We welcome the opportunity to speak to the joint committee about the Industrial Development (Miscellaneous Provisions) Bill. It contains three separate groups of legislative amendments, one of which relates to IDA Ireland, as set out in head 1, and two of which relate to Enterprise Ireland, as contained in heads 2 to 5, inclusive, and 6 to 9, inclusive. In broad terms, the Bill has two overarching aims, the first of which is to ensure Enterprise Ireland can flexibly deploy the widest array of interventions and supports in order that Irish firms can be as competitive as possible in world markets. The second is to enhance IDA Ireland’s capacity to secure foreign direct investment in regional locations and thereby improve our already compelling offering for multinationals to invest here. I will first address the amendments related to IDA Ireland.
As the committee will be aware, foreign direct investment, FDI, remains an essential component of Ireland’s economy. A core element of our value proposition to overseas firms is helping them to identify suitable property solutions for their investments in the country. This is key, particularly when it comes to attracting firms to regional locations. In recent years, however, a difficulty has arisen in that private commercial construction of new buildings outside Dublin has significantly decreased. Existing stock has been virtually exhausted and there is a limited supply of the types of building required by potential investors. This supply shortage is impacting on our ability to attract more foreign direct investment to regional locations.
Given the critical importance the Government attaches to regional development, it is proposed to address this infrastructural deficit by introducing statutory changes that would, in short, permit IDA Ireland to invest in suitable opportunities to commercially develop the necessary property solutions in partnership with other parties. Initially, this would take the form of a partnership between IDA Ireland and the Ireland Strategic Investment Fund which together have developed a proposal to commercially develop two office blocks on IDA Ireland lands at the National Technology Park in Limerick and Parkmore East Business Park in Galway.
Once completed, those buildings will then be sold or leased to investors at their full commercial value. Assuming these initial pilot projects are a success, this legislative amendment would also allow the IDA to participate in other partnership structures to develop further properties in the regions. Another important provision in the proposed amendments is to allow the IDA to enter into borrowing arrangements to help finance such projects. In the first instance, such finance would be provided by the Ireland Strategic Investment Fund, ISIF, with the possibility of the IDA securing loan financing from other commercial or institutional lenders in the future. Any IDA borrowing for future such projects would be subject to a statutory cap and would also require the explicit consent of the Ministers for Finance, Public Expenditure and Reform, and Business, Enterprise and Innovation. There would be no additional cost to the Exchequer. In summary, these amendments, if approved by the Oireachtas, would allow the IDA to better utilise its existing resources to help provide properties to investors and stimulate further economic activity in regional Ireland and create and sustain jobs.
I will now describe the Enterprise Ireland-related legislative amendments, beginning with those that aim to improve that agency’s research, development and innovation supports to industry, which remains a key objective of Government policy. As the committee is aware, Enterprise Ireland assists its client companies in developing new products, processes and services by supporting their in-company research, development and innovation. The agency also helps them to access international sources of funding and expertise and to collaborate with each other and the higher education system. In simple terms, innovation is one of the key pillars of Enterprise Ireland’s current strategy because, as the agency’s annual business review survey makes clear, companies that are RDI active are higher performing in terms of employment and export sales and are more sustainable through recessionary and other economic shocks such as Brexit. It is essential, therefore, that the RDI supports and programmes for Irish companies managed by Enterprise Ireland are appropriate, flexible and can be optimised to meet these and other evolving challenges. In that context, four legislative amendments are proposed to Enterprise Ireland’s governing legislation that aim to optimise their RDI supports to industry. The first aims to facilitate research grants to non-industrial processes with a focus on the horticulture sector. The second would allow Enterprise Ireland grants to support research activity overseas where those needs cannot be met in Ireland due to the nature of the work in question. The third would remove legal uncertainty to allow Enterprise Ireland to permit research grants up to EU state aid limits. Finally, the fourth amendment would permit advance partial payment of research and development grants to companies regardless of size.
It is worth noting that the introduction of this suite of amendments does not mean that Enterprise Ireland would be obliged to always provide these supports to individual companies. Each project will still have to withstand rigorous evaluations, as is the norm, to be deemed eligible for agency support. It is important to emphasise that higher levels of research and development in Ireland, which ultimately these amendments aim to achieve, brings a range of benefits, including greater skills level in the country, better quality exports and more revenues. These statutory changes would also allow Irish companies to operate on a level playing field with their EU competitors.
I will now address the third group of amendments which would allow Enterprise Ireland to match the range of investment supports available from developmental agencies in other countries, particularly in a Brexit context. This will ensure that Irish exporters are not at a disadvantage in terms of the developmental supports available to them. As it stands, Enterprise Ireland uses a number of investment instruments which provide companies with equity funding to support the company to start, build scale and deliver on its growth plans. However, the increasing trend is for investment in companies to be undertaken using more debt instruments and less long-term share capital. This also reflects the international experience in other start-up ecosystems. Several of our European partners, including France and the Netherlands, for example, now lend to start-up companies and do not always take equity in them. Current legislation in this jurisdiction, however, does not allow Enterprise Ireland to utilise loan instruments for investment purposes, as private investors do, and which provide greater security for that investment. As a result, Enterprise Ireland is not able to invest in a way that mirrors the terms of private sector investors or reflects new market norms for development supports. These legislative proposals aim to permit Enterprise Ireland to lend by way of non-convertible debt instruments as an alternative to share purchase; issue convertible loan notes which are loans that can convert into equity; and make follow-on investments in certain circumstances without having to comply with all of the criteria in section 21 of the current legislation.
It is proposed that the loan instruments would constitute medium-term to long-term debt that is aimed at helping to scale companies rather than short-term loans to provide for working capital. This will in no way change the developmental approach of Enterprise Ireland. The amendments are simply aimed at increasing its flexibility to support enterprise development and ensure that Enterprise Ireland is not at a financial disadvantage to the private sector when providing investment to a company in a funding round. Moreover, as lending is more secure than taking equity, the State’s investment in these situations would be better protected. For the avoidance of doubt, it is not intended to replace any current bank lending and Enterprise Ireland will not displace existing business lending in the economy. Applicants, if these new arrangements are allowed under law, will be required to be Enterprise Ireland clients and any agency lending would be wholly consistent with its existing developmental mandate.
Finally, minor amendments are also proposed to take account of lending powers with regard to the existing requirement that Enterprise Ireland must apply for Government approval for aggregate investments amounts provided to a company in excess of €7.5 million and to make a technical amendment to the Freedom of Information Act 2015 to clarify Enterprise Ireland’s obligations under that legislation. I thank the committee again for the invitation to engage with members today about these proposed legislative changes. We are happy to address any questions members of the committee may have.
