Vol. 450 No. 7
3 Miss Harney asked the Minister for Enterprise and Employment the reason Irish companies must rely on preference shares rather than grants as the principle means of State support while foreign owned companies are not restricted in the same way; and if he will make a statement on the matter. [5732/95]
The levels and type of assistance to Irish and overseas companies reflect the very different requirements of these companies.
The type of financial assistance required by Irish companies reflects the development needs of Irish businesses. The trend towards equity participation in Irish companies is in line with the recommendations of the "Review of Industrial Performance 1990" and endorsed by Culliton and in the then Government decision on the recommendations of the Moriarty Task Force.
There is a wide range of assistance available to Irish companies to improve their capabilities and increase their competitiveness on the one hand and support expansion on the other. This assistance includes equity participation where appropriate but also encompasses grants for feasibility studies, product and process development, technology acquisition, management development, employment and capital equipment. Access to graduate placement programmes is also available.
In the case of Forbairt, the agency with primary responsibility for indigenous industry, I understand that moneys paid out to companies in 1994 amounted to £42 million and of this, equity investment in Irish companies amounted to £11.6 million. This shows that grants still account for the bulk of the overall financial supports provided to Irish companies.
The primary objectives of taking equity stakes in indigenous companies currently is to promote a more self-reliant and less grant dependent industrial sector and to achieve a measure of repayability of support by the industrial development agencies. Equity is at present invested mainly in the form of low coupon preference shares. The coupon rate and the redemption period in each case will reflect the agency's developmental role, the financial position of the recipient company and the need to provide an equitable package in comparison with packages provided in other similar cases either by the agency concerned or other development agencies.
In the case of attracting inward investment, the reality is that promoters are, generally speaking, not disposed to taking equity as part of the incentive package on offer. The key objective underlying the negotiations with overseas promoters is to land the project and achieve the best possible value for the State. This can include equity investment in appropriate circumstances. However, the Deputy will appreciate that if IDA Ireland is to compete effectively for overseas mobile investment it must pay the "going-rate" and, in this regard, the nature and form of its incentives package must at least match that of the competition.
As indicated in my reply to the Deputy's question on this issue on 15 February last, State financial support for inward investment is not given at the expense of support for the development of indigenous industry which is the primary focus of industrial policy. I repeat also that this Government's commitment to the development of indigenous industry is reflected in the resources being allocated to indigenous industry in the new Operational Programme for Industrial Development which I announced recently. Over the period of the programme, 1994 to 1999, funding to improve the capabilities of indigenous industry will be increased by 29 per cent compared to the previous programme, whereas spend on inward investment will decline by 18 per cent.
I would add that I am currently initiating a policy review in relation to policy on foreign direct investment and on indigenous industrial development which will address the effectiveness, value for money and other aspects of the respective policies.
That is another review which I can add to my list. The most accurate statement in the Minister's reply was that foreign promoters were not disposed to equity investment. They do not want the State to invest in their companies; they want grant aid. Will the Minister not accept that Irish companies are being discriminated against in two respects? First, they get less per job by way of grant aid than their foreign competitors — the grant aid to foreign companies is at least £3,000 per job more than to Irish companies — and, second, contrary to what the Minister said, equity investment is substituting for grant aid because the State wants to get back from Irish companies what it gives in greater proportions to foreign companies. This clearly discriminates against those in our society who are taking risks, developing enterprises and creating jobs.
This is an issue about which I was concerned when in Opposition. Despite Deputy Harney's dislike for reviews, I have initiated a policy review of these two areas. Such a decision cannot be taken on the hoof. Careful consideration is needed as to the most effective way to support indigenous companies and attract foreign companies. The range of capability supports available to indigenous companies is very wide. We are attempting to support them in building strategic capabilities within the company rather than by simply giving capital grants.
In simple cost per job comparisons the wider range of supports that exists is often missed. There has been an indication of convergence in terms of cost per job. For example, while in the 1986-92 period there was a gap of £7,500 between the amounts paid to a foreign company and a domestic company, that gap has now closed to less than £3,000. Aggregate figures conceal the capital requirements of different projects and they are not always easy to compare. I share the concern expressed by the Deputy, but the best way to address the needs of indigenous industry is not necessarily by giving grants. The strategy approach is the correct one to adopt.
I agree with the last point made by the Minister. If we reformed our tax system and reduced corporation profits tax it would be much more beneficial than either the grant or equity investment route. Will the minister confirm that in 1994 there was an increase of 50 per cent over the previous year in investment given by way of equity and that Forbairt is moving very fast in the direction of equity rather than grants? If that is so, will he ask Forbairt to review its position on this issue and certainly not to increase the amount of equity investment until he carries out an overall review of foreign investment in this country?
I agree the direction is towards grater equity investment. This is a move to which I have no objection. It is consistent with the Culliton approach and that of building the capabilities of Irish companies, I will investigate the adequacy of support for indigenous industry. If we are to compete for overseas mobile investment we must pay the going price. In some cases projects, because of their spin-off effects and the significant contribution they can make to the economy, are worth attracting to Ireland. It will not always be a case of simply fixing maximum ceilings; there must be flexibility. I am anxious to review the issue raised by the Deputy to ensure the strategy is robust for the future.
