Ireland's industrial development policies have been under intense scrutiny and reassessment since the late seventies. Senators will be familiar with the major report of the Telesis Consulting Group and the associated comments of the National Economic and Social Council. The Industrial Development Authority produced their own internal strategic plan in 1982 and there have been many articles and reports by industrialists, research institutes and economic commentators.
The White Paper on Industrial Policy, published in July 1984, constituted the Government's response to the debate on industrial policy and outlined a coherent and comprehensive ten year strategy for industrial development. The Industrial Development Bill, which is before the House today represents a further important stage in the progressive implementation of the new industrial policy. Moreover, the new Bill brings together, for the first time, in one comprehensive code, the existing body of legislation relating to industrial development and the IDA.
For the benefit of the House, I would like to set out the objectives of the new policy as contained in the White Paper. (i) to create and maintain the maximum number of sustainable jobs, as many as possible of them high-skilled, in manufacturing and international service industries; (ii) to maximise value-added by these sectors and to capture the wealth thus created for further investment and employment creation in the Irish economy; (iii) to develop a strong and internationally competitive industrial sector in Ireland, made up of both Irish and foreign-owned industry; (iv) to promote the more rapid development of our natural resource-based industries, particularly food and timber; (v) to promote the integration of foreign industry into the Irish economy through greater linkage with Irish industry and educational institutions; and (vi) to improve the rate of return on the Government's investment in the commercial State companies.
This new policy is being actively implemented. Before outlining the general contents of the Bill, I would like to set out for the information of the House a list of some of the new initiatives being undertaken.
The National Linkage Programme got under way in July 1985. The objective of the programme is to develop a successful subsupply industrial base in Ireland for larger industry. From its initial focus on the electronics sector, it is now being extended to health care, consumer products and engineering. In 1985 a national linkage team of experienced engineers and management and financial accountants was assembled from a number of the major state agencies. By the end of 1985, 45 electronics multinationals were involved in the programme and the target for 1986 is to place £40 million worth of business contracts with Irish suppliers.
The company development approach involves the IDA, the IIRS and Córas Tráchtála working closely with selected companies to help them to identify and implement strategic development initiatives. The programme is designed primarily to encourage indigenous companies to develop to a point where they are capable of developing their own R & D programmes and achieving a strong international marketing position. Fifty-six company development programmes were approved by the IDA during 1985, bringing to over 100 the number of companies which have finalised development plans since the programme commenced. Already many of the strategic initiatives identified by companies under the programme are being implemented. The operating target for 1986 is that a further 50 companies will be covered under the company development programme.
The regionalisation of IDA's small industries programme was successfully completed during 1985. A full service to entrepreneurs is now available from the IDA offices in the regions except in the case of the mid-west and Gaeltacht areas, where this service is provided by Shannon Development and Údarás na Gaeltachta. The administration of the small industries programme, including decision-making on grant applications, now rests with the regional small industry boards supported by 130 IDA staff at regional level.
I believe that there is great potential in Ireland for developing small industries and in recent weeks a number of project and employment announcements have been made by the Minister for Industry and Commerce which highlight the continued progress we are making in this area. A total of 735 small industry projects were approved for IDA support in 1985, an increase of almost a quarter on the figure for the previous year. In the mid-west area covered by Shannon Development 164 small industry projects with a job potential of over 1,500 were approved in 1985.
A nationwide network of "One-Stop-Shops" was launched in April 1985 where entrepreneurs will be able to obtain information and advice on all aspects of setting up and running a business. Initially these centres are operating as an information and research service giving details of all State services to small firms. The second phase is more ambitious and more important and when completed will result in all the major industrial agencies in the regions either being located under one roof or providing services to the "One-Stop-Shops" on a visiting or clinic basis.
A number of new marketing initiatives to assist exporters have been introduced by Córas Tráchtála. The most innovative of these schemes is the Market Entry and Development Programme which is designed specifically to help exporters with the various expenses incurred in breaking into new markets. The other schemes deal with (i) building marketing strengths within firms; (ii) market research proposals; and (iii) design and product development proposals. In aggressively implementing these schemes Córas Tráchtála are focussing on the need to develop a market-led approach by our industries. This implies a precise identification of consumer needs and putting in place a strategy to meet them in the areas of design, quality, pricing and after-sales service.
The business development scheme, under which qualifying investors in unquoted manufacturing companies are permitted to write-off up to £25,000 per year against income tax, is designed to increase the flow of equity funds to industry. The scheme has been improved since its introduction in 1984 and has raised over £5 million in new investment up to the end of the last tax year. Its attractiveness has been further enhanced with the introduction by the Stock Exchange of the new smaller companies market this year. Moreover, this year's Finance Bill includes important new tax-based incentives for research and development and for private investment share-ownership in industry.
The National Development Corporation Act was recently passed by the Oireachtas and the corporation will soon be in operation. The corporation is a further vehicle for State involvement in, and the promotion of, industrial development. The NDC's principal objective will be to invest in viable projects to assist in the maximum level of job creation. Arrangements will be put in place to ensure that there is no overlap or duplication of functions with the IDA.
A Management Committee on Industrial policy has been established to ensure the prompt and effective implementation of the White Paper policies. This committee, under the chairmanship of the Secretary of my Department is comprised of representatives of the main industrial development State agencies. At their regular meetings to date they have reviewed progress reports and submissions from the agencies and have ensured a co-ordinated approach to industrial progress from all the relevant State interests.
These, then, are some of the new initiatives arising from the White Paper. I will refer to some other new measures in the context of the Bill before us here today.
During the debate in the Dáil, there was an understandable emphasis by Deputies on the need to enhance the employment impact from industrial development. This is, of course, recognised in the White Paper, which set an ambitious target of an average net increase of 3,000 to 6,000 jobs per year in manufacturing industries over the period 1984-94. These targets are based on a doubling of industrial output over the period. We will be striving for even better results now because of the more favourable macroeconomic situation. While to some the employment targets may appear to be modest, in the Government's view it would have been dishonest to set higher targets simply in order to make them more politically palatable.
I am conscious that in trying to increase direct employment in manufacturing, we will have to achieve results which are in stark contrast with the trend in other western European countries. Reductions in manufacturing employment are arising in most developed countries from the continuing advances in technology, improving productivity and the decline of certain traditional sectors.
These trends should only reinforce us in our efforts to maximise the direct and indirect employment spin-off from industrial development. I am glad to say that the central focus of the IDA in 1986 will be to get a better employment and value-added performance from the existing industrial sector and every encouragement and feasible resource backing will be given to initiatives involving significant or quantum leaps in terms of direct or indirect job impact. Industrial policy is not employment policy, although it is an important component of it. Our unemployment position must be tackled on a broader front as set out in the Government's national plan Building on Reality.
I would now like to turn to the contents of the Bill. As I said earlier, the opportunity is being availed of to consolidate all existing industrial development legislation into a single comprehensive code. The Bill will, therefore, repeal and reenact with amendments the Industrial Development Authority Act, 1950, the Industrial Development Acts, 1969 to 1981, the Undeveloped Areas Acts, 1952 to 1969, and the Industrial Grants Acts, 1959 to 1969, deleting provisions which are no longer appropriate.
Following detailed reviews of the structure and administration of incentives for industry in Ireland, the Industrial Development Act, 1969, resulted in the formation of the Industrial Development Authority in their present form.
Established in 1970, the new Authority were given power to offer a wider range of incentives to indigenous and overseas industry. Their new package of incentives and services to industry incorporated grants towards the capital cost of new industrial projects, re-equipment grants to assist industry to adapt to free trade conditions, special grant assistance geared towards the development of small industries, training grants, interest subsidies, loan guarantees, equity shareholding, R and D grants, the development of industrial estates and the construction of advance factories.
I believe that the Industrial Development Authority have served us well since their formation. Their flexibility and efficiency in encouraging industrial development has been remarkable and is the envy of may countries. The redefinition of IDA's role in section 11 of the new Bill will ensure that the IDA will be enabled to continue and extend their work into the future.
The primary role of the Industrial Development Authority is to act under the Minister as a body having national responsibility for the implementation of industrial development policies. In the exercise of their functions they act in accordance with policies set out for them from time to time by the Minister. The Industrial Development Authority, together with the other agencies involved in industrial development, such as the IIRS and Córas Tráchtála, will have executive responsibility for the implementation of industrial policies.
Provision is being made under section 4 of the Bill to allow the Minister to make a more flexible use of designation for industrial grants purposes. As Senators are aware, this is the system under which certain areas of the country are designated as eligible for a higher rate of fixed asset grant. As no objective or systematic review or designation had taken place since it was first introduced in 1952 the former Minister, Deputy John Bruton, requested the National Economic and Social Council to prepare an independent and objective review of the use of designation as a flexible policy instrument.
The council published their report in December 1985, recommending objective criteria, based on labour market imbalances, to determine designated status on a needs basis for the future. Following receipt of the NESC report, the Economic and Social Research Institute were commissioned by my Department to advise on the implications of implementing the NESC recommendations to enable the Government to consider the matter further. This report has been received recently and is being examined. I should stress, however, that no decisions have been taken as yet on any changes in the designated areas.
To ensure that industrial policy evolves in an orderly and planned manner and that Members of the Houses of the Oireachtas are made aware of the costs and benefits of industrial policy at regular intervals, the Bill includes in section 6 a new provision for a review of national industrial performance every three years. These triennial reviews and the conclusions arising from such reviews will be laid before each House of the Oireachtas. This is an important provision as I believe that Government policy in an ever-changing sector such as industry needs to be dynamic and constantly fine-tuned to maximising new opportunities and technical developments. In fact, a policy review of developments since publication of the White Paper is already underway within my Department. The review group are addressing a number of important issues, such as how direct employment can be maximised from the industrial sector and what further steps can be taken to develop indigenous industry. The results of the review will be available before the end of 1986.
The Bill for the first time will provide, in section 13, for the issue of directives of a general policy nature to the Authority, subject to a number of safeguards. Such directives shall not apply to any individual industrial undertaking or to the location of an industry other than as part of a general review of industrial policy for the country as a whole. Copies of all directives given by the Minister under this section must be laid before each House of the Oireachtas within 21 days.
Section 21 of the Bill sets out the new selectivity criteria under which the Authority will provide grant assistance to industry in respect of fixed assets. These criteria will also apply to leasing grants, rent subsidy grants, loan guarantees, interest subsidies in relation to fixed assets, training grants, the new technology acquisition grants, the incentives for enterprise development and equity participation. Other grants programmes, such as research and development, international services and the incentives in respect of restructuring of industry, will remain subject to their existing criteria.
The new grant criteria were outlined in the White Paper and will be substituted for the criteria set out in the two-tier grant system in sections 33 and 34 of the Industrial Development Act, 1969. The new criteria overlap with the old as regards the necessity for financial assistance, the permanence and viability of the firm, the provision of employment, use of natural resources and technological content. There will be no change in the maximum rate of grant which may be made, which will remain at 60 per cent in the designated areas and 45 per cent in the non-designated areas. However, the average level of fixed asset grants will be gradually reduced so that savings may be applied to technology acquisition grants and the new marketing initiatives.
This is quite important because the White Paper on Industrial Policy clearly envisages a shift in resources from fixed assets to technology acquisition and marketing, and this reduction must be made to effect that shift. In addition, the new selectivity criteria will focus on the need to develop and increase linkages between overseas and indigenous industry and in particular the development of import substitution projects and export markets. Employment creation and maintenance, in addition to the new emphasis on output growth and generation of value-added within the economy, will continue to be the main focus of State assistance to industry.
The conclusion in the White Paper on Industrial Policy was that grant assistance should be directed to remedying perceived weaknesses in Irish industry in the areas of marketing, management, research and development and innovation. Companies approved for grant assistance will, therefore, have to demonstrate that they will comply with the new criteria, have suitable company development plans and also that the equity base-financial structure of the company is adequate.
An important amendment to section 21 of the Bill was passed in the Dáil which will allow new arrangements to be introduced in respect of industrial development grants for small industry. The new system allows promoters of new small industry projects, at their discretion, to avail of employment grants as an alternative to grants towards the cost of machinery and buildings. The result will be to encourage more small industry start-ups. A promoter will now have the option of using employment grants to acquire modern second-hand equipment which would not qualify for capital grants. This will be of particular benefit to industries such as clothing and engineering where there is excellent second-hand equipment available at present.
The Bill also makes a number of changes in the IDA's R and D grant programme. Under section 29, costs eligible for assistance in future will include the salaries and wages and travel and subsistence expenses of those engaged on the project or in identifying product or process development opportunities within the company. Secondly, in order to encourage the smaller industrial undertaking to make greater use of the R and D grants, it is proposed to allow the Authority to make advance payments of up to one-third of an R and D grant to small industry.
It is now recognised that small companies are often more innovative than the larger companies, yet at the same time do not have the financial resources available to devote to a concerted and systematic research and development effort. This new provision will assist the smaller undertaking involved in research and development and considerably ease their cashflow and working capital requirements.
It is now generally accepted that we can no longer rely exclusively on overseas investment as a means of improving the level of technology in Irish industry. The White Paper on Industrial Policy stated that the IDA would be empowered to give grants not exceeding 50 per cent towards the costs of acquiring new product or process technology. Section 30 of this Bill will enable the IDA to give such grants and sets out the costs which will be eligible for grant assistance. Product or process technology for the purpose of grant assistance will include patents, designs, trade marks, trade secrets, copyright and proprietary and non-proprietary know-how.
A number of other minor technical or general amendments have been made in regard to grant schemes, incentives and equity participation powers of the Authority, the Government's powers in regard to grants, the period of appointment of, disqualification of and declaration of interest by Authority members, and the delegation of functions to boards and committees. It is also proposed that a new limit of £700 million be set on the total expenditure by the Industrial Development Authority as from the coming into force of the new Bill. This will enable the Authority to carry out their functions for a further three to four years and will allow the Oireachtas to review the operations of the IDA at that stage. I will be happy to elaborate further on Committee Stage on these provisions, which are primarily of a regulatory or controlling nature or are designed to make explicit, provisions which are already implicit in the existing industrial development legislation.
A number of provisions in the old legislation are not being re-enacted, including the IDA's re-equipment grant scheme, which was of special significance during the seventies in the modernisation of industry to assist it to operate in free market conditions. During the decade over £450 million was approved for Irish industries under the programme. The programme helped Irish firms to adapt to the free trade conditions brought about by the Anglo-Irish Free Trade Area Agreement and Ireland's subsequent entry to the European Communities.
The programme was phased out in the early eighties and ceased in 1982. The Industrial Development Bill repeals these provisions permanently on the basis that they have served their purpose and continuation of the measure could no longer be justified.
Similar considerations apply in regard to the IDA's powers to provide and arrange housing for employees in industry. I am satisfied that it is no longer appropriate that the IDA should retain this power which is more appropriate to the local authorities, the National Building Agency and the private sector.
I would like to conclude by making some general remarks on the outlook for 1986. The growth in manufacturing output and exports is expected to continue. Investment by industry is expected to continue at a high level, resulting in the creation of 12,000 new jobs in IDA-backed firms in 1986. I expect this development will be encouraged by the continuing fall in inflation, the reduction in the price of oil and favourable currency exchange movements.
The ESRI publication, Medium-term Outlook: 1986 — 1990, published some weeks ago, predicts that total employment in the economy is expected to stabilise in 1986. The manufacturing sector is expected to make a positive contribution to this improved situation. Medium and large Irish-owned companies will be encouraged to come forward with job-creating investment proposals. The State agencies will continue to work with a range of firms to encourage them to draw up strategic development plans with a view to increasing the job contribution of indigenous industry in future years.
I believe we have the right policies and that the new Industrial Development Bill will facilitate a renewed impetus to industrial growth and prosperity. I commend the Bill to the House.