will be possible for the NDC to be jointly involved with private venture capitalists in projects with a substantial financial dimension and where a spread of risk is essential or in overseas projects with definite potential for technology transfer or project development in Ireland. In this latter role the NDC will also be able to influence firms to locate or maintain their headquarters and decision-making functions here in Ireland rather than elsewhere. It is, of course, important to point out that the corporation will also be empowered to carry out its investment role in consultation and co-operation with existing State enterprise.
The National Development Corporation will have an innovative and commercial outlook. I must stress that it is not designed to undertake the functions of a rescue agency. I will not allow it to function as a means of resolving the difficulties of ailing State or private sector industry. At the end of the day, the success of the National Development Corporation will depend on the success of its individual investments. As such, each investment will be judged on its merits and assessed by the corporation in the context of its potential to contribute to the overall aim of creating the maximum amount of viable and sustainable employment in the State.
The NDC will play a critical role in the Government's overall strategy for the development of the indigenous resource sector of the economy, particularly in relation to agriculture, fishery and forestry resources. The Government are committed to the preparation, in conjunction with sectoral and agricultural interests, of a co-ordinated development programme for the indigenous resource sector.
The most pervasive problem in this sector — affecting agriculture, forestry and fishing — has been that of insufficient integration resulting in a lack of synchronisation between production patterns and market needs. Substantial investment is needed if production patterns are to be tailored to market needs. Seasonality of production and unevenness of quality can only be eliminated if primary producers are prepared to invest substantial sums and take substantial risks.
Partnership equity is needed to enable the entire natural resource sector to achieve its full potential. This will be especially necessary if long-term production contracts are to be developed. A buffer fund may be necessary to overcome difficulties that will arise if market prices diverge substantially from contract prices. I hope that the NDC will, on its own or in partnership with other investors, be able to step in to assist in underpinning the development of long-term contracts or analogous arrangements.
I also hope that it will be able to invest in identified niches in the natural resource sector where the full added value potential of Irish produce is not being achieved. Our timber resources also need to be exploited in a more commercial manner than heretofore and the NDC is being given a special role as an investment vehicle in commercial projects in this area.
The NDC will also be empowered to become involved in projects designed to assist the development of our tourist industry. The significant capital investment often required in respect of tourist facilities such as hotels and related activities as well as the seasonality of return would make this a key area for NDC involvement in joint ventures with the private sector. Their involvement will also fill an important gap in terms of State financial and available to the tourist industry, as pointed out in the recently published White Paper on Tourism.
Another area in which the NDC will play an important role will be to assist and, if necessary, participate in the establishment of development companies to provide services to small enterprises on a commercial basis. The Telesis report took the view that smaller Irish manufacturing firms could not achieve their full potential because they lacked adequate resources for marketing, R & D, warehousing and so on. It argued that, in some cases, these could be supplied by development companies providing common services to a number of firms. It is my hope that the NDC will be able to invest in, and share in the profits, of such schemes. The availability of investment funds from the NDC should act as a catalyst in establishing the initial viability of joint schemes of this kind throughout industry.
Because of the structure of the Irish capital markets there is a serious shortage of both private and public seed capital for projects, particularly technology-based projects, which take a number of years of development work before they reach the stage of commercialisation. The NDC is, therefore, being empowered to assist in the development of, and invest in, commercial enterprises based on the results of research and development activity in higher education or related fields.
I have been very impressed by the development of university-based industries in the United States. Many of the most successful high technology zones are located close to universities. Their success derives both from the direct application in industry of ideas emanating in universities, and from the indirect effects of the creation of an innovative atmosphere influenced by the institutes of higher education. The Industrial Development Authority have recognised this and an industrial park is being located in proximity to University College Dublin. A successful industrial park has already been set up at Plessey in proximity to the NIHE in Limerick.
The National Development Corporation can complement these efforts, and those of individual entrepreneurs, by providing a new source of investment funds for enterprises established in this way. The NDC will be aiming, as in all its investments, at making a profit. But its investment perspective will be longer than that of many traditional investors. Thus it will be well suited to the commercialisation of research-based products and processes. The Bill also empowers the NDC to act as a holding company for new projects initiated by public sector companies where such a facility would be helpful.
The corporation will not initially be empowered to act as a holding company for existing State industries. This will, however, be considered by the Government in the light of the progress of the NDC in its basic innovation and developmental tasks. In many of the existing commercial State enterprises, there is a need for policy and performance prospects to be more clearly delineated as corporate plans are submitted and evaluated. There would be little point in handing over to the NDC unsettled policy problems of certain State enterprises. Objectives and strategies must be settled first, and social — strategic roles, if any, clarified. Moreover, it will be important — particularly during its crucial formative period — for the NDC's resource and staff not to be diverted from its primary project, development — job creation role.
Although the corporation's main activity will be that of taking an equity stake in projects, it is also being empowered to give loans. The giving of loans by the corporation will, however, be subject to the following conditions:—
(i) where financial assistance is being provided by the corporation for a project, a maximum of 30 per cent of the initial assistance provided by the corporation may be by way of loan capital;
(ii) where loan capital has been provided for a project any further financial assistance provided by the corporation to that project may be by way of equity investment only;
(iii) in cases where loan capital has been provided by the corporation to a project the corporation shall specify that the interest rate attaching to the loan shall be as determined by me in consultation with the Minister for Finance.
The giving of loans together with equity investment is a feature of the venture capital market. The inclusion in the legislation of the conditions outlined above will ensure that the giving of loans will be part only of the initial investment and thus there is no danger of the corporation losing sight of its job-creation function and becoming a State rescue service.
In order to enable the corporation to fulfill its investment role, it is being provided with an authorised share capital of £300 million which will be held by, or on behalf of, the Minister for Finance.
In advancing the corporation funds out of its authorised share capital, the Government will have regard to the financial commitments of the board in terms of the projects and investment programmes with which it is, or is likely, to become involved. In later years, the Government will also have regard to the amount of funds available to the corporation from its own resources, that is the revolving investment fund for employment.
It is the Government's objective to ensure that the corporation exercises due commercial prudence in the selection, administration and disposal of its investment portfolio. If it does not make profits, it will not be able to create jobs.
The corporation will be judged at the end of the day in accordance with its success in achieving these twin objectives. Therefore, the rate at which the authorised share capital of the corporation is issued must remain at the discretion of the Government. If the corporation is performing profitably and is succeeding in creating employment, a greater amount of funds can be released. The opposite, by definition, also applies.
In order for the corporation to build up a base of profitable investments capable of providing sustainable employment, it is necessary to ensure that investments are judiciously spread over a range of sectors. For this reason the NDC will not be allowed to make investments in excess of £1 million without my consent, or in excess of £2.5 million without the consent of the Government. As a further element of protection for the taxpayer, section 33 of the Bill imposes restrictions on the corporation entering into financial commitments in respect of items such as leasing or purchasing office premises or office equipment.
One of the crucial factors which will determine the success of the corporation will be the level of expertise and commitment of those appointed both to the board and the staff of the corporation. It is not mine or the Government's intention that the members of the board be appointed simply because of their political or ideological views.
The board should be made up of men and women who have proven business, economic and enterpreneurial skills and who have a commitment to, and belief in, what they are doing. The board should also be a closely knit group capable of working in harmony. There is a maximum limit imposed by this Bill of nine board members and I believe that this will allow the proper balance to be struck. Likewise, if the corporation is to become a vibrant, job creating organisation, staff of the highest calibre must be attracted to its ranks.
The Bill provides that the corporation may not take a majority shareholding in any enterprise other than one which it establishes on its own initiative. The financial risks attaching to a majority shareholding are far greater and so, too, are the administrative and management responsibilities of a holding company. Such factors would impose an enormous strain on the resources of the corporation and would result in staff being deflected from their primary function of job initiators. With a large number of majority holdings, the staff of the corporation would become more involved in the management of existing investments instead of finding new ones.
The Bill before the House makes the usual administrative provisions in respect of State bodies. It is not necessary for me to comment on each of them in turn. I will of course be happy later in this debate to clarify any particular provision where Deputies require me to do so. However, I would like to mention a number of points at this stage.
First, the Government, in addition to the share capital of the corporation, are empowered to make grants of up to £2 million available in any one year to meet the administrative, day to day, running costs of the organisation. Secondly, I draw attention to the facility to give policy directives to the corporation. This is extremely important and allows the Government to steer the policy of the corporation in line with their own general industrial and employment objectives. Such directives must relate to general areas of policy and may not attempt to influence the corporation in regard to any specific investment proposal with which they are involved. Furthermore, such directives must be given in an open manner and must be laid before each House of the Oireachtas.
Finally, I would like to refer to the provision which dissolves the National Enterprise Agency and vests all their property, assets, debts, liabilities and so on in the corporation. This is an extremely beneficial way of eliminating any difficulties in the transfer of responsibility and it ensures that the corporation may step directly into the shoes of the agency.
I have no doubt that speakers on the opposite side of the House will ask why we are setting up a National Development Corporation at all. What can they do that the National Enterprise Agency cannot? A fair question and one which I propose to answer before it is posed.
In the first instance, the National Development Corporation are being established by law by the Oireachtas, whereas the NEA were just a company set up by administrative means. Secondly, this legislation provides the NDC with a proper capital base, the lack of which was a serious inhibiting factor in the operation of the NEA. The NEA were formed with only a nominal share capital and were required to draw down their capital funds under a grant-in-aid arrangement. This produced a degree of uncertainty and mitigated against the agency entering into long-term financial and investment commitments.
Thirdly, the NDC will have specific statutory power to operate and invest in areas as defined in the Bill. This new statutory framework is a significant improvement in that it clearly outlines the NDC's remit and greatly enhances their potential to operate successfully as against the provisions affecting the NEA. It crystallises the NDC's function and leaves no room for doubt as to its primary job creation role. Furthermore, it greatly improves the administration procedures involved and removes the uncertainty which has surrounded the operation of the agency in recent years. Also the existence of legislation gives the Oireachtas a major say in the operation of the corporation.
At this point, I would like to pay a compliment to the chairman, directors and staff of the NEA. They have operated under a cloud of uncertainty as regards their future for some time but notwithstanding this their commitment and endeavour have never waned. Let me say also, that although the NEA had been established by a previous administration I actively encouraged them to continue their work until something better was available. They have already made some good investments. During 1984 and 1985 some 20 projects have been approved committing over £2 million of capital funds. It would be wrong to assume that the 150 or so jobs provided by these investments is the total employment potential of the projects concerned. There is a saying in the venture capital business that venture capitalists do not invest in small business, they just invest in businesses which happen to be small at present. Let me say that the work of the agency to date has been ample testimony to the role which this Government perceive for State involvement in equity investment in industry. They have provided a foundation on which the NDC may now commence to build a much larger structure.
I commend this Bill to the House.
