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JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS debate -
Wednesday, 29 Oct 2003

Vol. 1 No. 26

EU Green Paper on Entrepreneurship in Europe: Presentation.

I welcome Mr. Conor O'Mahony and Mr. Brian McCabe from the Department of Enterprise, Trade and Employment. I also welcome Mr. Dan Flinter, outgoing chief executive of Enterprise Ireland, and Ms Jacqueline Foley, Enterprise Ireland, with the intriguing title of national co-ordinator for high potential start-ups, or HPSU.

Before dealing with the matter before us today, I wish to express thanks to Mr. Dan Flinter on behalf of myself, members of the committee and everyone associated with the visit to North America with the Tánaiste earlier this month. Notwithstanding Dan's retirement as chief executive of Enterprise Ireland, we in the joint committee look forward to continuing relationships with him as he has a knowledge, expertise and experience which it would be remiss of us not to avail of. I wish him well and look forward to working with him for many years to come.

As members will be aware, the business on the agenda this morning relates to small and medium sized enterprise markets comprising 20 million companies in Europe. The challenge for the European Union and Ireland is to identify the key factors for building a climate in which entrepreneurial initiatives and business activities can thrive. The EU Internal Market caters for 380 million people. This will increase to 450 million following enlargement.

Lisbon 2000 emphasised the need to transform the European economy and create 15 million jobs by 2010. It is increasingly small and new firms rather than large ones that are the providers of these jobs. I hope the answers the Department officials give us today will be geared to increasing jobs and improving competitiveness in indigenous businesses up to 2010 and beyond. Perhaps they will also tell us how Europe and Ireland can continue to retain their social structures while maintaining and improving competitiveness with, for instance, the US and the BRIC countries, such as Brazil, Russia, India and China, while coping with enlargement. We hope they will indicate how indigenous business can fully exploit the markets of the new industrial revolution such as information technology, biotechnology and micro-electronics, what the threats and opportunities of the BRIC countries and others are for Irish business and the barriers, if any, Irish business encounters in trying to cater for the needs of European consumers.

At the end of the meeting perhaps we will ask Enterprise Ireland to provide us with a paper on the latter matter to assist us in our future consideration of the proposed directive on unfair business and consumer practices in the Internal Market. Members may ask questions after the presentations. I draw witnesses' attention to the fact that members of the committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. While it is generally accepted that witnesses will have qualified privilege, the committee is not in a position to guarantee any level of privilege to witnesses appearing before it. May I also draw members' attention to the fact that they should make declarations of interest, if appropriate, either now or at the commencement of their contributions?

Entrepreneurship is not only a driver for job creation, competitiveness and growth; it can also be a vehicle for personal development and can help resolve social issues. Entrepreneurship is a mindset which can occur throughout society at large but the Green Paper concentrated on creating new value in a business context.

Mr. Conor O’Mahony

I am delighted to be here this morning to speak to members about the European Commission Green Paper on Entrepreneurship in Europe. I propose to outline the background to the Green Paper and the response the Department fed to the European Commission on the Green Paper.

The Green Paper, which was published in January this year, aimed at stimulating debate among the widest possible audience of stakeholders on the best entrepreneurship policy for the future. It assessed the state of entrepreneurship in Europe, available policy options and asked a number of questions. It considered policy options with regard to two key issues for Europe. First, why do so few people start a business when a relatively large number of individuals express their interest in entrepreneurship and, second, why do so few European enterprises grow and why do those that grow do so at such a modest rate? Besides these, it considered the role of society at large in meeting these challenges. Entrepreneurship is about blending risk-taking, creativity or innovation with sound management within a new or existing organisation and can occur in any sector or type of business. Compared to the US, people's inclination towards entrepreneurship in Europe could definitely be improved. There is also less involvement in new entrepreneurial initiatives, less firm growth and more adversity towards risk-taking. In general, Europe needs to encourage new entrepreneurial initiative and to help unlock the growth potential of the European Union's existing firms, among which there is no lack of ambition - some 30% of Europe's 20 million SMEs express a desire for growth.

An individual's decision to start a business or have the ambition, as an entrepreneur, to take risks or expand is conditioned by a multitude of factors, including the existence of opportunity, entry barriers, skills and preferences. While running a business, entrepreneurs are faced with many obstacles for business development and growth, such as complying with administrative requirements and lack of finance or skilled labour. To seize new opportunities in the changing markets, businesses should be encouraged to innovate or expand beyond national borders or even, particularly with larger firms, to allow their own employees to exploit ideas that would otherwise be left unexplored. Building an entrepreneurial society involves everyone. Positive attitudes towards entrepreneurial initiative and failure can help develop entrepreneurial ventures. Furthermore, entrepreneurship can be applied to achieving social and societal objectives.

The Green Paper suggested adopting a co-ordinated approach to entrepreneurship policy, involving all the relevant policy makers, to provide a coherent and comprehensive response to the needs of entrepreneurs. It asked questions under three pillars for action, namely, bringing down barriers to business development and growth, balancing the risks and rewards of entrepreneurship and a society that values entrepreneurship.

The Green Paper went on to pose ten questions for the European agenda on entrepreneurship as follows. What should be the key objectives for an agenda for entrepreneurship in the European Union and how should these relate to other political ambitions? How can we build a model for entrepreneurship in an enlarged Europe? How can we improve the availability of finance - tax measures, public private partnerships, stronger balance sheets, guarantees - and what alternatives to bank loans should be promoted, such as business angel finance, leasing, factoring and micro-loans from non-bank lenders? How can entrepreneurs be supported in obtaining external finance? Which factors most hinder growth - lack of mutual recognition and EU rules or their non-implementation at national level, national tax provisions or the situation on the labour markets? What actions are best suited to supporting growth and internationalisation, for example, trade missions, market analyses, clustering and networking, information and consultancy services? To ensure high quality businesses, what training and support should be offered for a business start-up such as basic training - compulsory or voluntary - incubators, mentoring and business development, for example, networks, courses, mentoring, distance learning such as e-learning? Should there be services tailored to the needs of specific groups like women or ethnic minorities or businesses such as knowledge based activities? Should the quality of delivery of support services be improved using ICTs, professional standards? Are the obstacles and incentives for business development and growth in the European Union similar for entrepreneurs in the candidate countries, and does the forthcoming enlargement call for specific measures in the candidate countries? What can member states do to make the balance between risk and reward more favourable to promoting entrepreneurship, such as reducing the negative effects of bankruptcy, making more social benefits available for entrepreneurs, reducing the tax burden either in terms of administration or rates? How might more prospective entrepreneurs be encouraged to consider taking over rather than starting a new firm, for example, buyers and sellers databases or marketplaces, special training for family owned businesses, management or employee buy-outs? How can spin-offs be made more attractive, for example, by management buy-outs, showcasing, specialised advice, tax or other provisions for employees and their employers while starting a business? How can education support the development of the awareness and skills necessary for developing an entrepreneurial mindset and skills, for example, entrepreneurship training as part of a school's curriculum, getting entrepreneurs into the classroom, apprenticeships for students to work with experienced entrepreneurs, more entrepreneurial training in universities, more MBA programmes, matching entrepreneurial training with public research programmes? What could business organisations, the media and public authorities do to promote entrepreneurship, for example, publicising role models, media campaigns, open door days of firms, award schemes for entrepreneurs and at what level should this be done European, national, regional or local?

In responding to the EU Green Paper, we pointed out that in Ireland's most recent social partnership agreement, Sustaining Progress, the Government was already committed to placing a special emphasis on entrepreneurship and small business. That agreement explicitly recognises that:

Entrepreneurial activity is vital to our national capacity to create wealth, to encourage innovation and to continuing adaptation and greater efficiency in the economy . . . The Government recognise the importance of fostering an enterprise culture and in fostering and supporting entrepreneurship. Specific initiatives in support of entrepreneurship will be taken, including, in particular, to support

Entrepreneurship by women and in the social economy . . . The Government recognises the central role that small business plays in the future growth of our enterprise base. The Government will work to ensure that the conditions for small business and entrepreneurship remain competitive and the stimulation of small business creation will remain a central feature of our enterprise policy.

Before finalising our response to the Green Paper, the Department of Enterprise, Trade and Employment consulted a wide range of bodies and agencies for their observations and comments. These included other Departments, semi-State bodies, representative organisations and management institutions. Responses were received from the Departments of Finance and Education and Science, Enterprise Ireland, the city and county enterprise boards, Chambers of Commerce of Ireland, the Irish Exporters Association, Irish Management Institute, Irish Internet Association, Small Firms Association, Irish Small and Medium Enterprises Association and the Consumers Association of Ireland. Copies of their comments were attached, in their entirety, to the Department's submission in order to ensure that the voice of small business was heard in Brussels on this vital subject.

I will now outline our formal response to the Green Paper. In order to encourage entrepreneurship in our societies, we recognise that small beginnings are valued as much as high potential start-ups, that enterprise initiative in local and rural communities are as much a society part of the enterprise society as high-tech IPOs or venture capital activity. The promotion of enterprise - and the enterprise culture that underpins it - helps foster dispersed economic development and balanced regional growth. We have already identified six core themes to advance our vision of building an entrepreneurial society which will require a range of co-ordinated actions across different Departments and agencies. The six core themes are recognising the spatial and societal dimension to entrepreneurship, building awareness of entrepreneurship as an employment option, supporting a culture of entrepreneurship, providing information, helping business growth eliminating obstacles and support services and access to finance. We believe that the key objectives for any agenda for entrepreneurship in the EU should concentrate on similar areas to these. There should also be a concerted effort to place entrepreneurs and their requirements at the centre of policy making. Legislators must consciously take a "think small first" approach when drawing up new policies and legislation. This approach will have direct benefits for the 98% of businesses which are classified as SMEs in the EU and will, ultimately, manifest itself in greater productivity and job creation.

The findings of the last global entrepreneurship monitor report show, globally, that men are about 50% more likely to be involved in entrepreneurial activity than women. Ireland has one of the lowest rates of female entrepreneurship in the EU. Some of the reasons attributed to this are social conditioning, traditional low labour force participation among married women and women in employment working in non-line responsibilities. According to the OECD, there is a low but growing rate of women owned businesses throughout the developed world. The OECD also found that female owned businesses experience a lower growth rate and are more likely to fail than those of their male counterparts. We clearly need to address this issue throughout the EU to see what actions can be taken to improve women's involvement in enterprise.

The equality division of the Department of Justice, Equality and Law Reform is currently undertaking a study investigating the number of women in Ireland as business managers or entrepreneurs. It is hoped that when completed, this study will suggest appropriate courses of action to address the low levels of female entrepreneurs in Ireland. Our city and county enterprise boards have a specific remit to encourage entrepreneurship among less represented groups. Targeted training, seminars and awareness building are provided for women. Local level entrepreneurship has been supported here by a number of local based agencies and groups such as the city and county enterprise boards and Leader. The business innovation centres and the community enterprise centre initiative funded by Enterprise Ireland also have the capacity to stimulate local enterprise and to provide practical support and assistance to enterprise at local level. The county development boards are in a position to overview these various initiatives to make sure the needs of local areas are met.

It is the view of many of our small business representative bodies that the Commission's action plan must depict entrepreneurship in such a way that a large proportion of the population sees it as a viable career. An entrepreneurial career, in many cases, can lead to rewards in excess of those associated with a permanent pensionable job. These rewards can include increased monetary earnings, better quality of life and increased job satisfaction.

We feel that the Commission, in conjunction with the member states, should encourage the media to focus more on the benefits of entrepreneurship to society. This focus could entail highlighting entrepreneurs' contribution to employment and wealth creation and corporate social responsibility in the national economies of the member states. Celebrating and recognising entrepreneurs through award schemes is also a useful form of highlighting entrepreneurial achievement.

Building entrepreneurship awareness through the education system is probably the key determinant in building a culture supportive of entrepreneurship. There is a growing recognition of the important link between education and training and its contribution to entrepreneurial activity. We strongly agree with the Green Paper when it describes enterprise as a state of mind. This state of mind must be developed in students from an early age, through a combination of a firm foundation in general education, good communications and interpersonal skills, critical thinking and evaluation skills and the development of problem solving approaches.

At a more advanced level, ensuring students have an appropriate array of knowledge and skills and specific training in enterprise skills, should encourage enterprise. Graduate enterprise schemes, mentoring schemes and business innovation units can play a particularly important role in the promotion of entrepreneurship. By supporting graduates with a business idea to start their own business and addressing gaps in their learning - be it in such areas as law relating to intellectual property, business planning or financial skills - member states will not only be promoting entrepreneurship but will also be improving the likelihood of success of new ventures operating in their national economies.

The availability of good information and advice are key factors in the provision of enterprise support services. Surveys of small businesses have revealed a widespread need for basic information about setting up and running a business. In Ireland, our aim is to ensure that our business support services are tailored to the needs of new entrepreneurs of small and micro businesses and that their services are given visibility and profile at national and local level. Enterprise Ireland has recently been cited as a model of best practice for the provision of services and assistance to business in a European Commission publication in this area.

One of the perennial complaints from small businesses is the burden which Government places on enterprise through excessive regulation. Red tape is also perceived as a barrier to setting up one's own business. Regulation is, of course, warranted in the public interest to maintain high standards in corporate governance, health and safety, the environment, the protection of employee rights and other areas. However, the volume of state requirements pressing on small business can be considerable. An OECD study of businesses' views on red tape reports that small businesses are critical of regulations in terms of their inflexibility, consistency, effectiveness and clarity. It is estimated that the cost of complying with red tape can come to approximately 4% of annual turnover of these companies. However, for companies with less than 19 employees, the compliance costs reach more than twice that figure at 9% of turnover.

One of the most critical comments of the current regulatory burden placed on firms, which resulted from the consultation on the Green Paper in Ireland, was from the small business representative organisation, ISME. According to it, companies of all sizes throughout the European Union devote countless hours to complying with the administration work as required by their national governments, and in many cases the European Union. Compliance with Government regulatory requirements imposes additional costs of thousands of euro on business, particularly on small firms and new starters. They are a barrier to market entry and a significant impediment to business expansion.

As a result, any follow up action plan to the Green Paper must make a concerted effort to reduce any unnecessary and excessive administrative burden on businesses at both national and European Union levels. Our Government has prioritised the need for better regulation. We are committed to introducing regulatory impact assessment on new legislation to ensure that the regulatory burden is not disproportionate to its objective. An innovative approach to simplifying legislation through "restatement" has commenced, making the law available in a more readable form. We are not there yet but we hope that through a process of dialogue and consultation and using these new procedures, we can keep the compliance burden to a minimum. Our aim is better Government through better regulation. This objective should apply equally at EU level, particularly as most of our laws stem from the European Union.

The Green Paper consultation process in Ireland revealed that firms believe that the completion of the Single Market is imperative for helping business grow. Many businesses find that the Single Market is not a reality for enterprises in the European Union. Variations in licensing laws, contract laws, regulatory differences, language barriers and lack of market information act as a barrier to growth for many entrepreneurs. Exporting or importing within the Union is a time consuming and expensive process. Even the eradication of exchange rate risk that the euro has conferred has not had the desired result of increasing imports and exports within the European Union as the barriers are often still too great to overcome.

In addition to the burdens experienced by enterprises in exporting or importing goods within the European Union, a single market does not exist within the services sector. One way to ensure greater competitiveness of business related services is to facilitate greater access and competition from overseas services providers. Increasing the tradability of service sectors would mean that rapid spending growth in the domestic economy would result less in services inflation. As a result, we strongly advocate the completion of the EU Internal Market for services as soon as possible in order to encourage cross border competition in services that are currently non-tradable.

Along with these issues, small businesses also face additional challenges - rapid growth in the knowledge economy, adjustment to the pace of technological change, globalisation and the need to develop and diversify markets, ever more demanding customers, whether in sub-supply or end user context and the attraction, development and retention of people with appropriate skills.

The Green Paper outlined the need to gear European enterprises to grow. In order for this to become a reality the Commission's action plan needs to address the challenges already mentioned. It is imperative that if we are realistic about achieving the Lisbon objective of making Europe the most competitive and dynamic knowledge based economy in the world by 2010, we need to encourage a business environment that is benign and which encourages firms to grow. Therefore, we must reduce the obstacles impeding business growth, increase our support services to businesses and make the Single Market a reality for all our entrepreneurs and businesses.

The Green Paper asked what training and support should be available for businesses. Member states should provide a support structure that delivers quality training in a broad range of appropriate areas. Such training could incorporate modules on developing business plans, successfully setting up a company, gaining access to finance and marketing. The delivery of such training needs to be flexible and should, if possible, take advantage of modern communications to facilitate distance learning.

Support services should also cater for marginalised groups in society. We are all aware of the role entrepreneurship plays in integrating people into our societies. Specific programmes designed to promote entrepreneurship in ethnic minority groups and among females should become a common feature in regions that are currently exhibiting low levels of entrepreneurial participation from these groups.

The creation of Enterprise Ireland and the city and county enterprise boards heralded a new era in Irish entrepreneurship and in the growth of Irish owned enterprise, leading to increased employment, higher exports and increased sales. Entrepreneurship and innovation are strongly linked with small enterprises as many companies start out small and provide opportunities for realising new ideas. Our enterprise agencies are committed to building capability in indigenous firms, including the use of technology to improve business processes.

Affordable and easy access to finance is the lifeblood of every business. Whether it is to enable an enterprise to start up, expand or simply get through a tight cash flow period, access to affordable, long-term finance is essential. However, the difficulty in accessing such finance is compounded by the fact that most enterprises at the start-up stage have no track record and are unattractive to outside equity investors. They also usually lack an asset base against which they can provide security for borrowings. They can face major difficulties in finding finance. Access to affordable finance is therefore, one of the most important issues the proposed action plan needs to address.

Currently, in Ireland, we recognise the fact that the risk capital market has not developed to the point where it is robust enough not to require public support. Although certain sectors - most notably sectors with high potential for growth - currently have satisfactory access to private risk capital, there remains a significant lack of such risk capital in many other sections thus warranting at least initial public funding. Private investors may require companies to begin showing a return on their investment almost immediately which in many circumstances may not be realistic. In order to invest in companies, many private investors such as venture capitalists require substantial share capital. This is an extremely unattractive option for many businesses. Responding to this situation, Enterprise Ireland has established several venture capital funds to facilitate business access to finance. The various funds provide the necessary financial support to a range of businesses predominately high potential start-ups or HPSU. However, Enterprise Ireland has also ensured that there is finance available for companies which are in the start-up stage and for specific sectors, such as the information and communication technology sector. Funding for Enterprise Ireland's venture capital funds would only result in Enterprise Ireland taking up a maximum of 10% of the ordinary share capital of a company thereby ensuring that the entrepreneur retains virtually full control over their business.

The experience of the county enterprise board grant support scheme suggest a financial support to start-ups at the earlier stage can also leverage additional funding from banks. The outcome is that firms are more appropriately funded at the critical start-up stage and consequently their survival prospects are considerably enhanced. The lower failure rate of firms assisted by county enterprise boards tends to confirm this fact. We will continue to keep under review the landscape for early stage financing for start-ups and will work to address failures where the market does not respond to the needs of small business.

Turning to the next steps in terms of the Green Paper the public consultation process conducted by the European Commission on the Green Paper has now finished. I understand that more than 240 written responses were received from 20 countries. The European Commission is now processing these responses and a preliminary overview of the key issues raised and challenges identified will be put to the high level enterprise policy group which I will be attending in Brussels tomorrow. Following discussion there, the intention is that the Commission will present an action plan for entrepreneurship before the end of this year. This will condense the responses received and the contents of the Green Paper and will cover areas of both Community and national competence. At this stage it seems there is recognition that national and regional needs vary widely across Europe in terms of policy implementation and it seems to have been accepted that one size does not fit all. Accordingly, it is likely that the action plan may develop a menu of options allowing member states and regions to identify specific needs and on that basis to define policies and actions suited to their own circumstances. Whatever the action plan does contain however, the committee may rest assured that it will continue to be our primary objective to stimulate and support the conditions and factors which will lead to high levels of entrepreneurship in this country and that we will continue to engage with wider Government, our development agencies and business representative organisations to ensure that this happens. I hope my presentation has been informative for the members of the committee.

Mr. Dan Flinter

I thank the Chairman for his kind remarks on behalf of the committee. I will make one or two brief observations which may be helpful. From my perspective the publication of the Green Paper is very welcome because it gives a very interesting European wide perspective on the issue of entrepreneurship and hopefully will be a basis on which the concept of entrepreneurship will be more fully integrated into European strategies. It is probably also important for us to recognise that entrepreneurship is not only about start-ups, although it is a very important part of start-ups and that is recognised in Mr. O'Mahony's observations. Entrepreneurship is also important in terms of companies achieving scale at a particular size. One of the challenges for Ireland is we have made a fair level of progress in terms of the volume of new start-ups but we must remain very ambitious to push that out further. The next stage of the challenge is to help companies to achieve a scale so they can compete against competitor companies in other European countries. Achieving scale and remaining entrepreneurial is a very important part of the process. Probably the next stage of this exercise is the important part and that is what the action programmes will be as a consequence. I empathise with the observations that it is important for Ireland not to assume that one size fits all in terms of every country across the European Union. I will select a couple of areas I think may be of particular interest on the basis of our experience.

There is a recommendation in the Green Paper that there is a value in exchanging best practice between member states and I believe that is correct. Our experience has been that there will probably be more to learn from economies that are closer to our size because they have a greater willingness to share and they are dealing with the sorts of issues that we typically must deal with. We have been working at an agency level in close relationship with our colleagues in Northern Ireland, in Scotland with Scottish Enterprise, with the Welsh development agency and we are aware of what is happening in Finland. There is much for us to exchange with and learn from the agencies in those countries rather than from some of the larger countries. Working with some of the smaller economies could be particularly interesting.

I wish to make an observation on finance. The availability of finance at an early stage will continue to be important. There has been some progress and having a strong and dynamic venture capital industry in Ireland is significantly important. Some of the experiences gained in Ireland would demonstrate that it is a good example of a public private partnership where the State and the private sector have come together to create a more vibrant economy. The very early stages are always the most difficult and it is always difficult to get that first €100,000 or €200,000. In most countries, such as in the United States, it comes from family and friends and that fact is recognised in the Green Paper. In Ireland the BES scheme and the seed capital relief scheme have been very helpful in that regard and have been very important not just for companies in the high technology sectors but for companies in perhaps more traditional industries and for new start-ups. It is quite important for the future.

One programme that has been interesting and is in operation across the country is an enterprise preparation programme that is delivered primarily through the third level sector by universities and institutes of technology. It is encouraging individuals who have the ambition to start businesses to take six to nine months out to work at developing a business plan. We contribute to half the cost of the person's salary and support the training and development process. There is good evidence emerging that the process is producing a range of start-ups. It is an area worthy of continued support.

I have two other observations. On the training issue, our experience is that there are three areas where we should focus in particular on training. One is in small companies on the theme of the concept of management leadership. As a company begins to grow and the span of control changes, there is the need to guide an entrepreneur in dealing with those issues and this is a significant challenge. Training support in that regard is very important.

Given that Ireland has decided to invest considerably more in the area of science and technology, particularly in funding basic research, we need to be better at how we commercialise the benefits of that research. Training processes that are more effective in helping the commercialisation of research is an important area for Ireland. Knowledge of how to bring products to market is an important skill. There have been some really interesting technology start-ups over the last five years. Some outstanding young men and women have started businesses. They have usually had a strong technical background and are very knowledgeable about the technology but they have not been as knowledgeable about the marketplace, about who are the key buyers, who are the specifiers in large international businesses. They lack the experience of marketing and selling. There is a challenge for all of us to do more in that area to give greater levels of support to emerging entrepreneurs about how to get the product into the marketplace. Over the last three years we have noted that the technology knowledge in these companies is of a very high standard and is highly competitive but the knowledge of how to bring the product to the marketplace is proving a significant challenge. Management and leadership is one area, commercialisation of research is a second area and bringing products to the marketplace is the third area.

The question of raising awareness is very important. One encouraging development on an all-island basis is that this year for the first time we have had a student enterprise programme targeted at students at third level across the whole island. It was previously confined to the Republic of Ireland but is now a joint programme involving Intertrade Ireland, Invest Northern Ireland, Enterprise Ireland and a sponsorship from Ulster Bank. That is one example of a process of consciousness raising particularly at third level among students that being in business and being part of an entrepreneurial team and being part of an entrepreneurial team to start new businesses after they graduate is quite important. I believe the challenge for all of us is to use the framework which the Green Paper has now developed to see if we can achieve an action programme which focuses particularly on interests for Ireland. I would have thought, on the basis of our experience, that there were four relevant areas: first, exchanging experience with like minded countries, second, the finance issue, particularly early phase finance, third, training, having regard to the three priorities I mentioned and, finally, continuing to invest in raising awareness of the whole issue of entrepreneurship.

I thank Mr. Flinter who certainly gave us a great deal of food for thought. Before inviting questions from members of the committee, I wish to raise one or two matters. I look forward to a close working relationship between this committee and the Department, in the national interest, over the next few years.

Is there a particular person in the Department with sole responsibility for looking after entrepreneurial issues and, if so, at what grade is that person? I am anxious to establish an arrangement to enable Mr. Kissane to work very closely with the relevant person in the Department who can assist him in relation to the information required by the committee. I have already asked him to find out the correct figure for employment in small Irish entrepreneurial enterprises. I have heard figures mentioned which range from 160,000 to 190,000. What is the actual figure?

My next question arises from the group who visited Canada and the USA. Science Foundation Ireland expects to disburse €646 million in grants by 2006. What progress has been made to date with that fund and how has it been spent, as between ICT and biotechnology? Now that the programme is at the half-way stage, has there been a mid-term review? The committee would like to be informed how matters are progressing in that regard.

I thank the Department and Enterprise Ireland for their very comprehensive paper. If I may say so, it is more an à la carte menu than a fixed one. Although the global idea is to respect, develop and enhance the concept of entrepreneurship, we need to consider the practicalities of doing that in Ireland as we now stand. I wish to refer to some issues with which small and medium sized enterprises are concerned. The issue of bureaucracy and red tape is real. What are we going to do about it?

The new companies Bill, which is currently being debated in the Dáil, will add new layers of accountability and bureaucracy - for very good reasons. One could argue against it but, having regard to all the scandals which have arisen, there are more layers of requirements to be met. In practice, how are we to deal with red tape and bureaucracy and provide support for entrepreneurs, for instance, by having simplified forms in plain English? I met 200 small and medium sized companies in my constituency, some of whom expressed regret that they had ever started, having regard to the bureaucracy involved in a company with five or six employees as opposed to a salaried position.

My second question relates to predictable charges, an issue which is a huge concern for such businesses. There is little point in discussing controllable charges, such as interest rates, if insurance costs are out of control to the extent that companies are faced with increases of the order of 200% or 300%, without any predictability as to the likely position next year. There are similar concerns with regard to local charges for waste management and so on. People want simple predictability of external charges. What can be done about that? Is it within the Department's remit to deal with it?

In relation to training and upskilling, I found the presentation very interesting. However, the practical reality is that budgets for training and upskilling have been cut this year, with the consequent impact in terms of keeping apace.

My last question relates to the very significant point made by Mr. Flinter as to how we can commercialise our research. Some of us had the opportunity of seeing developments in the University of Waterloo, Ontario. We have to change mindsets in some of our institutions in that regard. We have very good "techies", if I may use that term, who are at the cutting edge in terms of innovation and development of new technologies. However, they are not the people who can actually commercialise a project, either in terms of business or market skills. Quite often, even when they set up, they are simply absorbed into a bigger conglomerate, with a potential loss to Ireland. How can we give such people a nurturing incubator in which to develop those skills and technologies to the point of becoming a sustainable, indigenous Irish industry?

The last question is very relevant, in our experience.

Mr. O’Mahony

I will run through some of the questions. In terms of departmental responsibility for entrepreneurship, that role falls primarily to me.

Mr. Kissane will know whom to contact.

Mr. O’Mahony

Perhaps I may regret putting my name forward in that regard. Seriously, however, this is an all-encompassing issue for the Department and a very wide range of people are involved with it in different ways, including those liaising with Enterprise Ireland and the IDA, those involved in the development of enterprise strategy, those involved in the training area with FÁS and so on.

Evidently Mr. O'Mahony is the next person down the line from the Tánaiste.

Mr. O’Mahony

The Secretary General of the Department, Mr. Paul Haran, might object to that characterisation. On the question of employment in SMEs, the Chairman has rightly identified difficulties in getting figures in that regard. The number of SMEs in Ireland represents about 98% of all enterprises. It really depends on how one defines the particular category one wants to look at.

Can we have a breakdown?

Mr. O’Mahony

We can look to see what figures are available and revert to the committee. A lot depends on where one draws the line and how one classifies various elements. With regard to Science Foundation Ireland, there is, as the Chairman said, a very big commitment in terms of money to be spent over the period between 2000 and 2006. While I have not got detailed information with me today, I know that the activities in that regard have been ramping up quite significantly. The whole process is coming together and the legislation to put SFI on a statutory basis has been enacted.

Has there been a mid-term review?

Mr. O’Mahony

The Science Foundation spending, as part of the national development plan, would be subject to mid-term evaluation in that context, both at programme and overall plan level. I am not personally familiar with the detail of that evaluation but there has been an issue in terms of this being a new area of development, with consequently greater difficulty in getting the expenditure flowing. However, there has been progress and, from what I know, there has been an increasing level of activity.

Deputy Howlin mentioned red tape. In my presentation, I acknowledged that as an issue. It is not a matter which will ever be solved - we constantly have to strive to ensure that we strike the right balance between, on the one hand, having systems which provide the necessary protection in terms of health and safety and so on and, on the other hand, doing all of that with the lightest practicable touch. That has to be approached at multiple levels and the action plan also needs to be addressed at those multiple levels. It is very important to get the European Commission to do its own soul searching as to what it brings forward and the manner of doing so. It is intended that the better regulation agenda and the idea of regulatory impact assessment will start at the EU level. It will wash down through the layers to the national and local levels. This will ensure that we minimise red tape to the maximum extent we can. Deputy Howlin is aware that very strong efforts have been made by the Department of Enterprise, Trade and Employment in the last decade to try to address the concerns of small businesses in respect of red tape. Those of us who are trying to promote this agenda are conscious that there will always be a demand to do more. We are trying to impress on people the need to address these concerns.

The Department of the Taoiseach is leading the agenda in respect of better regulation in the broader sense. It intends to bring forward a White Paper on better regulation before the end of the year. One of the concepts that will be dealt with under better regulation is that of having sunset clauses in legislation so that a regulation that is needed only for a few years can be removed or reviewed after the relevant period has passed when the question of whether the regulation continues to be needed in that form can be considered, for example. Such concepts are being developed and we hope they will lead to improvements in the area of red tape.

Deputy Howlin also asked about the predictability of charges. It is obvious that the issue of insurance has been discussed in many fora. The joint committee is well aware of the efforts that have been made by the Minister for Enterprise, Trade and Employment to try to address the issue in a way that will have a meaningful impact. A great deal of work has been done in that regard. Some of the work is beginning to bear fruit, but some of it will take a little longer to bear fruit. It is true that businesses need predictability of charges - it is desirable. The introduction of the euro is one of the biggest single changes that has helped Irish business, for example. It has led to greater predictability in terms of forward contracts for exporting or importing raw materials, etc. That has been one of the huge benefits of the euro.

Local charges are a matter for a different Department. Although I am not especially familiar with the detail of the issue, I appreciate that it is an issue. Deputy Howlin will forgive me if I cannot say too much in that regard.

There is a great deal of emphasis on training and upskilling. This area has to compete for funds with every other activity of government. I do not have details of each of the relevant budget lines with me, but——

I know they have been cut.

Mr. O’Mahony

A significant amount of money is available to the various agencies and organisations to help them to provide training. It is important we ensure that we get value for money from training. It is interesting that the county enterprise boards, with which I deal, placed an emphasis in the past on providing courses that led to the award of a diploma or a certificate. Businesses do not want such courses, however, as they are more interested in short, snappy seminars that will tell people how to do a particular task. Such seminars need to be very focused. The nature of the training being provided by the county enterprise boards is changing quite radically in order to respond directly to the needs of local businesses.

I am sure Mr. Flinter will have something to say about the commercialisation of research. There has not been much focus in the past on this difficult area but it is increasingly recognised as having a high potential to deliver a great deal. Deputy Howlin mentioned the need to change mindsets in the universities and a great deal of effort has been made in that regard. Enterprise Ireland is involved in collaboration projects with the universities in order to achieve that. It is keen to support the "techies" - to use the term used by the Deputy - by giving them the support they need through mentoring and training programmes, etc. A great deal of the matters we discussed in respect of the action plan relates to ensuring that university courses include entrepreneurship training. This is necessary to ensure that the "techies" have those skills as well as the technical skills and the ideas. There is a great deal of recognition in that regard. A great deal of money is being pumped into the area of research and development. The Department is focused on this area in terms of providing support. I invite my colleague, Mr. Flinter, to comment on this or any other issues that have arisen.

Mr. Flinter

I have a great deal of empathy in respect of the issue of predictability. Enterprise Ireland has a client from the south-east where local authority charges recently became a real obstacle to further investment. It is a pity to see that happening.

Enterprise Ireland has maintained its training budget, but it made changes to its company funding packages this year. While less overall grant support is being provided, more funds are being provided in the form of repayable moneys, either as ordinary equity or as preference shares. We have retained a grant support bias in respect of two areas - research and development funding and training linked to business development in companies. These areas will continue to be important in the future.

There are two strands to the issue of the commercialisation of research. We need to work inside the universities so that more of the potential benefit can get out of the college and into business. We will have to invest in the ability of a college to negotiate deals so that intellectual property can be sold on to a company.

That is the big one.

Mr. Flinter

It is a big challenge, but it is a catch-22. One learns that the more one does it, the better people become at it. A small pilot project that is under way involves recruiting two staff members to work at UCD. They are managed by the commercialisation office, but they are members of the staff of Enterprise Ireland. It is intended that they will have a leg in both camps, in a way. They will work in the colleges with academics and the companies that might benefit.

Does the innovator get the intellectual property in our universities or do the universities hold on to it?

Mr. Flinter

If the public sector has provided funding for the research, the university has the rights to the intellectual property. It has to make a decision about how to sell the intellectual property to the potential entrepreneur. It needs to determine the benefits that will be gained by the researcher. It is clear that better deals are being struck by the universities. In some cases, universities sell intellectual property to a company, but demand a reasonable 10% equity in return. In the past, universities would have insisted that the equity would never be diluted. If new capital came in, the universities insisted on holding on to 10%. The fact that it is changing is a positive development.

That was the big difference in Waterloo, as Deputy Howlin will verify. The authorities there left the intellectual property with the innovator. By doing that, they bought back 30% or 40% over 50 years and kept their campuses going in that way. The brains of the entire area - perhaps all of Canada - were more attracted to Waterloo than to other universities.

Mr. Flinter

It is a different model. We are going to have to ascertain what is the best model for Ireland. We are really only beginning.

It is ongoing. The enterprise can link back into the university.

Mr. Flinter

Absolutely.

It can link into every department of the university to sustain the new challenges.

Mr. Flinter

That is correct. I will give an example that is working well in Ireland. Projects with commercial potential are beginning to come out of the NMRC in Cork. Researchers who are leaving the NMRC and setting up business with private entrepreneurs are continuing to have a relationship. It is vitally important that there is an ongoing relationship, as it means that the entrepreneur can benefit from the new level of knowledge and expertise that is being generated in the research community.

I would like to make a comment, based on the fact that Mr. Flinter is retiring as chief executive of Enterprise Ireland, before we move on from this point. Members of the joint committee have just returned from Canada and the US. As chief executive of Enterprise Ireland, does Mr. Flinter agree that the Government and the nation as a whole will have to act aggressively to attract the best young brains and innovators? I refer to the creators of new technology and jobs at the high end of the employment ladder. Does Deputy Howlin agree that the members of the committee were excited about and motivated by the Waterloo experience?

How does Mr. Flinter see that? If we want more honours science and mathematics graduates, the committee and the Government should encourage the Minister for Education and Science to examine the possibility of giving higher points to the two areas in the leaving certificate and other examinations. We need to create the environment that has been created in Waterloo. Fourteen years ago three people got together in Waterloo, 50 miles outside Toronto, and with Can 100,000 developed an idea. Today 1,500 people are employed in 11 magnificent buildings and they have discovered the "Blackberry" technology which will transform the hand held set technology of computers, phones, texts and everything one requires for an office. Everything is in one's hand for about $650 plus $50 per month. This happened because bright young people got together, were able to own their own intellectual property and lease, rent or franchise it back over 40 or 50 years. They kept their area developing successfully so that it has now become the envy of many visitors.

Mr. Flinter

That is an interesting model. The success of that project is extraordinary and stands out on a world platform. The critical issue is not absolutely who owns the technology or what the deal is between the university and the entrepreneur since one can deal with ownership if one can agree on the price. The issue is around the price of the transaction rather than the absolute ownership. There are a number of different ways in which it can be approached. However, if a sensible price tag is attached, which can be added in the form of royalties or that the college does not demand an excessive equity in the new company, it can be resolved. The question is having a good price and the issue of ownership can come out of that.

We need to learn how we can get a good price. If that happens, the value will come back to the research as well as the community at large because there is a flow back of research funds to the university. I accept that people with a technology background need to learn how to sell a product internationally and it is a major challenge. We have a pilot project which is coming to the end of the first year called Sales Star which came out of about 24 entrepreneurs who had a technical background and realised they were not as strong at the selling game as they needed to be. They are involved in a development programme two days each month over weekends to build up their skill sets. The feedback has been sufficiently encouraging that we intend to expand it extensively. It is being developed in Dublin and we plan to deliver it across the regions. If we can be successful at the two ends of that process, which is commercialising the research and being better at selling products, the potential for further development in Ireland is strong. It will also mean that the investment in Science Foundation Ireland will accrue benefit back to Ireland rather than being dissipated worldwide.

I have been involved in the launch of four companies in Ireland and abroad. Mr. Flinter may be able to advise us why, if a foreign investor comes to the IDA, he or she will get open door treatment to the IDA as well as middle and upper echelons of Government - packages are put in place and off they go. I am not trying to discourage foreign investment, it is a good thing. However, the domestic entrepreneur does not seem to have the one single contact point which gives him or her access to all the Departments. I have negotiated in my roles with Digifone and other companies abroad ad there does not seem to be a one-stop-shop for Departments. Perhaps Mr. O'Mahony has a view on this. If a business proposition involves a cross-cutting issue in policy terms, where four to nine Departments may be involved, it is virtually impossible and may takes months to negotiate with all the Departments. It is a nightmare trying to deal with the bureaucracy. Many business people say that about trying to do business with the State - it is a red tape issue but it does not seem to have a single point. I am not pointing the finger at Enterprise Ireland - it is clear in what it does. However, I am referring to the departmental maze of bureaucracy that exists for business people and ordinary citizens.

The audit threshold for small companies is a practical issue. In other countries the turnover is €3 million or €4 million before a company is subject to being audited. This is a huge cost to small businesses and those with relatively low turnovers in European terms. I understand the Government proposes to change it and I will be pushing it hard. What is the Department's view as a promoter of entrepreneurship?

In regard to scale, which Mr. Flinter raised, what role does he see in regard to trade with the UK and Northern Ireland? There is a significant underdevelopment of economic, business and trade integration between Britain and Ireland and on the island of Ireland. On a recent visit to the Nordic Council in Helsinki I noticed that it established a single bank to cover all the Nordic countries which actively gives AAA-rated loans to companies which are involved in integration. The huge bank in Helsinki is one of the most reputable in the world and lends to companies. Is there a role for a similar bank to serve Ireland, North and South, and the UK which would promote active business and economic integration projects between us and our wealthiest trading partner?

Many of the issues I wished to raise have been done so by Deputy Howlin. From talking to people involved in small business, costs and red tape are the major issues. How much can the Department of Enterprise, Trade and Employment influence other Departments because the question of costs arises from the actions and policies of other Departments. Having said that, the new audit and accountancy Bill originated in the Department of Enterprise, Trade and Employment and will add significantly to the costs of smaller companies. The other costs involved are the number of new taxes coming on stream, particularly at local level and through the policies of other Departments. We will soon have a carbon tax.

The insurance issue has been dealt with but it is still a major problem for small business. The inability of the Department of the Environment and Local Government to fund local government means that over a two year period rates will increase by 80% to 90% if the authorities are to maintain local services at the required levels. If the services are not maintained, that will have a knock-on effect on the effectiveness of small businesses operating within the local authority area. How the Department can influence the overall costs of running businesses which are being created by other Departments is extremely important. No matter how many supports we have, the bottom line is that people involved with small businesses regard two basic factors as the main reasons for their not succeeding or getting involved, namely, costs and red tape.

The question of red tape is unbelievably serious. The thought of someone getting involved in business is frightening. If one examines the matter at county or regional level, one must deal with a multiplicity of agencies to start up a business. One may have to deal with a Leader board or an enterprise board as well as the planning authority of the county council. One must also deal with the county council in respect of infrastructural developments and development charges. It is a nightmare for any small businessperson to try to find his way through this maze. In addition, one has county development boards, which were a good idea as originally conceived. The outturn, however, has been ineffective, for which I primarily blame representatives of the various Departments and State agencies which fail to take them seriously or properly participate in them. They participate in the county development boards in a haphazard manner because they still believe power lies at national level.

Many local initiatives, such as county development boards, enterprise boards and Leader groups, are causing major problems and leading to considerable duplication. The delegation should, if possible, use is influence on other Departments to ensure these powers are returned to local authorities. Planning permission and a site are the basic prerequisites for anyone trying to start a business. If the advice currently provided by the enterprise boards and Leader boards was available in one organisation, the route to starting business would be much easier.

The promotion of small businesses in rural areas was raised. Most businesses in rural areas probably have fewer than 19 workers. The projected overheads arising from red tape and general bureaucracy are estimated to be 9% of costs, which makes it nearly impossible to compete with larger companies as their costs are 4%. From this perspective, the promotion of small businesses in rural areas will be relatively ineffective. When one considers the confusion, duplication and multiplicity of agencies, the task will be virtually impossible. Any efforts made by the Department of Enterprise, Trade and Employment will not be successful unless it can influence the policies and decisions of other Departments.

Is a cross-departmental structure in place for dealing with the various issues faced by entrepreneurs?

Mr. O’Mahony

Like any issue where matters of a cross-departmental nature arise, regular contacts take place across the board, when required. If the issue is of fundamental importance, it goes to Government where all Departments are consulted.

Given that no cross-departmental structure is in place, how serious is the Department about entrepreneurship? The Green Paper from the European Union appears to have landed on our desks for discussion. With the current embargo on public service recruitment, it will be for the self-employed to come up with the good ideas which create jobs in the coming years. The Department, the Government and this committee, therefore, face a major challenge. Is it correct that there is no cross-departmental structure in place?

Mr. O’Mahony

There is no permanent interdepartmental committee or other body of that nature in place. Our Department takes the lead on issues related to entrepreneurship. Where issues arise that need to be brought to the attention of other Departments which exert influence in the area in question, we will consult them as appropriate. That is the structure of government here - each Department largely runs its own area. An interdepartmental committee supports the work of the Department of the Taoiseach with regard to red tape. Cross-departmental teams are, therefore, involved in some areas.

Deputy Conor Lenihan was critical of the lack of a one-stop-shop.

Anyone who wants to put a business proposal is sent around a maze of Departments if more than two of them are affected.

Mr. O’Mahony

That is an unfair characterisation of the position on the ground.

Having been through the experience, I know what I am talking about.

The position has improved.

Mr. O’Mahony

In the case of a small business - a micro-enterprise - while a one-stop-shop may not be available to them, a first stop is available, namely, the county enterprise boards which provide an excellent support service for micro-enterprises. They will engage in what is effectively a hand holding exercise to help and guide such enterprises through the various requirements they will need to meet and the interactions they will have, not only with State bodies but also with other people. They will tell them what they need to do in terms of dealing with the banks and in the areas of insurance, accounting support and so forth and provide significant support and guidance. As such, useful, co-ordinated services are available.

Mr. O'Mahony is missing my point, which has also been made clearly by the Chairman. If a businessperson who happens to be a foreign national or investor, for example, Merrill Lynch, approaches the State with an idea which has the potential to create jobs, every door will be opened to him. Effectively, therefore, a one-stop-shop is available for a medium to large scale foreign investor who approaches the IDA - he may even get to meet the Taoiseach within a fairly rapid timescale. An Irish citizen who has a major proposal to create business or business opportunities will not be processed as swiftly through the bureaucracy. That is the simple position.

That is how it appears.

Mr. O’Mahony

Mr. Flinter deals with people from the indigenous sector who come forward with ideas.

The people in question may not be seeking a grant.

The Deputy has made a strong point and he is not the first person to have done so. It is important this question was asked. I ask Mr. O'Mahony to continue.

Mr. O’Mahony

Deputy Conor Lenihan was critical of the threshold for audits which is, I understand, under review with a view to increasing it. Again, this is an area in which, like all red tape, a balance needs to be struck between protecting the interests of people who deal with small limited companies and the level of bureaucracy one imposes on people running such companies. It is a trade-off. Those running limited companies are conveyed with a significant advantage in the form of limited liability. Equally, however, the people who deal with such companies, creditors and banks and so forth and society in general need to have a reasonable reassurance that some form of scrutiny takes place and a structure is in place to monitor and control such operations. It will always be difficult to ascertain whether one has struck the right balance in imposing a threshold.

We are heading towards the maximum thresholds set by the European Union.

Mr. O’Mahony

Our efforts are focused on determining a position that is appropriate for Irish circumstances.

This issue is being debated in the Houses in the Companies (Auditing and Accounting) Bill 2003.

Mr. O’Mahony

Small business would prefer to have no auditing because it imposes costs and bureaucracy. It is also necessary, however, to set the requirement for audits at a level which protects others in society who deal with such limited companies. Giving such people limited liability is a concession from society because it carries risks. A trade-off is necessary but difficult to achieve. No one can say with absolute certainty what is the right threshold.

Will we move towards the maximum set by the European Union or will we take a minimalist approach?

During Second Stage of the Companies (Auditing and Accounting) Bill 2003 in the Dáil last week, the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Michael Ahern, indicated he would table a specific amendment on Committee Stage which would set a new limit.

Mr. O’Mahony

A bank or other arrangement for loans in Helsinki was mentioned. In my earlier statement I outlined in some detail a number of measures which we have in place to help with the access of finance issue which provides a great deal of support to Irish business people. Whether there needs to be an expansion of that is something we constantly review. The experience generally is that businesses that have a viable future are able to find finance. Obviously there are issues of cost and all the rest but I think we have a particular set of structures in place which has been doing a reasonable job. I do not know if Mr. Flinter wants to comment on that when he speaks later.

Moving on to Deputy Murphy's comments, again much of it is to do with costs and red tape. We talked a great deal about red tape and the issues that exist in this regard. An initiative is being led by the Department of the Taoiseach to review the red tape that exists and to try and control it.

In terms of the confusion of bodies at local level, as it was described, again different views exist in that regard. I am familiar with the county enterprise boards and I know they have clear working agreements with the Leader groups to ensure that there is a demarcation between the different segments of the areas they deal with and their respective roles. The suggestion that all such bodies be brought within the remit of local authorities is an interesting one. There was limited support, however, for such a move in a recent survey of county enterprise clients; CEB clients were much more supportive of keeping them as an independent structure. That is just a side observation.

Does Mr. O' Mahony think there is duplication at present between county development boards, county enterprise boards and the Leader programmes? They all seem to do the one thing.

Mr. O’Mahony

They are doing similar things but in different segments of the market. The remit of county enterprise boards is to deal with commercial enterprises. Leader has a slightly different focus in terms of dealing with rural areas. Agreements are in place at national and local level which ensure that people do not grant shop between the agencies. One does not have a person being turned down for a grant by Leader today who then goes to the CEB the next day. We try to eliminate that but, obviously, people still try it on. At the margins certain things will overlap. There is a fairly clear and distinct role for each of these bodies. Whether this is the most appropriate structure is a matter on which people have different views. I am aware that the Minister for Community, Rural and Gaeltacht Affairs, Deputy Ó Cuív, has launched a consultancy project into the delivery of these different services in rural areas.

With respect, that is part of the problem. The Minister is in charge of RAPID and CLÁR, Mr. O'Mahony is in charge of the county enterprise boards and the area partnerships, while the Department of Agriculture and Food is in charge of Leader.

A few years ago the county manager was the most important person in a county.

Mr. O’Mahony

Leader and the partnerships now come under the remit of the Department of Community, Rural and Gaeltacht Affairs.

The second most important person was the county development officer. He or she knew everything and anything that was about to happen or that could happen. That is the difficulty today; there are so many extra bodies all falling down on the responsibility. The county development officer who was the motivated person or the one to motivate the young entrepreneur to bring them along in the local area is not there at present. As someone who employs quite a number of people and who has done so for the past 35 years, I believe the county development officer provided value for money. I say that on behalf of many people who started from humble beginnings in the midland area in particular.

Does Mr. O'Mahony wish to answer the rest of the questions?

What was the question again?

Mr. O’Mahony

In terms of the agencies from my Department that are directly involved in this area at that small local level, I do not think it fair to characterise the county enterprise boards as falling down on the job. They do an excellent job at local level.

We agree with that.

Mr. O’Mahony

They support enterprise in a focused way, both in promoting it through schools and other ways and in terms of supporting start-ups and small businesses.

Deputy Murphy highlighted a figure which was quoted in my presentation, that the cost of complying with red tape was 9% of turnover for firms with fewer than 19 employees. That figure came from an OECD study. Our view is that the figure would not be as significant as that in Ireland. We have had much criticism today and have had many people complaining about red tape but, in fact, when we do comparative exercises at European level we tend to come out pretty well, not all the time but across the board which is a bit scary in terms of the other countries.

Do not put Italy or Greece as models for us to benchmark ourselves against.

Does Mr. Flinter wish to come in?

Mr. Flinter

Deputy Lenihan raised the issue of integration between Ireland and the UK. Some 40% of the exports of Irish companies go to the UK. There is significant dependence on it and a high level of integration. Another feature is that Irish small and medium sized businesses have been acquiring companies in the UK and then getting the benefit of the customer lists they acquire to build up their business here more effectively.

The challenge is not so much on an east-west basis between Ireland and Scotland, Wales and England, but rather the building up of trade on the island. That has been a particular focus of Intertrade Ireland, which as part of the Good Friday Agreement is putting huge effort into creating better networks and getting better exposure. An area of opportunity in Northern Ireland where we have worked closely with Intertrade Ireland and other bodies is in getting access to the public sector where there are considerable market opportunities for firms in the South. The benefit of building relationships there is that the purchasing systems in Northern Ireland are similar to that in Scotland so there is an opportunity of going further afield. The challenge is on a North-South basis rather than on an east-west basis. Some of the initiatives that have been taken by Intertrade Ireland in that regard are quite important in terms of building up better links. I am not sure whether a bank is specifically needed to finance that type of development.

In Finland a bridge was financed——

Mr. Flinter

The particular challenge was not an integration challenge with Great Britain but rather with building links North and South. There is some evidence that this is improving but an honest conclusion is that there is still some way to travel.

I welcome the excellent paper which was most interesting. The point about one set of rules not suiting every country is relevant in this case, because what suits one might not suit the other. I am delighted you are going down that road. I also agree with what was said about exchange of best practice with similar countries.

I compliment Enterprise Ireland and the county enterprise boards. I have been in touch with the county enterprise board in Galway where Charles Lynch is the development officer. He is an important person in terms of employment in the county. The Chairman suggested that this role has diminished somewhat in some counties but it remains strong in our case. He tries to break down barriers and deal with red tape.

There are many businesses which would employ one or two extra people but are prevented from doing so by the cost of employing them in addition to the insurance costs and the general hassle involved. I am aware that there is an agency which provides hotel employees for a fee. There is no hassle involved as the agency deals with all matters. This approach should be further explored.

The one thing a person needs when starting up a business is money to live. This is very important. A person on unemployment benefit can benefit from the back to work scheme but if he is not unemployed he does not get very much. There is an anomaly in this respect. A person genuinely starting a business should be entitled to funding to keep them going until the business gets off the ground.

Marketing is a very important area. One meets many people who are good at operational tasks but when it comes to marketing they usually fall down. I feel very strongly about research and development. Any company of any size that does not involve itself in research and development will find it very hard to compete in the future. I do not know if tax incentives exist for research and development but, if so, they should be continued.

What new initiatives, if any, has the Department in mind to combat the threat from India, China and the Far East generally in terms of their very low cost base and competitiveness? There is a feeling in some quarters that we could lose some of our existing businesses to such places. This would obviously be a disaster.

On the Companies (Auditing and Accounting) Bill being considered in the Dáil, we received assurances in the Seanad that we would not do anything that would cause us to be at a competitive disadvantage, particularly vis-à-vis our near neighbours in the North and Britain. I am surprised to hear Deputy Howlin stating the Minister is not forthcoming regarding the thresholds.

He is, but we have no detail. They are being addressed.

Maybe Mr. O'Mahony will enlighten us further on the matter.

I will be brief. Will Mr. Flinter and Mr. O'Mahony elaborate on encouraging people to set up in disadvantaged areas? The recent census published in respect of employment shows that there are 11 unemployment black spots in Cork city. However, if I were to set up a business in the BMW region, for instance, I would get more grant aid to do so there than I would if I were to set one up in Cork. Clearly, the BMW region has its own attractions. However, is there a strategy in place pertaining to disadvantaged areas outside that region? One will find such areas in Limerick and elsewhere. Is there a strategy to encourage enterprise in areas such as Cork city?

Mr. O’Mahony

Deputy Callanan's remarks were more comments than questions. He has some interesting views of which we can take note more than anything else. Money for start-ups has been a specific issue that has been focused on in the EU Green Paper, the action plan and in the initial responses. The issue of discrimination against the employer under our social security systems has been focused on as a potential area, not just in terms of the few bob in the start-up phase, but also in terms of issues like pension entitlements and various other social security entitlements. This area will be subject to increased attention.

The State has paid considerable attention and has given huge support to research and development. The budget for research and development projects, through Science Foundation Ireland and other initiatives supported by the Department is very significant. This area is accorded very high priority.

This leads to Senator Coghlan's question on the Far East and the departmental response. The threat from low cost economies is well recognised. For some years the Department has had a policy, implemented throughout the agencies, of seeking to bring companies up the value added chain and to embed them more tightly into the Irish economy. Many of the supports and the direction in which we are trying to push these supports are doing exactly that. This is why much attention is focused on the research and development area, the feeling being that if there are more high-end activities taking place in Ireland it will be less easy for those involved to locate elsewhere. The skill sets are much more important and the people involved become much more important. If one creates links between the universities and research and development units within companies, it makes those companies much less mobile and much less likely to drift off to the Far East in search of low cost assembly work. The attention of the agencies has more or less been on the higher-end activity and less so on the low-end assembly work we might have been supporting a long time ago. This has been the key plank in the response to the threat from the Far East.

On the Companies (Auditing and Accounting) Bill, I cannot enlighten members on the planned threshold, which is under review. In terms of not putting anybody at a competitive disadvantage, I know, because I was part of the review group chaired by Senator O'Toole which led to the development of the legislation, that there was huge recognition that the group might have been advancing new ideas in this area. The group was very conscious of the need to avoid creating circumstances that might leave Irish industry uncompetitive. There are two sides to this coin. Some of the provisions, now translated through the Bill, add extra items to business but at the same time give the wider business community and those dealing with Irish companies an assurance that these companies are behaving in a responsible and effective fashion. Therefore, there are benefits to be derived from working to a high standard in terms of company behaviour and corporate social responsibility, etc. It is not a one-way street. There are benefits to be derived from performing and adhering to high standards. Overall, the commitment given that there would be no competitive disadvantage as a result will be delivered upon.

Deputy Lynch raised the issue of the disadvantaged areas and the specific black spots in Cork, Limerick, etc. The area partnerships comprise the primary focus in terms of trying to deliver something directly into those black spot areas. They will support micro-enterprises in those areas.

In broader terms, the work being done by the agencies and promoted by the Department to encourage economic activity in the country generally will help in all areas. If the IDA or Enterprise Ireland can encourage somebody to locate somewhere in Cork city, this will have a knock-on effect. It will not necessarily have a knock-on effect on every nook and cranny of Cork. The area partnership was designed to pick up the pieces in some respect. I am sure the Deputy is much more familiar than I am with the activity of partnership committees in the Cork area.

The partnership committees only deal with small projects, maybe as small as having only one employee. That is not the type of enterprise that is going to have an impact on areas where there is clearly long-term disadvantage and long-term unemployment. There is an incentive to go to areas within the BMW region. Is there a strategy to deal with areas that have high levels of long-term unemployment? The BMW region is an attraction in itself - there is a huge commercial and financial incentive to set up there and it virtually looks after itself because of those incentives. What strategy - other than the enterprise boards which are small scale - is there to encourage people to come into areas that do not have that financial advantage but clearly need help?

Mr. O’Mahony

The division that was established as part of the national development plan recognised on a macro level that there was a materially different level of economic development in the two regions. There will be variances within each of those regions. If one takes the southern and eastern area, the Dún Laoghaire borough and the black spots the Deputy talked about in Cork are very different areas yet are in the same overall region. It is not practical for enterprise strategy at the higher level to try to focus on one estate in an area; it can only be examined at a higher level.

It exists at the level of counties within the regions because they are not contiguous with other disadvantaged areas, my county being one example.

Mr. O’Mahony

Mr. Flinter may be able to comment on this. They are conscious of the disparities and an effort will be made to try to address that at a higher level. I think Deputy Lynch was talking about individual black spots within Cork city.

Not necessarily. Mr. O'Mahony is quite right when he says that the establishment of a major industry in Cork city would have a knock-on effect in the wider community. The enterprise boards work on a small scale. I am talking about directing or encouraging businesses to set up in areas where it would have a wider effect and therefore uplift the whole area. Is there a strategy for that? The BMW region virtually looks after itself regarding incentives.

While that may be the conclusion, we in the BMW region have a bone of contention with that.

It is clearly of significant advantage to businesses to set up in the BMW region over, for example, Cork. People love their native city but money outweighs that type of local loyalty any day of the week.

Mr. O’Mahony

The agencies have a remit to try and deliver the best possible outcome across the board. They will have regard to the different circumstances that pertain in different areas. For example, the IDA would not give the same level of grant to a business that wants to set up in Dublin as they would were it to locate elsewhere in the southern and eastern area. While the level of grants available in the BMW area are higher, to say that the region is fine is an over-simplification. IDA and Enterprise Ireland have a lot of difficulty in getting businesses to locate in the BMW area because of other factors. There are good reasons the BMW has been singled out.

The locating of e-Bay was a recent example.

Mr. Flinter

My experience with indigenous companies is that, by and large, they do not move from one area to another for grants. There are rare exceptions, one of which arose in the 1999-2000 period when there was such growth in the economy there were difficulties finding workers in Dublin and some companies moved to other areas.

I have found community enterprise centres to be important in terms of working in difficult areas. With local communities and the private sector, we have co-financed over 100 community enterprise centres. These are important for two reasons: they become a source of new job creation in themselves and they create a sense of hope when there is no hope and give people a sense of the possibilities that may not have existed before. These centres work in both rural areas and deprived urban areas. The real challenge, particularly in urban areas, is in finding matching funding. My experience is matching funding is more easily found in rural areas. The experience of the community enterprise centres is good and building up that process is important.

As regards venture capital, this year we have succeeded in setting up two new venture capital funds outside Dublin - one in Cork and one in Galway. This is an important step as there now is venture capital in the community where decisions are being made. As part of an overall strategy in disadvantaged areas, community enterprise centres are an important piece of the jigsaw.

As regards the threat from India and China, some businesses will face that threat - we cannot create a structure where we will hold everything we have now forever and a day. We need to invest in new technologies to be used by Irish companies. The investment in research and development mentioned by Mr. O'Mahony is important. We introduced a €10 million competitiveness fund on a pilot basis this year. The object is to test whether supporting companies - particularly in the areas of capital equipment and training - that traditionally are not supported will improve their competitive position. It is a year long programme and the first applications are being decided on now. It is designed to be conscious of the competitive threats from other markets, including India and China. We will review the programme next year.

Among the smaller country rankings in the technology sector, I note that Finland is number one. Is there anything we should be learning from what Finland is doing right? Has the Department of Arts, Sport and Tourism been contacted regarding the views the delegation is going to express on behalf of the country?

Mr. O’Mahony

Finland took a strategic decision some time back to embrace telecommunications technology in particular. It has invested a huge amount of money in it. I gather the Finnish Government's spend on communications technology has been extraordinary. As the Deputy correctly points out, Finland comes out at the top of the league tables. However, to what extent that will fit the appropriate strategy to follow and what benefits that will deliver is a more difficult and long-term question. They will derive some benefits from it but whether the application of those funds to other areas would have delivered greater or lesser benefits is an open question. We have not put anything like that sort of money into the particular areas which have shot them up certain tables but we have invested a lot of money in enterprise in a general and fairly successful way. The attraction of FDI into the country has been an extraordinary performance and one envied by practically every country. We have adopted different strategies with good effect.

The Department of Arts, Sport and Tourism was included in our consultations.

Was that at the end of the process? I do not think the Department had been consulted up to the end of July. I must declare an interest in tourism. Some 25,000 jobs were created last year, 11,400 of which were created in the tourism industry. Therefore, this is particularly important. Many creative people have reinvested their successful business interests in the tourism field.

I want to ask a further question if possible.

We agreed a finishing time. If the Deputy is brief, he may ask the question.

Mr. Flinter mentioned that some local authorities were charging exorbitant service charges, an issue I have come up against. The charges are often disproportionate and adversely affect investment decisions by companies in particular areas. Will Mr. Flinter expand on the issue because he referred to it elliptically, without developing the point?

Mr. Flinter

I have come across one or two examples where I felt the charges being imposed on developments were a potential disincentive for a company to proceed.

Was Mr. Flinter referring to levies?

Mr. Flinter

Yes. Capital development levies were a potential disincentive to some investments going ahead. We are working with the local authority and the company to progress the matter.

Is it the case that local authorities are looking for more charges?

That is correct.

Before Deputy Lenihan makes an assertion of that nature, from this year, the Government has required local authorities to charge the economic cost of infrastructure. Therefore, if a company proposes to use waste water treatment, as the commercial user it is required to pay the economic cost. I do not want to lead Mr. Flinter into any controversy by attacking Government policy, but it has serious implications for new industries siting as well as old industries upgrading to meet new environmental standards which are being forced on us by the EU. This is an issue to which we could usefully return when we have an overall paper on it from the Department of the Environment, Heritage and Local Government.

Mr. Flinter

I was adverting to a specific case in point which I have recently experienced and it is not desirable that it is so.

I thank the witnesses for attending. We had a good meeting and exchange of views and I am glad that this issue has received, and will continue to receive, intense scrutiny of Enterprise Ireland. I remind members that Enterprise Ireland is at the coal face and we rely on it to keep us briefed on an ongoing basis with developments that arise from time to time.

I realise Mr. O'Mahony is departing to catch a flight and I appreciate his coming before the committee. I wish Mr. Flinter the best and hope he continues the good work, expertise and professionalism which he has made available to our country's benefit. We are fortunate to have had Mr. Flinter working for us in Enterprise Ireland. He is going on to greener pastures and will be an enormous help and benefit wherever he works. He is a co-operative man and one with whom we feel comfortable and in whom we have enormous confidence. The committee wishes him well.

The joint committee adjourned at 12.36 p.m. until 9.30 a.m. on Wednesday, 5 November 2003.
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