Fóir Teoranta were established in March 1972 under the Companies Act, 1963, as provided for in section 2 of the Fóir Teoranta Act, 1972. They were designed to fill a gap which was perceived in the range of State services available to manufacturing industry at the time. The purpose was to provide an orderly procedure for restructuring ailing, but potentially viable, industrial concerns which encountered financial difficulties and which were unable to obtain their financial requirements from commercial sources.
Fóir were established in a period of structural change in Irish industry prior to EC membership in 1973 and the removal of many trade barriers. The progression to the open economy which we now have was taking place rapidly, and it was not unnatural that the Government at the time took the view that transitional measures aimed at helping Irish industry to adapt to the new more competitive conditions would be reasonable. Furthermore, during the recessionary period of the early eighties, Fóir provided very substantial assistance to Irish industry, mainly in the traditional sectors such as textiles and clothing, footwear and leather, furniture, mining, etc. Unfortunately, despite Fóir's best efforts, the traditional sectors of the economy had a fall in output of about 2 per cent per annum on average over the period 1973-86, along with a consequential fall in employment. In 1988, the performance of the traditional sectors has been turned around, and a growth in output of about 3 per cent was achieved in that year. It would be difficult to assert that Fóir Teoranta had anything but a marginal effect on the overall performance of these sectors one way or the other over the period since their establishment.
Ireland joined the European Community in 1973, just after Fóir Teoranta were established. Since then, there have been wide fluctuations in the economic performance of the country. In part, fast growth periods were stimulated by increased Government expenditure and borrowing. These borrowings eventually became unsustainable and this Government embarked upon the implementation of a Programme for National Recovery which had as one of its central aims the improvement of the environment for industry so that industry would be in a position to stand on its own feet and compete in the world marketplace.
The aim is to reduce unnecessary Government expenditure thereby reducing Government borrowing and lessening the upward pressures on interest rates and inflation. State props such as those provided by Fóir Teoranta have no place in this environment. The best action which the Government can take in relation to the survival of firms is to contribute as much as possible to lowering the input cost of industry thus avoiding altogether the need for firms to receive financial hand-outs from the State when it is probably too late. Real sustainable employment will only be created on such a basis rather than on the basis of protection and State props for industry.
In 1973, 31 per cent of the Irish workforce was employed in industry. That proportion reduced to 28 per cent by 1988, while the services sector increased, and agriculture continued its long term decline. It is a primary aim of Government policy to promote the expansion of industry so as to offset the structural decline in agriculture and to create the basis for higher employment directly in industry and also in the services sector. Since 1960, manufacturing output has increased on average by 5 per cent per annum. In the last two years, the growth of manufacturing industry increased to more than twice this rate.
The Government's forecast of 13,000 net new jobs for the economy in the current year is achievable. Higher employment now taking place is due to sustained export growth and also to a resumption of demand on the home market. The European Community is now growing at its fastes rate for 30 years and, as in the past, Ireland can expect to participate in this expansion. It seems likely that we can match average European employment growth in the current year.
The link between higher economic growth and employment is as true today as it ever was. Experience suggests that growth of between 2 per cent and 3 per cent is necessary to maintain employment and that the total number of jobs increases proportionately when economic growth exceeds that figure. It follows that the only way to create sustainable jobs is to increase economic output by producing more goods and services. The key contribution of industry is to increase output as a result of which jobs will be supported, either directly or indirectly. Without higher output, more jobs cannot be created on a sustainable basis.
Jobs will always be won and lost in any sector of industry and in particular firms. However, what is of crucial importance is that employment overall in the economy is increased, and that the new jobs are sustainable over the longer term. We do not need a Fóir Teoranta to fulfil this objective. Indeed, the evidence is that it was already too late for many of the firms who went to Fóir Teoranta and obtained State assistance. This assistance was then only useful in many instances to enable the firms to carry on for a while longer. Some firms assisted by Fóir Teoranta prospered and are trading successfully today, but the main point is that the thrust of Government policy is to get the overall number of jobs up in the economy by creating the right conditions for growth rather than by propping up individual firms at a high cost to the Exchequer.
The level of activity in Fóir Teoranta has tapered off considerably in recent years, from a peak of about £23 million in disbursement in 1983 to about £7 million last year. The number of applications received, cases approved, and the average size of approved cases have also substantially reduced.
In line with the fall-off in demand for their services and the virtual disappearance of large cases, together with buoyant own resources, Fóir's requirement for Exchequer funding also declined in recent years. In fact, the last occasion when the company needed to call on the Exchequer was almost two years ago. Since then, they have financed their operations from ongoing income from their investments by way of interest and capital repayments as well as a considerable element of pre-payments. At the end of December 1988 cash in hands or at short notice stood at £5.7 million. Following the Government decision to wind-up Fóir, the Exchequer allocation of £3 million originally provided for in the Abridged Estimates as an ongoing entity was withdrawn.
Since Fóir Teoranta is a lender of last resort, it is not perhaps all that surprising that a high degree of failure has taken place among Fóir Teoranta client firms. The failure rate experienced by Fóir however, has been at very considerable cost to the Exchequer. The failure rate may be measured by the fact that, of the currently outstanding advances given to Fóir Teoranta by the Exchequer of £96 million, about £75 million has in effect already been written-off by the company. While many firms have prospered with Fóir Teoranta assistance, there has nevertheless been a heavy loss of the Exchequer money invested in Fóir Teoranta.
The level of write-off in Fóir Teoranta is a reflection of the fact that many firms assisted failed, despite the assistance given by Fóir Teoranta. Many such firms left it far too late to go to Fóir Teoranta for assistance. Where, nevertheless, assistance was given in such cases, the damage had already been done and the firms eventually went to the wall anyway. While there may be economic benefit from keeping jobs in existence longer rather than being lost at the outset, there is the fact that the prospect for long term sustainable employment may be better if firms are transferred to new owners quickly in the receivership-liquidation process than if the firms are kept in existence, with Fóir assistance, but with existing debt levels and perhaps poor management and other weaknesses.
This is the background against which the Government considered the future of Fóir Teoranta. Their decision that Fóir should be wound up, as indicated in the announcement I made on 22 February was grounded on the following: (i) the low level of demand for Fóir Teoranta's services over the recent past; (ii) the very much changed industrial environment now, as a result of the firm action taken by this Government, as compared with when Fóir Teoranta were established; (iii) the soon to be enacted provision in the latest Companies Bill allowing for the appointment by the courts of an examiner in order to prevent a potentially viable company from going into immediate liquidation; and (iv) the need to prepare Irish industry to be ready to meet the challenges of the more competitive régime which will apply when the internal market is in place after 1992.
I have already mentioned the decline in demand for Fóir's services. This decline is due to a number of factors — the new climate of confidence in the economy and the favourable environment for industry are obviously major influencing factors. I will deal with these in more detail shortly. Another important consideration is the fact that finance for industry is available on a much wider scale now than ever before from private sector individual and institutional sources. Individual investors have the powerful advantage of State-backed tax schemes such as the business expansion scheme. The BES now has funds of over £32 million invested, and has clearly been a substantial source of equity funding for Irish business which in the past has been perhaps too heavily dependent on debt finance. The restrictions on the BES contained in the Finance Bill which I introduced recently are not directed towards investment in manufacturing industry, the area in which Fóir Teoranta were involved.
Venture capital funds also exist on a significant scale, with an important role in this regard being played by NADCORP and the investment arm of the Industrial Credit Corporation. Given these developments, it was inevitable that, leaving aside the improvements in the economy generally, demand for Fóir Teoranta services would be considerably lessened and the need for such an organisation diminished.
As I have said, the industrial environment now is also very much changed from the one which existed when Fóir Teoranta were established 17 years ago and during their main periods of business. Business confidence has never been greater. Interest rates are at their lowest levels for over a decade, inflation is at its lowest level since the early sixties. The Confederation of Irish Industry, in a survey of their member firms in 1987, concluded that industry would "prefer to have a competitive cost environment than seek to compensate for deficiencies in the environment through cash grants" etc., from the State. Clearly, we are living in an environment much more conducive to getting industry back on its feet, and achieving increased long-term industrial employment. The Government have got the conditions right. Industry itself must now deliver, without the aid of State props, for individual firms which find themselves in difficulty.
Everything we in Government are doing is aimed at increasing growth and jobs in our economy. The problems and development needs of the economy are such that there can be no question of doublethink or lack of consistency between the different parts of the Government's overall strategy as set out in the Programme for National Recovery. Everything must hang together in a consistent and carefully targeted approach aimed at securing more growth and more jobs.
In view of the recent comprehensive debate in the House on the National Development Plan I do not propose today to deal at any great length with the economic situation. However, there are a few general points on the economy which deserve to be aired again so that the context in which the decision was taken to wind up the activities of Fóir Teoranta can be more readily appreciated.
This year's budget won widespread support throughout the community. Developments since the budget suggest that the strategy on which it was based is firmly on course. The Exchequer returns for the first quarter were very encouraging. They support the view that the strengthening in economic activity which was projected in January is, in fact, taking place. There is a strong recovery in consumer spending. Retail sales in January were up by 7 per cent in volume on the year before. Unemployment in the first quarter of this year was substantially lower than in the first quarter of last year. Manufacturing employment in the final quarter of 1988 — the latest period for which figures are available — shows a year to year increase for the first time since 1980. In the building industry, employment in the larger firms in January and February was some 7 per cent higher than in the corresponding two months of 1988. This, together with the increase of 30 per cent in housing starts in the first two months of the year, is an indication of the substantial recovery which is now underway in the building industry after several lean years.
The trends so far support our expectation of a further substantial balance of payments surplus this year, of broadly the same order as last year. Exports have risen by 24 per cent in value year to year in the first two months of this year. This reflects the continued buoyancy of our export markets and the all important improvements in competitiveness which have been made here. There has also been strong growth in the value of imports. Imports of capital goods are up by 20 per cent — a good omen for investment and future output. As expected, imports of consumer goods are also strong in response to the recovery in private consumption. The challenge to domestic producers is to capture a growing share of this recovery in consumption and not to lose out, through price increases or otherwise, to overseas producers selling into our home market. Inflationary pressures at present in the economy will have to be resisted by every means at our disposal.
The overall prospect for 1989 remains one of strong economic growth. I am confident that the budget time prediction of a 3½ per cent increase in real GDP will be realised and might be bettered. In this new realistic and competitive industrial environment the demand for Fóir Teoranta's services had fallen dramatically.
Everybody is taking heart from the developments in the economy. There is a new air of confidence. It is good to see new investments and projects springing up all around the country. While problems remain, people now see that the earlier pattern of despondency and economic decline can be broken.
It is not part of my task to dampen this new enthusiasm — the opposite is the case. I must underline again, however, that in taking satisfaction from the progress made to date we must keep our feet firmly on the ground. Easy options must be avoided. An increase in costs and inflation — even from the low base we have achieved — is no substitute for higher productivity and efficiency. Jobs will be lost, not made, if we do not continue tight control of costs right across the economy. In areas where we ourselves have control, we must be ruthless in our approach.
For this reason it bears repeating that much of the rise in prices in the three months to February — over 1 per cent, leaving aside non-recurring budget effects — originated within our own economy rather than abroad. If we are not to put at risk our hard-won success in getting inflation down, all sectors must continue the restraint in evidence up to recently, and avoid rekindling domestic inflation pressures. Renewed inflation can only do harm to our international trading prospects, diminish our growth potential and ultimately inhibit the recovery in employment now under way. This Government are determined to resist such conditions thereby obviating the need for State services such as that provided by Fóir Teoranta.
The improvement in the public finances over the past few years has been dramatic. The trends so far this year suggest that, yet again, the budget targets may well be bettered. In this area too, however, we cannot allow our guard to slip. The annual addition of new borrowing is still too high. The exceptional overhang of debt still constrains our economic progress and eats up large resources that could be put to much better use. The Government are determined, therefore, to press ahead with the reduction of borrowing and debt.
We are already considering how best to achieve further necessary savings in expenditure in 1990, so as to make room for new investment within an overall improving budgetary trend. This work will be advanced in the coming months. The policies for the rationalisation of State bodies, of which the decision on Fóir Teoranta was part, will be continued in that context.
Much progress has been made in the past two years in the reform of the tax system including reductions in the corporate tax system. These reforms were impossible to implement while the public finances were in disarray. The actions on the tax front were made possible in large measure by the curbing of public expenditure during the past two years, while the overall reduction in the Exchequer borrowing requirement was not compromised. These changes have been crucial to the general economic recovery. There can be no exceptions to the rigorous and ongoing examination of public expenditure, aimed at ensuring that the general economic environment for business is continually inmproved. Bodies which have outlived their usefulness have no part to play in the new approach of realism to the public finances and competitiveness in the economy.
The provision in the latest Companies Bill allowing for the appointment by the courts of an examiner to companies in financial difficulty is modelled on the similar Chapter 11 process in the United States. The aim is to prevent a potentially viable company from going into immediate liquidation. This approach is one advocated by Fóir Teoranta for some years past. It allows for a stay of the rights of creditors while the examiner attempts a reconstruction of the company's finances. One of my objectives in preparing the Bill was to provide a new procedure which would help to obviate the need for a separate State company to deal with industrial rescue. Conditions in the economy are now such that the Government are satisfied that such a company is no longer required. Fóir Teoranta will, therefore, no longer be one of the participants in the examiner procedure as had been envisaged when the Bill was published. I am satisfied that the effectiveness of the new procedure will not be impaired as a result. There will be ample scope under the new arrangements for genuinely viable firms to stave off closure if they are threatened by merely short term financial difficulties.
There is no justification, as has been suggested, for holding Fóir Teoranta open until the new procedures are actually enacted. The timing differences will be quite short, and the essential point is that firms have to stand on their own two feet, in the new industrial environment, without recourse to the taxpayer for handouts. This is a view supported, as I have said, by industry itself.
It must be remembered that we as a nation have to gear up to the challenges that the creation of the European internal market will bring in 1992. This applies to all sectors of the economy. Irish industry will have to meet the competitive pressures without State feather bedding. Lame ducks will no longer be able to look to the State — the taxpayer in other words — to bail them out. This is an economy that is itself open to competition, and expects that the doors of its trading partners will be equally open to our exporters. This Government are convinced that they are adopting the correct approach in the interest of ensuring that Irish industry is best equipped to meet the challenge about to face it, and to ensure that the maintenance and growth of industrial employment — and employment generally — in this country on a long term secure footing is continued. With this in view I should add that already expenditure on industry was increased by £11.5 million Structural Fund money, in the budget, which is almost four times greater than the saving of £3 million in the Exchequer allocation to Fóir Teoranta in 1989 as a result of the Government's decision.
To sum up, the Government have taken their decision in this matter in the light of prevailing circumstances. The Government's view is that with the other sources of finance available for investment in industry and with the economy in such good condition, there should be little if any adverse impact on employment as a result of the closure of Fóir Teoranta. As regards the view that a need may arise in the future for the State to be actively involved in industrial rescue should economic conditions deteriorate, it has to be made clear that the days of feather bedding Irish industry are over. Irish industry must be able to compete in the marketplace and, in an intensive effort to ensure that this will be the case post-1992, the Government are already devoting greater resources to industry in the context of the EC Structural Funds over the next few years. There is therefore no lessening in the level of resources being devoted to industry. It is the purpose for which those resources are used which is important, and we will be ensuring that the funds involved are put to best effect in order to secure good solid progress in attaining the employment targets set out in the Government's Programme for National Recovery.
I said in my statement of 22 February that immediate discussions would take place with Fóir Teoranta on the implication of the Government decision for the staff and the company. These discussions began on 23 February and are continuing. They are designed to allay whatever fears the staff may have as to their position and to cover the options that will be available to them by way of redeployment, early retirement or whatever. This is an on-going situation as the House will appreciate but one which in the interest of all concerned, most of all staff themselves, is being progressed as rapidly as possible. I am hopeful that the arrangements being put in place will lead to an early and satisfactory outcome acceptable to all. The clear aim of policy in this regard is that there would be no compulsory redundancies in Fóir Teoranta, and every effort is being made to ensure that this result is achieved.
Deputies will recall that in my statement of 22 February, I said that new applications for rescue assistance would not be accepted by Fóir Teoranta from Thursday, 23 February 1989. In case of any doubt, I should say here that all other applications, that is, those received by the company up to and including 22 February, are being processed and decided on in the normal way. I also said that appropriate alternative arrangements for the administration of Fóir Teoranta's existing portfolio of loans and equity holdings would be made by the end of the winding up period so as to ensure that the Exchequer investment in the firms in question is protected. My Department are considering the options in this regard. As well as protecting the interest of the Exchequer, it is important that the arrangements to be put in place will be such as to maximise the benefit of the Fóir Teoranta assistance granted to the firms concerned. I can say at this stage that there will be no question of throwing to the wolves Fóir Teoranta's existing client base. Without committing myself, I would envisage that the portfolio will be continued to be managed within the public sector.
Finally, I would like once again to express publicly my appreciation of the work done by Fóir Teoranta since their establishment including the management advice service provided by the company, which had become a more significant part of their work in recent years. I wish to pay tribute to the hard work, commitment and dedication of the staff, management and directors of the company over the years.
