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Dáil Éireann debate -
Tuesday, 21 Nov 1995

Vol. 458 No. 5

Written Answers. - Investment Incentives.

Kathleen Lynch

Question:

170 Kathleen Lynch asked the Minister for Enterprise and Employment the proposals, if any, he has to provide further incentives for those wishing to invest in seed companies rather than in established low-risk projects; the plans, if any, he has to target such incentives at areas of high unemployment; and if he will make a statement on the matter. [17254/95]

The development of indigenous industry is one of the major priorities of my Department, and in this context the provision of appropriate seed or early stage development capital is vital to the ultimate success of many fledgling companies.

I note that the Deputy asks whether further incentives might be provided to those wishing to invest in seed companies and I believe the Deputy's question recognises that a number of incentives already exist to facilitate investment in seed type ventures. In this regard I would mention the following; the 1993 Finance Act widened the scope of the business expansion scheme to provide a refund of a specified number of years income tax already paid by an individual who sets up and takes employment in a new qualifying business. The business must be set up with the intention to carry on BES qualifying trading operations and must otherwise comply with the requirements of the BES. This new relief is known as the seed capital scheme.

The business expansion scheme has and continues to be a substantial contributor towards the provision of seed and early stage capital. This is evidenced by the fact that since the inception of the scheme in 1984 and up to the end of tax year 1994-95, 1,017 of the 2,001 investments made, that is just over half, were for sums of less than £50,000.

The countrywide network of county enterprise boards have responsibility for promoting enterprise in their local areas by the provision, among other things, of grant support to individuals and local community groups to assist the establishment and development of commercially viable small enterprise projects

Although not strictly seed capital, the access to finance scheme was launched in August and will, I am sure, be of considerable financial benefit to many early stage ventures. Under this scheme, just over £200 million in loan finance is available to SME's at a very competitive fixed interest rate of 6.5 per cent. The minimum loan is £20,000 and the duration of the loans will be seven years. This is the successor to a previous scheme administered by ICC under which £100 million in low interest loans was lent to SME's.

The provision of seed and early stage capital is not and should not be the sole responsibility of the Government or public agencies. For this reason I am glad to note that a number of private sector initiatives have been set up in the past few years to provide much needed equity and other financial support to young and emerging companies. Amongst these important initiatives are first step, the Bolton Trust, the business innovation fund and the Smurfit job creation enterprise fund. I am also aware of other initiatives which are being contemplated in this area.
As regards the question of further incentives raised by the Deputy, within the past week, I announced a very important new seed-venture capital measure which I anticipate will become operational early in the new year. Under this measure a £60 million fund is to be set up which is designed to promote greater investment in seed and early stage companies which can demonstrate their commercial potential. The funding is being provided jointly by the EU and private institutions.
Forbairt, the State agency for the development of indigenous industry has recently made known its intention of establishing a venture capital fund, which, when established, will provide a further source of funding for the development of early stage indigenous industries. I am looking forward with enthusiasm to the establishment of this fund as an addition to the existing range of seed-venture facilities.
I am confident, therefore, that appropriate mechanisms and incentives for the provision of seed and early stage finance are either in place or are contemplated in the near future. These should be built upon. The provision of early stage finance is high risk and for that reason its supply needs to be continually monitored.
As to the targeting of such incentives at unemployment blackspots, all of the measures I have outlined are targeted directly at promoting enterprise and employment. Initiatives such as the county enterprise boards operate at the local level. A good mix of incentives is in place, spread nationally, and available to those wishing to promote employment in their local areas. I feel that this broad approach is the appropriate basis to proceed on this issue.
Notwithstanding the above, I am always prepared to consider new ideas and new approaches where circumstances suggest the need for additional incentives, and to this end my Department is continually monitoring the availability of early stage development funding for indigenous industry.
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