As a measure to ensure the maximum spread of such risk, as well as the maximum funding for NDC projects, the corporation will be empowered to enter into joint ventures with the private sector. This involvement of private enterprise partners in NDC investments is an important means of increasing the level of funds available for investment. It is also a means of encouraging a greater level of risk investment on the part of the private sector. Indeed, syndication of investments, as such joint arrangements are called, is an important and growing feature of the risk business and it is unlikely that the NDC could operate to its full potential if it were to be restricted in this regard.
As a consequence, it will be possible for the NDC to be jointly involved with private venture capitalists in projects with a substantial financial dimension and where a spread of risk is essential, or in overseas projects with definite potential for technology transfer/project development in Ireland. In this latter role, the NDC will also be able to influence firms to locate or maintain their headquarters and decision-making functions here in Ireland rather than elsewhere. It is, of course, important to point out that the corporation will also be empowered to carry out its investment role in consultation and co-operation with existing State enterprise.
The NDC will have a critical role to play in the Government's industrial strategy for the development of the indigenous resource sector of the economy. The Government are committed to the preparation in conjunction with sectoral and agricultural interests of a co-ordinated development programme for the food processing sector. This is necessary because one of the most serious constraints on the development of an integrated food industry has been the uncertainty associated with regularity, reliability and seasonality of supply of primary raw materials such as beef and milk particularly.
An important task of the corporation will be to co-operate in the promotion of long term contracts which would be profitable for both the producer and the processor. Such long term production contract arrangements entail many financial costs and risks and thus require a substantial equity underpinning. This equity underpinning is necessary to ensure the parties against possible fluctuations in agricultural prices in the early years of a contract. It is acknowledged that the detailed financial arrangements for such contracts will require very careful consideration and that such a system will only work if it is accepted that contracts, once made, will be rigorously enforced. The NDC will invest, on a strictly commercial basis, in the development of such long term production and supply contract arrangements in the agricultural sectors. It will be looking, as in all its investments, towards making a profit. The NDC will also act as an investment vehicle, where appropriate, in commercial projects related to the exploitation of our forestry and fishery resources.
The NDC will also be empowered to become involved in projects designed to assist the development of our tourist industry. The development of tourist-related facilities, such as hotels and related activities, often require significant capital investment and the seasonality of return does not always make it initially a sufficiently attractive proposition for the private sector on its own. The NDC's ability to become involved in joint ventures in this area will, therefore, be an important means of encouraging the involvement of the private sector in developing and expanding our tourism infrastructure and helping the private sector investors to take a sufficiently long term view of certain projects. The NDC's involvement in this area will fill an important gap in terms of State financial aid available to the tourist industry as was pointed out in the recently published White Paper on Tourism.
Another area in which the NDC will play an important role will be that of assisting and, if necessary, participating in the establishment of development companies to provide services to small enterprises on a commercial basis. The Telesis report took the view that small Irish manufacturing firms could not achieve their full potential because they lacked adequate resources for marketing, R and D, warehousing etc. It argued that in some cases these could be supplied by development companies providing common services to a number of firms.
These services would be provided on a commercial basis but would be tailored to the particular needs of member firms. It is my hope that the NDC will be able to invest in and share in the profits of such schemes or development companies. The availability of investment funds from the NDC should act as a catalyst in establishing the initial viability of joint schemes of this kind throughout industry.
It is widely recognised in Ireland that there is a shortage of both private and public seed capital for projects, particularly technology-based projects, which take a number of years of development work before they reach the stage of commercialisation. The NDC is, therefore, also being empowered to assist in the development of, and invest in commercial enterprises based on the results of research and development activity in higher education and related fields.
The National Development Corporation can complement the efforts of such higher education institutions and those of individual entrepreneurs by providing a new source of equity funding for enterprises established on the basis of R and D work. The NDC will be aiming, as in all its investments, at making a profit. However, its investment perspective will be longer than that of many traditional investors. Thus it will be well suited to the commercialisation of research based products and processes.
The Bill also empowers the NDC to act as a holding company for new projects initiated by public sector companies where such a facility would be helpful.
The corporation is not being empowered by the Bill to act as a holding company for existing State industries as envisaged in the joint Programme for Government. This will, however, be considered by the Government in the light of the progress of the NDC in its basic innovation and developmental tasks. In many of the existing commercial State enterprises there is a need for policy and performance prospects to be much more clearly delineated as corporate plans are submitted and evaluated. There would be little point in handing over to the NDC unsettled policy problems of existing State enterprises. Objectives and strategies must be reassessed first and social/strategic roles, if any, clarified by comparison with the strictly commercial ones. Moreover, it will be important, particularly during its crucial formative period, for the NDC's resources and staff not to be diverted from its primary project development/job creation role.
I think the NDC should and will be aiming in the context of this Bill and concerning itself all the time with new investments. It should not be lumbered with a lot of problems with old and long-established companies where much of staff time was devoted to getting involved with industrial relations and equity problems. Creative staff, who should be out looking for new investment opportunities on the frontiers of technology, would be diverted to the problems of older and even obsolescent technology in older and perhaps obsolescent industry. That would be undesirable from the point of view of maximising the total number of jobs created. This is why I stress, and the Government stress, in this Bill the constant need to keep the NDC on the frontiers of technology with a truly developmental role rather than an administrative firefighting role which might otherwise, if the Bill had been drafted other than it has been drafted, have been the ultimate role of the NDC.
Although the NDC's main activity will be that of taking an equity stake in projects, it is also being empowered to give loans. This will be subject to certain conditions to which I referred already and now I give some details of.
First, where financial assistance is being provided by the Corporation for a project, a maximum of 30 per cent of the initial assistance provided by the corporation may be by way of loan capital. Secondly, where loan capital has been provided for a project any further financial assistance provided by the corporation to that project will be by way of equity investment only. Thirdly, in cases where loan capital has been provided by the corporation to a project the corporation shall specify that the interest rate attaching to the loan shall be as determined by me in consultation with the Minister for Finance. It would be my intention that that would be a commercial rate of interest. In other words, there would not be any interest subsidy concealed in the giving out of a loan.
The giving of loans together with equity investment is a feature of the venture capital market. The inclusion in the legislation of the conditions outlined above will ensure that the giving of loans will be part only of the initial investment. The limit of 30 per cent on loans is based on the best advice available to me and the fact that one loan and one loan only, may be given ensures that there is no danger of the corporation losing sight of its job creation function and becoming a job-rescue agency for its own investments.
In order to enable the corporation to fulfil its investment role it is being provided with an authorised share capital of £300 million which will be held by, or on behalf of, the Minister for Finance. In advancing the corporation funds out of its authorised share capital — and of course it is not going to have £300 million available to it on day one — the Government will have regard to the financial commitments of the board in terms of the projects and investment programmes with which it is, or is likely, to become involved. In later years the Government will also have regard to the amount of funds available to the corporation from its own resources, that is, the revolving investment fund for employment.
It is the Government's objective to ensure that the corporation exercises due commercial prudence in the selection, administration and disposal of its investment portfolio. If it does not make profits, it will not be able to create jobs.
The corporation will be judged at the end of the day in accordance with its success in achieving these twin objectives. Therefore, the rate at which the authorised share capital of the corporation is issued must remain at the discretion of the Government. If the corporation is performing profitably and is succeeding in creating employment, a greater amount of funds can be released.
If it is not performing successfully, the flow of funds can be restricted to push it towards the development of a more judicious investment portfolio. Had this Bill provided for and issued, as distinct from an authorised, share capital of £300 million then we would have rightly been accused of being foolhardy and lacking in consideration for the taxpayer from whom all Exchequer funding is originally taken. One has to accept that the NDC must, if it is to be worthwhile at all, make a rate of return well in excess of the rate of interest paid by the taxpayer on the money borrowed to finance the NDC.
The procedure for taking up the share capital in the corporation will involve the allocation of a specific sum of money in the public capital programme. The public capital programme is published annually and so Senators will be aware on an ongoing basis of the Government's commitment to the NDC. For 1986, the NEA/NDC is being provided with capital of £9.5 million. The NEA is receiving, £2 million of this to allow it to continue in existence until the NDC is established in the next month or so. Any moneys remaining unexpended by the NEA at this time will be transferred to the NDC. I should point out that this same procedure will apply in the case of the administrative grant-in-aid for these bodies. In this case the NDC is receiving £644,000 and the NEA £200,000. In regard to future years, however, Senators will appreciate that until such time as the public capital programme is published it will not be possible to indicate the level of funding which will be available to the corporation in any particular year.
The corporation is not being empowered to borrow for capital investment purposes. Senators will appreciate that this would be extremely inappropriate given the high risk nature of the corporation's activities.
In order for the corporation to build up a base of profitable investments capable of providing sustainable employment, it is necessary to ensure that investments are judiciously spread over a range of sectors. For this reason the NDC will not be allowed to make investments in excess of £1 million without my consent, or in excess of £2.5 million without the consent of the Government. As a further element of protection for the taxpayer, Section 33 of the Bill imposes restrictions on the corporation entering into financial commitments in respect of items such as leasing or purchasing office premises or office equipment. I should point out that the limit of £2.5 million on capital investment above which Government approval is required is the same as has applied for many years in respect of the giving of grants by the IDA. I might say that the operation of this limit will probably also encourage the NDC to spread its investments to a number of smaller companies with smaller investments rather than tying up an unduly large proportion of its investments in any one year in one or two big projects. This would result in greater dispersal of its effect, which, I think is good.
The Bill provides that the corporation may not take a majority shareholding in any enterprise other than one which it established on its own initiative. The financial risks attaching to a majority shareholding are far greater and so, too, are the administrative and management responsibilities of a holding company in respect of a majority shareholding. Such factors would impose an enormous strain on the resources of the corporation and would result in staff being deflected from their primary function of job-initiators. With a large number of majority holdings, the staff of the corporation would soon become more involved in the management of existing investments instead of finding new ones.
The NDC's investment role is not confined to manufacturing industry. The definition of enterprise contained in section 2 of the Bill does not restrict the NDC's role in this way and it will be empowered to invest in suitable projects in the services sector. It will do so on a strictly commercial basis. It is my intention, however, that the NDC should concentrate wholly on the traded sector of the economy where the main competition will come from companies operating from other countries. Its aim will be to develop new markets and to strengthen existing Irish firms by prudent equity investment. The NDC's overall perspective in assessing investments will be the potential of that investment to contribute to the employment effort. The statutory obligation imposed on the corporation is to assist in the creation of the maximum amount of viable and sustainable employment in the State. The NDC, therefore, should not be investing in areas such as retailing where the jobs created in one enterprise will only be at the expense of other jobs already in existence. That is what I mean by saying it will be confined to the trading sector where its investments will not be at the expense of anyone else in the country.
One of the crucial factors which will determine the success of the corporation will be the level of expertise and commitment of those appointed both to the board and the staff of the corporation. It is not mine nor the Government's intention that the members of the board be appointed because of their political or ideological views. The board should be made up of men and women who have proven business, economic and entrepreneurial skills. The board should also be a closely-knit group capable of working in harmony. There is a maximum limit imposed by this Bill of nine board members and I believe that this will allow a proper balance to be struck.
Likewise, if the corporation is to become a vibrant, job creating organisation, staff of the highest calibre must be attracted to its ranks. Furthermore, the board and staff of the corporation would be required to have a commitment to, and belief in, what they are doing. It is a fallacy to suggest that a venture capital-type agency of the type which operates successfully in the private sector cannot operate successfully within the public sector. The experience and business expertise of the staff employed by the National Development Corporation will prove, in the fullness of time, that it can.
I agree that in order to attract the right people we must be in a position to offer them appropriate salaries. Of particular importance will be the selection of a suitable person for the post of managing director. Senators may rest assured that the Government intend to recruit a person fully qualified and competent for this job. The fact remains that the actual salary rate, terms and conditions of this appointment are matters for determination between myself and the Minister for the Public Service. The NDC did not exist when the Devlin Review Body examined the remuneration of chief executives and clearly the appropriate level of remuneration for the NDC post will have to be considered in the light of the particular requirements of that position.
The Bill before the House makes the usual standard administrative provisions in respect of State bodies. My speech would be most unwieldy if I were to comment on each one individually. It may already be qualifying for that accolade. I will, of course, be happy to clarify any particular provision where Senators have any doubts about what is intended. However, I would like to mention a number of points at this stage.
Firstly, the Government, in addition to the share capital of the corporation, are empowered to make grants of up to £2 million available in any one year to meet the administrative, day to day, running costs of the organisation. This grant-in-aid may only be provided in the first five years of the corporation's existence, therefore requiring the corporation to be self-financing by the end of that period, that is, from the point of view of current funds. If it fails in this objective the Government will be required to come back to the Oireachtas so as to amend the Act and extend our funding powers.
Secondly, I would draw the House's attention to the facility to give policy directives to the corporation.
The NDC will complement other initiatives taken by the Government to provide investment funds for industrial and economic development and encourage the development of a thriving venture capital market in Ireland. I think I have dealt with this already.
I will conclude at this point by saying that the NDC is designed to complement a number of other initiatives that the Government have taken. The overall objective is to get more equity capital into business to replace borrowing, as I said at the outset. What are the Government doing about this?
First, we have established the National Development Corporation, which will invest State equity. Secondly, we have established a business expansion scheme which gives private individuals a tax incentive of up to £25,000 to put private money into manufacturing projects. Thirdly, we have introduced since 1981 tax concessions for workers' shareholdings to give workers in firms a tax incentive to put some of their money into the firms in which they are working. Fourthly, we have as a result of some criticism by me of the Stock Exchange, incited the Stock Exchange to establish an over-the-counter market whereby small companies can go on the exchange to get money from private investors through the Stock Exchange, where previously that was a privilege only made available to big companies.
Fifthly, in order to encourage people not only to buy shares but to feel that having bought them they will be able to dispose of them without undue tax burdens, we have in this year's budget reduced the capital gains tax rate from 40 to 35 per cent on long-term investments so that people will not only be able to get an incentive to buy the shares but they will be able to sell them again when they have to get rid of them without paying a penal captial gains tax rate.
Sixthly, we have introduced in this year's budget a proposal, soon to be enacted in the Finance Act, whereby those who invest in manufacturing companies, which as corporations are eligible for a 10 per cent tax rate, will be able to get a tax concession. At the moment, if you invest in a 10 per cent company, the company pays only 10 per cent tax; but, once it pays a dividend to you, you have to pay whatever the maximum tax rate is. It is 58 per cent at the moment, if you are in that bracket, on the dividend you receive. This makes investment in manufacturing companies by private individuals, as distinct from corporations, relatively unattractive. By changing the income tax application to dividends of manufacturing companies we are encouraging individuals to put money into corporations to get investments.
Finally — and this is the seventh initiative we are adopting to encourage this idea of more shareholding in industry — we will be providing in the reform of company law in the next year of so for a provision whereby companies may buy back their own shares. In other words, in the event that there is no available market and the company is not already floated on the Stock Exchange and the shares cannot be sold to somebody else, in that situation the company can buy back the shares.
All of these changes are part of an initiative which was commenced three years ago to make it more attractive for people to invest in industry. Why are we doing this? We are doing this because we do not like the situation which has existed in the past whereby industry relied for investment either on borrowing or on grants from the IDA, which are at extremely high levels in this country. The maximum grant here is 60 per cent, which must be one of the highest in Europe. In regard to designated areas, it is very high in comparison with countries anywhere else in Europe. It is 45 per cent in non-designated areas.
We are offering extremely generous grants to the taxpayer. To my knowledge it would be preferable to finance industry by private investment or indeed, by State equity investments to the NDC, where the State gets a profit, rather than simply handing out the money in the form of a grant on which the State gets no profit. This shift away from grants and borrowing and towards equity investment is a more healthy development for Irish industry. On borrowing you have to pay an interest rate which may be much higher a few years into the loan than it was when you first borrowed the money, as has been the experience in the last few years; whereas in regard to equity, you only pay a dividend if you are making money. Also, by putting the emphasis on equity we are assisting the White Paper's objective of putting more emphasis on native industry, having more funds available for native investments rather than relying on grants to foreign investors to come into the country. I would see all of these measures, particularly the seven I listed in the Seanad, as being part of a consistent strategy to change the whole direction of our industrial policy which was initiated three years ago in favour of a much healthier and strongly based investment portfolio.
The final point I want to make regarding this whole idea of promoting shareholding in industry — it responds to a point made here by Senator Cregan the last time I appeared before the House — is that I would like to see the workers in semi-State companies owning shares in those companies. For example, I have asked the Irish Steel board to consider how they could afford an opportunity for the employees of Irish Steel to become shareholders in their own company. That would be an extremely beneficial approach. I would also like to see many more ordinary individuals here put their savings into investment in productive industry. Too much of our savings are tied up in houses which we hope will appreciate in value but which really we have no intention of selling anyway, and too much is tied up in other forms of pension funds and life assurance policies of various kinds. It would be far more desirable for the productive growth of this country if people put more of their savings into industry where it will actually produce jobs for themselves and prosperity for the country rather than to put it into speculative style investments, into property where it will appreciate or — more likely in recent years — depreciate in value without actually adding to the productive stock of the country in any way.
I hope that we will achieve, within the foreseeable future, a nation in which every household owns a few shares in industry, either in the industry in which some of its own members work or in another industry. That use of our savings is the best guarantee of economic growth. Economic growth will only be achieved if we use our savings productively rather than unproductively. The whole scheme of tax concessions — to which I have referred already — plus the initiation of the National Development Corporation are designed to achieve this consistent shift in the way we use our economic resources.
On a personal note, it has been suggested on some occasions by people who did not know much better that somehow or other I was reluctant, as a Minister, to bring forward the notion of a National Development Corporation. Nothing could be further from the truth. I was responsible, as Front Bench spokesman for my party in Opposition, for writing the Fine Gael policy document, Jobs in the Eighties. A very large part of that document was devoted to proposals which I wrote and which my party agreed, to establish a National Development Corporation. From the very outset I have urgently promoted this idea. Naturally, as the originator of the idea, as far as my own party is concerned, I have had my clear views as to what it should do. Sometimes these views did not exactly coincide with other people's views and I have defended my views to the best of my ability, as others have done to the best of their ability. I am glad to say that as a result of that dialogue we have now an extremely well crafted proposal in the form of this Bill. From the outset I have been in favour of introducing the Bill. I am very glad that I have now reached the point where, save for the deliberations of this House, it is on the point of being enacted. I have been promoting it right from my days in Opposition during 1982 and I am glad to see that proposal effectively on the point of realisation. I am sure it will pass with the co-operation and support of the Members of the House.
