Vol. 432 No. 6
17 Mr. McGinley asked the Minister for Enterprise and Employment if he has satisfied himself with the progress made by the industrial development agencies in switching from grants to equity; and if he will make a statement on the matter.
26 Mr. Sheehan asked the Minister for Enterprise and Employment whether he has set targets for the shift of Government support from grants to equity as recommended by the Culliton report; and if he will make a statement on the matter.
I propose to take Questions Nos. 17 and 26 together.
My Department's Triennial Review of Industrial Performance 1990 provided that 50 per cent of all financial supports to medium-large indigenous industry be in the form of equity or other repayable or remunerating forms of aid by the end of 1993.
I am informed by the IDA, the main industrial development agency for which I have responsibility, that, based on those supports that rank as repayable, a repayability level of 40.56 per cent was achieved by the authority in 1992. The authority has set a target of 50 per cent repayability for 1993. SFADCo, the other industrial development agency under my aegis to which this issue relates, is also making significant progress in this area.
The Culliton proposal for a decisive shift from grants to equity has been the subject of detailed examination by my Department and the Moriarty task force. As the Deputy may be aware the Government, in the context of the recent announcement on Culliton, has accepted the recommendations of the task force in this area. Full details of these recommendations were published on 3 May in the Government's response to the Moriarty task force on the implementation of the Culliton report. In essence it was decided that the shift from grants towards equity — mainly preference shares — and their repayable forms of finance will continue.
While the level of equity stakes held by IDA and SFADCo, and the number of companies in which they have invested by way of equity, have increased substantially over the past six years, the intention would be to continue improving on the equity-repayability levels currently being achieved.
Is the Minister aware that the Moriarty report indicated that the proportion of equity from the IDA budget was not 50 per cent, as he suggested, but 6 per cent? Is he aware that that is endorsed by the figures provided in the Appendix to their report which shows not only that that is the proportion but that equity is in decline as a proportion of IDA money going to this sector? Would he not agree that a 6 per cent is far from a decisive shift to equity as recommended by Culliton? Should we not rethink our policy in this area?
The information I have received seems to be at variance with the statement made by the Deputy. I will repeat again that I am informed by the IDA, the main industrial development agency for which I have responsibility, that, based on those supports that rank as repayable a repayability level of 40.56 per cent was achieved by the authority in 1992.
That figure includes grants.
Most of this is taking the form of preference shares. The total amount of repayability, including some level of grant, would be as set out in the figures. Not all the recipients to whom we have made financial grants and packages want to give preference shares and what has been sought is some form of repayability, of which equity-preference shares would be the preferable option. The critical fact in terms of value for money is the degree of repayability that can be utilised by the IDA instead of grants which once given can never be repaid, as was the case in the past. It was the thrust of the original criticism.
Deputy Bruton has put his finger on a very important point and the Minister appears to be taken in by the conventional wisdom and by the IDA's sell on the matter. If I recall correctly, the table appended to the Moriarty report indicates that the amount last year was £9.58 million. It is a very small proportion and does not provide for the fact that NADCORP was absorbed by the IDA. One would have expected that it would have increased by an amount comparable with that lost by NADCORP. Does the Minister agree that it is harmful that a new conventional wisdom has grown up that there has been a radical shift towards equity participation in these companies when in fact that the show and the Government's own figures — as endorsed in the Moriarty report — that it is a very small and declining proportion.
I am quoting from the triennial review of industrial performance of the former Department of Industry and Commerce which recommended that by the end of 1993, 50 per cent of all financial supports, in the firms to which Deputies have referred, should be in the form of equity or other repayable or remunerating forms of aid. What both Deputies are saying is that in line with the Culliton recommendation that the balance between equity as distinct from either preference shares or repayable loans should be increased. I am prepared to have a look at that on the understanding that any change in the composition of the financial package would not, in the short term, adversely affect our ability to attract otherwise highly mobile development. The balance has to be struck. Moneys given to attract investment should be in a form that is repayable at some stage in the future, in the form of preference shares or ideally in the form of equity that would have prospects for growth with the growth of the company.
What is the Minister's view on the Culliton recommendation that the State could be much more effective in supporting indigenous industry by taking equity shares? In some cases he recommended up to 60 per cent equity. Would the Minister accept that a more aggressive venture capitalist role for the IDA is the correct one? Does he support the recommendations of Culliton for a separate seed capital division and that there should be board representation by the IDA on the boards of some of the companies?
The first thing we have to do is implement the main thrust of the agency's restructuring proposals and give to Forbairt — the agency responsible for developing indigenous agencies — its own focus. I would envisage that the real need for seed capital and specifically for venture capital would be among the first items to be addressed by that body. Deputy Rabbitte will recall that that matter was referred to by virtually every person who came to testify and to give information to the Joint Committee on Employment. At this stage I do not wish to prescribe the size and form of that body. I would prefer to be flexible so as to maximise the take up in relation to financial support from various companies. On occasions when small businesses have approached me — one, two or three people — seeking financial support, they specifically ruled out equity in any shape or form and in other cases would only contemplate a comparatively small percentage of equity because they wish to retain control of the company. They certainly would not be prepared to be in a minority position of 40 per cent as the Deputy has suggested.
Would the Minister not agree that the Culliton report accommodated that problem by making these redeemable shares? It is my belief that the IDA are hostile to this approach. Can we take it from what the Minister has said that he is sympathetic to the approach outlined by Culliton?
Within a couple of weeks the IDA will no longer exist and there will be two new organisations.
A dreadful mistake.
The hostilities of history will be confined to history. They will take policy as determined by Government and as agreed to by this House.
What is the Minister's policy?
I regret bitterly that NADCORP was abolished, that its birth was strangled and that we have lost out on approximately ten years of a serious State venture capital entity.
Will the Minister do anything to remedy that?
Will the Minister undertake to write to the Opposition spokes-persons on the net point raised? It seems the Minister was under the impression that the 50 per cent target for equity participation and total repayabilities was arrived at gradually over recent years. In effect only 6 per cent equity has been achieved to date and consequently the gulf is enormous. If our interpretation of the figures is correct — it is something that warrants study — I would ask the Minister to communicate with us on it.
I am happy to respond to both the Deputies' queries on this matter. I share their concern and I think their analysis, by and large, correct. The figures are misleading when you take into account the extent of mobile investment which has come into this country. Many of the recipients did not wish to offer equity participation to the IDA as part of the package having regard to the alternatives they would have had in other countries. Much domestic industry, given the opportunity, would take equity under certain key conditions. It would be my intention that the new agency, Forbairt, would address the major problem of the availability of either seed capital and venture capital or a combination of both. If it is to be in the form of equity in the diverse forms that equity can take, then we will certainly examine it. As soon as I can I will reply to both Deputies as requested.
The time for dealing with questions for today is exhausted.
May I have Question No. 18 deferred please?
Yes, Deputy.
