I move: "That the Bill be now read a Second Time."
Industrial development is critically important to our future well-being. Our industrial policies must be such that the proven flair and entrepreneurial talents of our people are used to the full. There is no point in making excuses about excessive energy prices, declining markets, competition from low wage-cost countries, protectionism and so on. We are a small open economy and we must regard these problems as given realities and devise methods of exploiting these realities to our own benefits.
We have proven in the past that we have the capability to take on and beat the best in the world. Over a 30 year period our economy has been transformed from being predominantly agricultural to the industrial society we have today. Over the next 30 years we must absorb the latest technological developments, improve our competitiveness on world markets and provide employment and a good standard of living for our people.
Over 90 per cent of total world scientific knowledge has been developed in the past 30 years. This will double again in the next 15. This is the pace of change that we have to contend with.
The primary function of Government in this scenario is the generation of an environment that is conductive to risk-taking. The Government's achievements over the last two and a half years in this area have been many: inflation, a key influence on risk and the probability of success has been reduced from 18 per cent in 1982 to 5.5 per cent in 1985; steps are afoot to rationalise our cumbersome industrial relations procedures; the development of our telecommunications services has been continued at full pace; major road bottlenecks have been alleviated and further substantial developments are planned; the expansion of key elements of our third level educational system designed to provide the appropriate skills and business acumen to industry has been escalated; systems have been put in place through the industrial costs monitoring group to monitor and advise the Government on the implications of Government actions for industrial costs.
During the latter part of the seventies and into the eighties there was a major debate on industrial policy. This debate included the publication of the Telesis report and the National Economic and Social Councils' comments on the report. In July 1984 the Government published their White Paper on Industrial Policy, responding to the NESC reports and the IDA's strategic plan, and outlining the Government's policy for the decade ahead.
The primary objectives of this industrial policy are: (i) to create and maintain the maximum number of sustainable jobs in manufacturing and international services; (ii) to maximise value-added in industry and retain the wealth created for further employment-creating investment; (iii) to develop a strong internationally-competitive industrial sector in Ireland made up of both Irish and foreign industry; (iv) to promote the rapid development of our natural resource-based industries; (v) to integrate foreign industry into the Irish economy through greater linkage with Irish industry and the educational institutions; and (vi) to improve the rate of return in the commercial State companies.
The creation and maintenance of employment is the most important of these objectives. The overall target set for job creation in the White Paper is for the growth in manufacturing employment of between 3,000 and 6,000 jobs per year. This is a very ambitious target in the light of past trends here and in other countries. All Government agencies concerned with manufacturing, whether in the investment, export or technical support areas, are being required to use their resources in such a way that together they will assure the achievement of these targets over the ten year period of application of the White Paper.
The national linkage programme is one of the most important of the job-creating initiatives. The objective of the programme is to develop a successful subsupply industrial base in Ireland. This will correct the current unsatisfactory position where only 33 per cent of industry inputs are manufactured locally and will ensure that the spin-off benefits from the purchases of the important firms attracted to Ireland are retained in Ireland. In pursuing these objectives the programme is, of course, addressing itself to the recent OECD comment concerning "the dualism of the Irish manufacturing sector" whereby strong growth by export-oriented foreign firms was not creating significant linkages to indigenous firms.
This programme will be a key source of new manufacturing employment and the IDA, who have responsibility for the programme, have appointed a former managing director from the electronics industry of an international company to spearhead the programme and to initiate linkage development in the electronics industry initially. Specifically, a linkage team have been established consisting of representatives of the IDA, the IIRS, SFADCo, AnCO and Údarás na Gaeltachta. Within the next six months 50 multinationals will be involved and 25 suppliers will be in the developmental phase.
In addition, the programme has already begun to expand to include multinationals outside the electronics sector by virtue of the fact that different sectors have similar requirements and because suppliers have customers in different sectors. While the initial focus will be on information technology, companies in telecommunications, consumer products and engineering are now also participating as a result of the recent decision.
I am anxious to see the programme extended to other sectors and I expect proposals to that end to be approved shortly. The linkage programme, while initially focused on developing small Irish companies to service multinationals here, should not be seen solely in that light. We have a fairly diverse multinational sector here and if a company can be developed who are capable of meeting the quality standards and demands of the multinationals in Ireland, it is a very small step indeed for them to start servicing similar multinationals in, say, Britain or continental Europe. What we are really doing is using sales to the multinational sector here as a jumping off ground, so to speak, for the development ultimately of export-oriented companies. It is not a simple case of import substitution in the limited sense of that term.
The major aim of Government policy is to build up strong indigenous companies capable of taking strategic decisions, developing their own R & D programmes within Ireland and of achieving strong market positions. The company development approach is one of the main planks in achieving this aim, encouraging overall planning by companies and putting the financial and non-financial services of all State agencies behind companies which adopt the approach. The IDA are working closely with CTT, the IIRS and other agencies as appropriate and to date 101 companies have participated. Of these, 55 have had development plans approved.
This emphasis on assisting indigenous industry is the motivation behind the regionalisation of the small industries programme. This has been completed since June, and the first Regional Small Industry Advisory Council meetings were held in May. In addition, small industry boards in all regions are now meeting on a monthly basis and work processed during the year to date gives confidence for believing that the target of increasing small industry project approvals by 25 per cent over the 1984 level can be achieved. Indeed, the fact that some 4,000 jobs in 300 projects were approved by IDA in the first half of 1985 is an indication of the potential of the small industry sector.
The one-stop-shop initiative is an equally important initiative in this context. I am pleased to be able to respond to criticisms that they are nothing more than shelves of information booklets in the State agencies by pointing out that IDA and SFADCo offices in all the regions, except the south-west, will soon be able to accommodate to the extent required the representatives of the IIRS, CTT and also other agencies. Some of the agencies' services will be provided on a visiting or clinic basis. For logistical reasons, the necessary changes cannot take place as quickly in Cork, but I am satisfied that all parties are co-operating to bring the IDA, the IIRS, CTT and other agencies under one roof in Cork as well, at an early date.
It is critically important in the case of small industry that people be able to get quick decisions and have a good personal interaction with individuals in the agencies with which they are dealing, rather than have to deal with faceless bureaucracies in Dublin where files are constantly referred from one officer to another before a decision is taken. The decentralisation of the small industry function is crucially important in this regard.
Ireland's very good export performance in recent years is familiar to the House. While it is reassuring to note that this is continuing, with real growth of up to 10 per cent expected in 1985 and in 1986, nonetheless the White Paper identified shortcomings in the marketing capabilities of Irish firms. I have been attempting to redress this situation by arranging for CTT to introduce specific marketing initiatives to assist exporters to develop the necessary expertise.
The most innovative of these schemes is the market entry and development scheme which is designed specifically to help exporters with the various expenses incurred in breaking into new markets or undertaking major developments of existing markets. The other schemes deal with:
—building marketing strengths in firms,
—market research proposals, and
—design and product development proposals.
In implementing these schemes CTT are focusing on the need to develop a market-led approach by our manufacturers which implies precise identification of customer needs and setting out to meet them as regards design, quality, pricing, after-sales service etc. To assist in this, CTT grants cover marketing managers, sales personnel recruitment, specialised management training programmes and marketing training seminars.
All of these initiatives are well under way and are beginning to show encouraging results. However, I would stress that the basic emphasis here is the long term development of marketing strengths in indigenous firms so that they may compete successfully on international markets.
One of the major contributory factors to the industrial strength of the United States is the thriving venture capital market in existence there. Most European countries have in recent years been trying to emulate the American experience. In Ireland we have the business expansion scheme, which provides income tax relief to eligible individual investors.
The scheme provides that individuals who purchase shares in unquoted manufacturing companies or companies providing internationally traded services should be able to write-off up to £25,000 per annum against their taxable income. An individual paying 60 per cent tax who makes a qualifying investment of £25,000 will find that the net cost of that investment is only £10,000. The business expansion scheme resulted in more than £3.5 million of new investment in industry during the 1984-85 tax year, in its introductory phase.
The Second Stage of the National Development Corporation Bill was completed in the House last week. This Corporation is 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.
I know that some Deputies are concerned that there may be an overlap of functions between the NDC and IDA. I want to repeat what I said in the House last week 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.
The principal function of the NDC will be to take an equity stake in industry by investing in suitable projects with a capability of providing sustainable and viable employment opportunities. They will not be empowered to make grants available to industry as the IDA are, and their power to give loans will be limited to the extent necessary to complement their overall effort and may be exercised only in the specific circumstances set out in the Bill.
The IDA have of course taken minority equity stakes in industry in small number of cases where this was necessary to formulate an overall package of aid to a particular project. We should not forget, however, that the IDA's principal statutory function is to contribute to the industrial promotion effort by means of providing grant-aid to industry.
The Management Committee on Industrial Policy was established to ensure the prompt implementation of the policies outlined in the White Paper. The committee, under the chairmanship of my Department, is comprised of representatives of the principal industrial development agencies and the Department of Finance. In its regular meetings to date it has reviewed submissions from the agencies on many of the White Paper initiatives. By doing so it has ensured, and will continue to ensure, that there is no slackening in efforts to put the new policies speedily in place.
The Bill now before the House is a further stage in the implementation of the White Paper policies. The opportunity is also being availed of to consolidate all existing industrial development legislation into one single comprehensive code. The Bill will, therefore, repeal and re-enact with amendments the Industrial Development Authority Act, 1950, the Industrial Development Acts, 1969 to 1981, the Undeveloped Areas Acts 1952 to 1969, and the Industrial Grants Acts, 1959 to 1969, omitting provisions which are obsolete or no longer necessary.
Following detailed reviews of the structure and administration of incentives for industry in Ireland, the Industrial Development Act, 1969, resulted in the formation of the Industrial Development Authority in their present form.
Established in 1970, the new Authority were given power to offer a wider range of incentives to indigenous and overseas industry. Their new package of incentives and services to industry incorporated grants towards the capital costs of new industrial projects, reequipment grants to assist industry to adapt to free trade conditions, special grant assistance geared towards the development of small industries, training grants, interest subsidies, loan guarantees, equity shareholding, R & D grants, the development of industrial estates and the construction of advance factories.
The Industrial Development Authority have served us exceptionally well since their formation. Their flexibility and efficiency in encouraging industrial development are the envy of other countries. The re-definition of IDA's role in section 11 of the Industrial Development Bill will ensure that the IDA will be enabled to continue their good work into the future.
The primary role of the Industrial Development Authority is to act under the Minister as a body having national responsibility for the implementation of industrial development policies and in the exercise of their functions to act in accordance with policies set out for them from time to time by the Minister. The Industrial Development Authority, together with the other agencies involved in industrial development, such as the IIRS and Coras Tráchtála will have executive responsibility for the implementation of industrial policies.
To ensure that industrial policy evolves in an ordered and planned manner, and that Deputies are made aware of the costs and benefits of industrial policy at regular intervals, the Bill includes in section 6 a new provision for a review of national industrial performance every three years. These triennial reviews and the conclusions arising from such reviews will be laid before each House of the Oireachtas.
The Bill for the first time will provide in section 13 for the issue of directives of a general policy nature to the Authority, subject to a number of safeguards. Such directives should not apply to any individual industrial undertaking or to the location of an industry other than as part of a general review of industrial policy for the country as a whole. Copies of all directives given by the Minister under this section must be laid before each House of the Oireachtas within 21 days.
Section 21 of the Bill sets out the new selectivity criteria under which the Authority will provide grant assistance to industry in respect of fixed assets. These criteria will also apply to leasing grants, rent subsidy grants, loan guarantees, interest subsidies in relation to fixed assets; training grants, the new technology acquisition grants, the incentives for enterprise development and equity participation. Other grant programmes such as research and development, international services and the incentives in respect of restructuring of industry will remain subject to their existing criteria.
The new grant criteria were outlined at paragraphs 5.2 to 5.4 of the White Paper and have been substituted for the criteria set out in the two-tier grant system in sections 33 and 34 of the Industrial Development Act, 1969. The new criteria overlap with the old in respect of the necessity for financial assistance, the permanence and viability of the firm, the provision of employment, use of natural resources and technological content. There will be no change in the maximum rate of grant which may be made, which will remain at 60 per cent in the designated areas and 45 per cent in the non-designated areas. However, the average level of fixed asset grants will be gradually reduced so that savings may be applied to technology acquisition grants and the new marketing initiatives.
This is quite important because the industrial White Paper clearly envisages a shift in resources from fixed assets to technology acquisition marketing and this reduction must be made to effect that shift. In addition, the new selectivity criteria will focus on the need to develop and increase linkages between overseas and indigenous industry and in particular the development of import substitution projects and export markets. Employment creation and maintenance, in addition to the new emphasis on output growth and generation of value added within the economy, will continue to be the main focus of State assistance to industry.
The conclusion in the White Paper on Industrial Policy was that grant assistance should be directed to remedying perceived weaknesses in Irish industry in the areas of marketing, management, research and development and innovation. Companies approved for grant assistance will, therefore, have to demonstrate that they will comply with the new criteria, have suitable company development plans and also that the equity base-financial structure of the company is adequate.
It is now generally accepted that we can no longer rely exclusively on overseas investment as a means of improving the level of technology in Irish industry. The White Paper on Industrial Policy stated that the IDA would be empowered to give grants not exceeding 50 per cent towards the costs of acquiring new product or process technology. Section 30 of this Bill will enable the IDA to give such grants and sets out the costs which will be eligible for grant assistance. Product or process technology for the purpose of grant assistance will include patents, designs, trade marks, trade secrets, copyrights and proprietary and non-proprietary know-how.
There is a wealth of invaluable technical expertise available in the Institute for Industrial Research and Standards. It is my belief that this expertise will prove a major asset in identifying suitable projects for assistance under the technology acquisition grants scheme as well as for research and development grants generally. Accordingly, I intend that the Institute for Industrial Research and Standards will be consulted by the Authority on all such projects.
The Bill also makes a number of significant changes in the IDA's R & D grant programme. Under section 24, costs eligible for assistance in future will include the salaries and wages and travel and subsistence expenses of those engaged on the project or in identifying product or process development opportunities within the company. Secondly, in order to encourage the smaller industrial undertaking to make greater use of the R & D grants, it is proposed to allow the Authority to make advance payments of up to one-third of an R & D grant to small industry.
It is intended that this provision would apply to small companies employing up to 50 people and with fixed assets of less than £0.5 million. It is now recognised that small companies are often more innovative than the larger companies, yet at the same time do not have the financial resources available to devote to a concerted and systematic research and development effort. This new provision will assist the smaller undertaking involved in research and development and considerably ease their cashflow and working capital requirements.
It may surprise the House to know that we are already spending about £40 million a year on research and development grants to Irish industry and we are getting about £30 million for the same purpose from the EC. Yet, relatively speaking, we have a very low level of research and development activity in industry by comparison with other countries. There are notable exceptions to this and I recently visited one in Deputy Daly's constituency, a company which would not exist but for the enormous research and development efforts they made to develop new products. Considering the amount of money we are spending on research and development we do not seem to be getting the results that we should and it is my intention to look a lot more closely at our total research and development efforts in industry in future. I hope that the new freedom conferred by the amendments contained in the Bill will be of assistance.
In recognition of the important role which AnCO play in industrial training, section 28 of the Bill provides that in future all training grant expenditure by the Authority shall take place only following consultation with AnCO. This will help ensure that training grant expenditure will become more cost effective and that the maximum value is obtained from State resources in this area. In addition training grant expenditure must contribute to the attainment of the objectives set out in the new selectivity criteria.
Provision is being made in section 4 of the Bill to allow the Minister to make a more flexible use of the designation instrument. I have been concerned that no objective or systematic review of designation has taken place since it was first introduced in 1952. I believe that a detailed and objective analysis of the relative strengths and weaknesses of the designated and non-designated areas is essential if designation is to be used as a flexible policy instrument for the future.
At my request the National Economic and Social Council have just issued a report recommending objective criteria, based on labour market imbalances, to determine designated status. They have further recommended that designation status should be of limited duration and coverage and subject to regular reviews. I have accepted in principle the broad thrust of the NESC recommendations and I have asked the Economic and Social Research Institute to advise me on what changes would be appropriate in relation to designation employing the critiera specified in the NESC report.
A number of other minor, technical or general amendments have been made in regard to grant schemes, incentives and equity participation powers of the Authority, the Government's powers in regard to grants, the period of appointment of, disqualification of and declaration of interest by Authority members, and the delegation of functions to boards and committees. It is also proposed that a new limit of £700 million be set on the total expenditure by the Industrial Development Authority as from the coming into force of the legislation. This will enable the Authority to carry out their functions for a further three to four years, and will allow the Oireachtas to review the operations of the IDA, in accordance with standard practice, in about three or four years' time which will coincide reasonably well with the completion of the first triennial review of industrial policy. I will be happy to elaborate further on Committee Stage on these provisions, which are primarily of a regulatory or controlling nature or are designed to make explicit, provisions which are already implicit in the existing industrial development legislation.
A number of provisions in the old legislation are not being re-enacted including the IDA's re-equipment grant scheme which was of special significance during the seventies in the modernisation of industry to assist it to operate in free market conditions. During the decade over £450 million was approved for Irish industries under the programme. The programme helped Irish firms to adapt to the free trade conditions brought about by the Anglo-Irish Free Trade Area Agreement and Ireland's subsequent entry to the EC.
The programme was phased out in the early eighties and ceased in 1982. The Industrial Development Bill repeals these provisions permanently on the basis that they have served their purpose and continuation of the measure could no longer be justified.
Similar considerations apply in regard to the IDA's powers to provide and arrange housing for employees in industry. I am satisfied that it is no longer appropriate that the IDA should retain this power which is more appropriate to the local authorities, the National Building Agency and the private sector.
The remainder of the eighties and the early nineties will be characterised by:
—rapid technological change,
—relatively high unemployment levels throughout the EC,
—slow rates of growth in economic and world trade, and
—more intensive competition for international mobile investment.
This Bill, and the other policy measures in the White Paper on Industrial Policy, will help us to face these daunting challenges with confidence. The greatest challenge facing us is unemployment. Manufacturing employment has been declining sharply in recent years, not only in Ireland, but throughout the developed world.
The policy initiatives introduced since the publication of the White Paper in July 1984 have contributed to moderating the rate of decline in manufacturing industry. I am confident that in 1986 we will see for the first time in many years some growth in manufacturing employment. This Bill provides the framework for further improvements in manufacturing industry in the years ahead. I commend the Bill to the House.