JOINT COMMITTEE ON ENTERPRISE AND SMALL BUSINESS díospóireacht -
Wednesday, 2 Jul 2003

Vol. 1 No. 17

IDA Ireland: Presentation.

Chairman

On behalf of the members of the committee, I welcome Mr. Seán Dorgan, chief executive of the Industrial Development Agency, Mr. Dick Ryan, secretary of the IDA and divisional manager of the planning division and Mr. Billy Bury, divisional manager of accounts and grants division. The 2002 annual report forwarded by the IDA to the secretariat has been circulated. The witnesses have 15 minutes to make their oral presentation, after which members may ask questions.

I draw the witnesses' attention to the fact that members of the committee have absolute privilege, but this same privilege does not apply to witnesses appearing before it. While it is generally accepted that witnesses would have qualified privilege, the committee is not in a position to guarantee any level of privilege to witnesses appearing before it. I also draw the attention of members to the fact that they should make declarations of interest either now or at the beginning of their contributions if so appropriate. I thank the witnesses for appearing before us and ask them to make their presentation.

Mr. Seán Dorgan

I thank the Chairman for the opportunity of speaking on the annual report of IDA Ireland. The annual report sets out a summary of the performance of the organisation in 2002 and some of the work we are doing to lay the basis for future success. There are now 133,000 people employed in overseas companies in Ireland. In 2002 we agreed 55 new investment projects, of which 31 were new green field investments and 24 expansions of existing activities. Taking the year as a whole, around 11,700 new jobs were gained in overseas companies but 14,700 were lost. This reflected the difficult global trading conditions and the continued transformation under way in overseas companies here.

Some particular successes during the year were in the pharmaceutical and health care sector. We note decisions by Abbott to expand its activities and set up a new centre for cardiac and vascular stents in Galway, while Medtronic is also strongly expanding its cardiac and vascular business in Galway. Amersham Health is expanding in Cork, Takeda has established its first bulk Japanese pharmaceutical plant outside of Japan in Grangecastle in Dublin and Servier is expanding its pharmaceutical business in Arklow.

The success of last year is continuing this year. Altana, the German pharmaceutical company, is establishing a new base in Cork, as is Recordati from Italy. Taro Pharmaceutical is locating in Roscrea, Inamed is expanding its facility in Arklow while Harmac is located in Castlerea and Gerard Laboratories is located in Baldoyle in Dublin. These are all excellent examples of pharmaceutical and health care companies which have been growing successfully in the past year or two.

We also had a good year in international services. The annual report contains a section about the growth of MBNA in Carrick-on-Shannon which, with 750 employees, has provided a boon to the town. Churchill Insurance is expanding strongly in Galway and GMAC is developing in Mullingar. This year the trend is continuing with Schlumberger and Trend Micro expanding in Cork, SAP establishing a new centre in Galway and Google, Overture and Accenture, leading global names in their businesses, expanding in Dublin.

The changes in business are also reflected in the extent of new research and development investments coming to Ireland, some of which are mentioned in the annual report. Motorola in Cork has established a new centre for even more advanced research in wireless. RF Integration is in the same business. Dow Corning is carrying out serious research in plasma coatings and Bausch and Lomb, which employs 1,500 to 1,600 people in Waterford, has introduced a new, significant research centre to develop a product which will be planted at the back of the eye and release drugs over time. It is a breakthrough to have a centre of such quality in Waterford. It will be important to underpin existing activities in Waterford.

Also during the year, the Intel Fab 24 investment resumed in Leixlip. By this time next year, the company will have invested more than $5 billion in the town and just last week it announced the establishment of a new IT innovation centre there. The Wyeth pharmaceutical investment, the largest bio-pharmaceutical campus in the world, is proceeding in Grangecastle and gives the IDA hope that we can win further investments of this size and quality in the coming period. The provision of world class business and technology parks referred to in the report has been continuing in practically every key town. It is important in this context that we offer something to investors.

This is a tough time for many companies. International markets are tough and there are many cost pressures, both globally and in Ireland. As a result, we are seeing significant job losses, some in the past week, which can be difficult and painful in local areas. Internationally there are also fewer foreign direct investment flows generally.

Ireland's competitive advantages have changed forever. We do not have a labour surplus nor do want one to re-establish. The 15% unemployment rate of ten years ago, while a major problem, was also an opportunity. We can no longer claim to be a low cost location. Many other locations offer skills at lower costs. In the future, we must focus much more on the quality of the high skills we offer, the flexibility, speed and agility we show in meeting business needs and the competitive tax advantage we possess and must retain. Quality rather than quantity must be the guiding principle and already drive much of what we are trying to do.

Despite the tough environment, we are still winning high value investments. Since September 2002, about 40 investments have been announced, roughly equivalent to one investment per week. These have been of varying size and in different locations. To win more of them, we have to work well together at national level to create new competitive advantages in skills, knowledge, innovation and research. This is the reason the money being invested in Science Foundation Ireland and other research and colleges as well as improvements in both physical infrastructure and business supports, the less tangible types of infrastructure, are so important. It was this type of investment, particularly in telecommunications, which won us the Google investment in recent months when the company decided to use Ireland, in preference to Switzerland, as its base for perhaps one-third of its global searches on the Internet. This was a significant win because we were competing against quality. We won because of our investment in telecoms and our other advantages in skills and taxation. We also need to maintain flexibility and cost competitiveness.

The implementation of the national spatial strategy and national development plan will be critical to regional development and winning investment into regions. We need to push ahead and deliver on these to improve the chances for regions to win investments, particularly those of higher values which are more difficult to win. They look for a good base of business support services. They want easy and quick access. They want cost competitive services. In general, higher value investments tend to go to urban areas so the national spatial strategy must give us strong urban centres in each region in order for regions to win.

Very briefly on the accounts in the annual report, the main items of income were Oireachtas grants of €125 million in 2002, grant refunds of €42 million and profit on sale of assets of €20 million. On the expenditure side we paid grants of €118 million, promotion and administrative charges were €43 million and depreciation charges and provisions were €35 million, leaving an overall small operating deficit of €3 million.

In the IDA we have 295 staff, about 150 of whom are in Dublin, with 100 in various locations around the country. That 100 is a doubling from the 50 we had in regions two years ago. We have 45 staff overseas, mainly in the US and Europe, with a few in Asia-Pacific. For all of us the challenge is to move now to greater success by renewing existing investments and constantly working with existing managers in the overseas companies in Ireland and replacing what is lost. We will have further losses unfortunately, and that involves working strongly with local and regional interests to improve the offering for locations that have been losing out.

We have to win new quality investments and find new advantages in new areas. That is the everyday work of the IDA and it is work we feel privileged to be involved in given its potential benefit to the country and to regions.

Chairman

I thank Mr. Dorgan. He has certainly let the committee know that the achievements of the IDA have been substantial. It has made an enormous contribution to our economy up to now but we are approaching a very difficult time in our economy. Most committee members, as well as people right around the country, would love to hear from the IDA, and particularly from Mr. Dorgan as the chief executive, about where he sees the world economy and when he expects, based on his vast experience, to see an uptake in America. I know it is unusual that the markets of Japan, America and Germany should all be nearly on the floor, as they are. I know it is a difficult question but when does Mr. Dorgan see an uptake in the American economy?

Mr. Dorgan

Many people ask that question and many people have different answers. Our own view is that there will be a slow recovery from now on. It is clear that the information technology industries in particular have come off the floor and are growing, but they are growing slowly. We will not see the very high growth rates of the late 1990s, which were partly driven by a bubble.

We will see growth in information technology globally, but for Ireland it will be a real challenge to win the higher value parts of that growth rather than the volume side of it, which we won in the 1990s. That will go to lower cost locations in the future. The telecommunications business, which has been good for us in the past, will still be in a very difficult position for perhaps another two years. Pharmaceuticals and health care have been really strong and will continue to grow.

I think the US will see growth this year but Europe will be quite flat. That is a challenge for us but we are very small and can win by being quicker and better and offering more advantages to good companies than others. We are not completely dependent on growing markets, although we gained enormously from growing markets in the 1990s. If we can be competitively better we can win even in flat markets. That is what we try to do by picking the areas where there is real growth, where really good companies know Ireland's performance and know what has been achieved and where they look to Ireland to offer further opportunities for them.

Deputy McHugh

I join in the welcome to the IDA delegation. The first thing I want to mention is regional development. Mr. Dorgan mentioned it in his address, and it merits a small paragraph in the IDA's annual report. It says that "our commitment to regional development is stronger than ever and that now, with the national spatial strategy in place, the IDA is determined to see the emergence of strong magnets of attraction in each region." That is nice language in a sense but what does it mean and how effectively are those magnets going to be created by the IDA? The report also notes that "for their successful development each region needs to have a clear competitive reason why companies would like to locate there." We know that the regions do not have any clear competitive advantage, so how is the IDA addressing that impediment? Has it given any consideration, for example, to the fact that increased financial assistance would need to be on offer to companies that the IDA is trying to attract to the regions in order to create some kind of advantage to entice them?

I acknowledge the IDA's work in developing high quality business parks, and I have seen the state of the art business park that has been developed in my own area of Tuam. Now that the parks have been provided, what action is the IDA taking to ensure that investment is directed towards those parks? I would like Mr. Dorgan to specifically address the case of Tuam but maybe he would not be in a position to do so.

There are just two more issues and then I will finish. Mr. Dorgan mentioned the relevance and importance of the national spatial strategy to our future, particularly in relation to balanced regional development. What strategies has the IDA developed to dovetail into the national spatial strategy so that its policies can harmonise with and complement it? Did the IDA have consultations with the Government to see how the whole thing could come along as one unit?

In the press release issued in conjunction with the annual report, the IDA expressed concern about the effectiveness of locating 50% of greenfield jobs in the Objective One region. It effectively says in the press release that it has not achieved that in recent times. It identifies the fact that the impediment is infrastructural development and that the right infrastructure is not in place. Has the IDA engaged with the Government in relation to this? Is the Government aware that the IDA is not achieving the target it set for the IDA? Is it aware of the fact that the IDA cannot achieve the target because the Government is not addressing the infrastructural deficit in the regions?

Chairman

There are some very interesting questions there for Mr. Dorgan.

Mr. Dorgan

How can we make regional development work? In many respects Galway is the best example of how it has worked and can continue to work. I know in some respects it creates some local controversy that so much of the development seems to be in Galway city as opposed to county. The truth is that Galway has really taken as a growth centre for a few reasons.

First, 20 or 30 years ago some great companies went in there - Digital is a good example - and gave a boost to the city. It did not last indefinitely, and it was an apparent catastrophe when Digital closed less than ten years ago, but it left a fantastic residue and heritage. It left some really skilled managers who then went and did other things. It also left a group of 350 software people who are still there having gone through Compaq and HP. It was not only the companies that went in. The university was the life of the city. There were aspects of the creative Connemara influence going into the city.

One consequence is that Galway has been the fastest growing urban centre in Ireland and there are now 3,000 people involved in cardiac and vascular products, between Medtronic AVE, Boston Scientific, and now Abbott Laboratories, Irish companies like Creganna and Mednova and the Centre for Biomedical Engineering in NUIG. All of that is creating a cluster that makes this the place to be in Ireland for cardiac devices. Over the next few years, the number of people involved in the industry will lift Galway city and the surrounding region because Loughrea, Tuam and Ballinasloe and other centres can develop industries that serve the central cluster.

We differentiate between grant offerings for regions and we try to offset some disadvantages that may attach to going into particular locations through grant offerings. However, while grant offerings are important they are not enough to win the higher value business. To put it crudely, if businesses are involved for the sake of the grant they are involved for the wrong reason. When the grant is paid, it may not be a sustainable reason for them to stay. We have to build all the advantages around the centre that attracted them in the first place, develop further links into Irish businesses and colleges and keep developing skills and broaden the base.

In Tuam we have developed the business park, on which expenditure has amounted to over €3 million. We want to see site visits and investors being convinced that it is a good place for them to do business. This is also true of many other towns. At the moment, it is pretty tough because the numbers of site visits and investment flows into Ireland are fewer than three years ago, but we must keep working very hard at it and ensure that centres are successful.

We were strongly involved in working with all the key Departments on the national spatial strategy in indicating our view, based on what we know of international businesses and their needs, of what could work and how we could put it together in Ireland. We were strongly involved in saying that we need to build several strong regional centres that have a population base from which a good range of skills can be drawn. We anticipated the national spatial strategy by sending key operational units of the IDA from Dublin to Sligo, Athlone and Waterford, which we chose as the most likely development centres in the three regions which had been less successful in the 1990s. The east, south-west, mid-west and west had all done well because of the strength of Dublin, Cork, Limerick and Galway. We are building our world class parks to be attractive in centres like those and we work strongly with the local authorities and with Departments to ensure that infrastructural development focuses on those growth centres. There will need to be a long-term commitment to the national spatial strategy and the national development plan to make that work.

I do not want to overstate the remarks in our press release on the pull to the cities. Up to the end of last year, we were achieving 50% of all our greenfield approvals into the BMW region. It has dropped a little this year because of the attractions of Dublin. We do not want to sell against Dublin, which has lots of attractions. Some businesses, if they have to choose a town in Ireland, will go only to Dublin. They might have to choose between Dublin, Amsterdam or somewhere else.

There is a challenge involved in continuing to get investment into regions. The challenge is to put the infrastructure in place as quickly as we can, and financial problems exist in this respect. Unless we maintain the momentum that is pushing the infrastructure to the regions and continue to build the regions so they are regarded as attractive, companies will choose Dublin. It is easier for them to do so now because its pace of growth has slowed down.

Deputy Hogan

I, too, welcome the chief executive and other delegates from the IDA and I acknowledge the work that has been achieved over several years. Notwithstanding the success in terms of the numbers of people employed in international companies and the investment in the business and technology parks, we must continue to ascertain how the regions can be improved. In the south-east, which I represent, there is a considerable amount of unease because we are not making as much progress as we could in various places in that region.

I am glad Mr. Dorgan mentioned the national development plan and that we are not implementing it as quickly as we had expected. Does Mr. Dorgan agree that this is one of the key difficulties involved in making an investor more interested in going outside the major urban centres? Will he comment on the future of corporation tax and the fact that it has been low for many years? It was a tremendous achievement to obtain agreement, particularly through the European Union, to keep that regime of low taxation. Will the regime come under pressure from any quarter and will we be able to maintain it?

Many areas of traditional industry will come under pressure, possibly affecting Enterprise Ireland clients more than IDA clients. Nevertheless, IDA clients will probably be involved as well. What model, which could be rolled out quite quickly at local level, would be best in dealing with crises in local communities and help them and workers be optimistic about the future rather than their having to hear devastating news such as that received by three companies this week?

Deputy Callanan

I welcome the IDA delegates and compliment them on their achievements in making this country what it is today and especially for the 55 new investments in 2002. Mr. Dorgan put much emphasis on research and development in his report. Any company that decides not to engage in research and development does not last very long. It is very important that R and D should be funded and that we urge every company to engage in it. Science Foundation Ireland is also very welcome in this regard.

In the past it was correct for the IDA to go for the big fish in terms of foreign investment - they are more popular at home. However, there is much to be said for trying to bring home two or three small fish instead of one big one.

Is an Irish company that decides to create jobs abroad still subject to competitive tax rates? If so, is it fair? Regional development has been mentioned frequently. As one knows, I come from Ballinasloe, which has been badly hit. I know the IDA is doing its best in the town, which is on the main road to Galway. We feel that investment should be made there as soon as possible because it has a great, strike free workforce which has left Square D. The sooner the IDA succeeds in creating opportunities there the better.

Mr. Dorgan

Deputy Hogan mentioned the south-east and it is striking that this is the one region that has shown pretty consistent growth in employment in IDA backed companies over recent years. It had the largest increase last year, which amounted to 5%. I will grant that there is some unevenness in this and Deputy Howlin would be quick to point that out.

Chairman

He will be next.

Mr. Dorgan

It is the case that the south-east has been growing reasonably consistently but we want a lot more to happen there. Access may be the biggest issue. The distance from Dublin Airport is important, as is the time it takes to get from it to one's business centre. This is a significant issue because investors think about how quickly they can gain access to a site. The motorway is particularly important to the south-east. The low corporation tax in Ireland and particularly the long-term way in which it has been sustained has been absolutely critical for Ireland's success in winning international investment. The 12.5% rate, which has been agreed at the European Commission, was intended, as stated at the time of its announcement and since, to apply until at least 2025. It is that long-term commitment which is really important because other locations offer lower corporation tax. For example, we compete regularly for very significant pharmaceutical investments with Singapore, which offers zero corporation tax for ten years, renewable with every new investment, and with Puerto Rico, which offers a rate of 1%, 2% or 3% depending on the circumstances. Switzerland offers very low tax, canton by canton, as do some of the newer accession countries - Estonia has said it will offer a tax rate of zero indefinitely. We cannot compete in every case with the absolute lowest tax, so it is really important that we have a consistent, sustained and credible rate, that we hold to our commitments and that we have every other advantage working in our favour also.

Traditional industry was mentioned. It is a real issue for the IDA as well as for industry that so much investment can be relatively old, reaching the end of its life cycle, and there may not be an obvious possibility of renewal. That can have an effect in whole tranches of the country. Looking at the regions that received investment in the 1990s, one can see that largely the cities benefited. We are concerned that a whole section of the country, running from the north-west to the south-east, may not have had enough new investment in the last ten years. That will pose serious challenges for us over the next while.

What can be done about this? We can improve local infrastructure and services and the manner in which regions present. Significantly, it is about managers - in overseas companies as well as Irish companies - working hard to see where they can position themselves in corporate terms for the next five or ten years. We put a lot of effort into working with Irish managers - we have what we call a strategic competitiveness programme. The best example of success in recent years has been Apple in Cork which, when I came into office at the start of 1999, was considering reducing its manufacturing workforce from 1,000 to perhaps 400. It reduced the manufacturing workforce, but there are still more than 1,000 people working in the Cork facility because over the four years the company transformed the activity in which it was involved from fairly basic manufacturing, which has now gone to Asia or central Europe, to treasury activities, logistics, supply chain management and call centre and technical support - a whole range of service activities which provide good employment on the north side of Cork. A total of 1,200 people are doing different things which are much more important to Apple globally than the manufacturing activity, which was more mobile.

When a problem arises we work well with the other agencies - FÁS for retraining and county councils for improving infrastructure. It is also why we put the new business parks in place. The business park in Carlow, for example, has taken some hits, with job losses at Braun and Lapple in the last year or two. The new business park, which cost us a considerable amount to buy and develop, is now waiting for private developers to put buildings in place so that we can offer them to the next flow of investors. This is what we must continue to do across the country.

Deputy Callanan wondered whether we were aiming excessively for the big fish. I do not think so. The big fish attract more attention - when we name them they are more obvious - but there are many other relatively small companies setting up around the country. Valois, which is in Ballinasloe, is a good example - it is a fairly small company, but a worthwhile niche investment - but frankly, to pick up some of the losses that have occurred in Ballinasloe over recent years we need to think in terms of something larger. We are always trying to find a balance.

The issue of jobs going abroad was mentioned. It is true there has been a significant flow of jobs out of Ireland, but for many years we have been able to more than offset this with better paying jobs which are coming in. Companies only have access to special corporation tax rates if they conduct substantial activities and they must justify themselves to the Revenue Commissioners. The advantage we have is that, as in the case of Apple, if companies are moving jobs abroad they tend to bring in a lot of other activity in order to retain the tax advantages and give the employment benefits.

Deputy Howlin

I welcome the group and I must also express the admiration most of us have for the sterling work of IDA Ireland over the years. It is an international exemplar and other countries have modelled their industrial development agencies on the IDA. Mr. Dorgan has a challenging job, but he is participating in a proud tradition of success.

It is difficult to achieve balanced regional development. The success of Ireland Inc., which is up there in lights, is known internationally, but it has not been uniform, as Deputy McHugh has pointed out. We have divided the country into BMW and non-BMW regions and the difficulty with this crude division is that there are areas within the so-called richer portion of the country which meet all the criteria for BMW but are not contiguous with another impoverished area, for want of a better phrase. How has IDA Ireland addressed the issue of black spots within the eastern and southern regions? Unfortunately, our experience within the south-east has been that although Waterford has done well in recent times, there are areas, particularly in my own county, which certainly have not. Our industrial base is still below not only the regional average but the national average by a considerable amount. There is an imbalance in terms of the industrial make-up of the population, notwithstanding the fact that the population has increased by 12% in the last six years with 12,500 people migrating into the country. Unfortunately, many of these are commuters who have been priced out of Dublin and are demanding the services - to which they are welcome - but are not employed in a way that generates income for or enriches the community.

Mr. Dorgan mentioned that regional development was predicated on regional advantage. It has always been a mystery to me - maybe this could be clarified today - why an area such as Wexford, which has the national Europort, a very good road system and a long history of industrial activity, with factories of high quality which were world standards of industrial development 50 years ago, has not done as well as it could. Why, for example, when the lands adjoining the Europort were designated for tax benefits, was none taken up? Why do we still have the problems we have?

The future has been mapped out at this committee and in parliamentary questions by the Minister for Enterprise, Trade and Employment as looking to the benefits of Science Foundation Ireland and attracting new, high quality research and spin-off companies, particularly in the area of biotechnology. What is the IDA doing to prepare Ireland for that? Some of the work I have been doing on the Council of Europe involves looking at the international legislative framework within which the new biotechnology companies will operate. They are looking for certainty, yet they must be at the cutting edge of technological development. Is there a division of the IDA liaising with the Department of Enterprise, Trade and Employment and, it is to be hoped, with this Oireachtas committee, to produce a world class legal framework that would provide that certainty and that that, of itself will not be a disincentive to invest the best in cutting edge technology into this State?

My final question relates to spatial development and the spatial plan, of which mention has been made. From the IDA and industrial promotion perspective, what is the value of a hub?

Deputy T. Dempsey

I wish to be associated with the compliments of the previous speakers. Deputy Howlin and I share the constituency of Wexford so he has asked the questions I was going to ask. I will just elaborate slightly on them, not to delay the meeting.

I would like Mr. Dorgan to define a gateway as well as a hub because I have asked that question before and it is a little bit like the Chairman asking whether the American economy is going up or down - everybody gives me a different answer. I am interested in the IDA perspective on that. As Deputy Howlin so ably outlined, we suffer the disadvantages of the BMW area - early school leaving, high unemployment rates, low third level take up and so on - but because we were not contiguous to the bigger area we did not get the Objective One status. What advice would Mr. Dorgan give to Deputy Howlin and me in order that we might play a role in attracting industry to our area? The IDA has obviously been instructed to direct as much industry as it can towards the BMW area and we, in comparative terms, would be doubly disadvantaged as a result.

Mr. Dorgan

I recognise the point made by the Deputies about the crudeness of the 50% target for the BMW region. In a way that is a headline statement which actually came out of the IDA originally which said that we are about making things happen regionally. The Border, midlands and western region was defined in that way and it became the headline.

As I said earlier, there is actually a tranche from the north-west to the south-east which does not have strong urban centres and, therefore, does not show up well in all the comparative regional statistics. It is also the area which did not have a renewal of investment in the 1990s. What will change that? We believe strongly that we need the sort of development that is envisaged in the national spatial strategy, which is about building a strong centre in each region. It is why we need Letterkenny-Derry to be a strong centre for the north-west, Sligo for that part of the north-west, the triangle of Athlone-Mullingar-Tullamore for the midlands and Waterford for the south-east.

There are 400,000 people in the whole of the south-east region. That is less than in any region we compete with globally. It is less than Manchester, Amsterdam, Singapore or Silicon Valley. That is the competition. The competition is not actually between towns in Ireland but is global. How can our regions compete against those city regions? What do they have and what do we need to have? They have a strong population base with a lot of skills. If there is a population base of about one million people there is a good chance of picking up 500 highly qualified people. As the population size reduces down to a town of 20,000 people, the chances of finding such people are so much less.

If there is a population of one million people there is a chance of finding a good, high quality third level institution in the region. There is the chance of finding business services, be it accountants or lawyers, that have a global orientation and know about tax laws elsewhere. That is what Dublin has and why Dublin was winning so strongly in the 1990s.

How can we replicate some of the advantages of Dublin in each region? Given that we only have a population of four million within the State or five and a half million on the island, how can we put a few things together that give us a base from which to compete against really strong city regions elsewhere in the world?

The gateway is the first step to achieving that in each region. The gateways are the centres and the hubs are the second tier towns in the regions that can pick up investment. Frankly, our view is that the spatial strategy compromised on the hubs, and we would have been better to stick with the gateways and then work off them for a whole series of other towns built around the gateways. I know this is controversial in present company, but in the south-east Waterford is the gateway, but Wexford, Carlow, Kilkenny and Clonmel each have a status that gives them a standing of their own and allows them to strengthen themselves but also interplays with the gateway.

That is the challenge, and unless we face up to it and recognise the competition we face from other regions we will not succeed by addressing things purely on a local basis. We recognise the need to perform locally. We know there are towns that have suffered because of losses and that we need to try to get investments into. If we stay only local, however, we will condemn the regions to long run decline. That is what has been happening for 20 or 30 years. If we stayed local we did not raise our sights high enough.

Deputy Howlin

I had a general question in relation to biotechnology.

Mr. Dorgan

Yes. Ireland has a very significant future in bioprocessing in the pharmaceutical industry. Biotechnology is somewhat broader in scope. It is the use of a particular technology for any number of purposes. For us, pharmaceuticals in particular will be the strongest area. We have one very significant flagship in Wyeth and we believe we can win others. We will win those investments because we have a good base of skills in pharmaceuticals, but we need strongly to grow and deepen that skill base. A report will come out shortly from the Future Skills Group which will be very important in this regard and we hope it will cause the Government to make some very focused decisions to increase interest in the physical sciences, chemistry and so on so that we can build the base.

What is going on in Science Foundation Ireland, particularly the investment in biotechnology research, will be significant. The regulatory framework has not proved a problem up to now and has not arisen as an issue with any of the companies we have been dealing with. However, the third very important leg in nurturing biotechnology, and particularly biopharmaceuticals, is the long run protection of the tax advantage which interests these companies.

Senator Hanafin

I too share in the welcome for the IDA and commend it for the part it has played in increasing all our standards of living and providing employment. What percentage of total foreign direct investment into Europe is Ireland now taking? What percentage of American FDI is Ireland taking? Has foreign direct investment increased or decreased in the past number of years and where are the perceived challenges in the future - for example, the Czech Republic, Hungary or the other eastern European countries that are entering the European Union?

Where or how are we meeting the challenge from India on call centres, for instance? Is it a significant challenge for the future? At a more local level, I share the anxieties of my colleagues. I come from an area that has wealthy neighbours in the mid-west in Clare and Limerick. I know SFADCo has specific responsibilities there but notwithstanding that, north Tipperary should have been included in the BMW region of its own accord but was grouped with another couple of counties. This has caused considerable problems for us.

At a council meeting recently, a senior official mentioned the fact that we need not worry about having lost out on the benefits of the Celtic tiger because we never got those benefits and were not necessarily going to lose any jobs. There are areas of the country that have lost out significantly. Not only that, but having lost out on this quota system where jobs go to the BMW region, I also found out by studying the SFADCo end of year reports that a disproportionate amount of money per head of population was being spent in counties other than north Tipperary. Over a sustained period, this means a lot of jobs are going to many different areas and we are losing out under two headings.

Deputy Wilkinson

I too welcome Mr. Dorgan and his team and thank them for their presentation. The bottom line today is the fact that employment levels are better than they were ten or 15 years ago and we thank the IDA for its contribution to that. The IDA has had land banks in many places untouched for several years. I accept what Mr. Dorgan says, that the larger urban areas are likely to benefit in the immediate future.

Why are local development companies and local projects seeking parcels of IDA land unable to get it because of the IDA's manufacturing only rule? On four occasions over the past few years I approached the IDA for different local projects that would employ three, five, or ten people and was not successful. When adjacent land was bought for the projects and permission was sought to tap into the IDA facilities, such as infrastructure, effluent or roads, the prices asked were almost prohibitive. I am not being critical but I am asking that the IDA address this because when communities try to help themselves they should be given every assistance. I am referring to the west Waterford area, Cappoquin in particular.

Mr. Dorgan

On the first question from Senator Hanafin about market share the most recent figures from the Forfás trade and investment report show - speaking from memory and subject to correction - that Ireland achieves about 6% by value of foreign direct investment into Europe, which is six times our population proportionally. We have achieved up to 28% of the volume of investment from the US into defined sectors - defined sectors are those in which we are interested, particularly electronics, more recently we have been getting very good market share in pharmaceuticals. As we are now moving from quantity to quality the market share measures are not as relevant; it is the quality of what we win rather than the absolute numbers, although we are still interested in getting job numbers in particular places.

The way the world has opened up, and central and eastern Europe have opened up, and trade has liberalised means we cannot compete for lower cost business. If one is looking for a location for basic operative skills there are many places in the world such as central and eastern Europe, Latin America and Asia that can do it now, whereas Ireland might have made a competitive offer ten years ago. Much of the activity that we won ten years will now go to other places, for example call centres are going to India. There are other examples, financial analysts in the Philippines are paid only a tenth of what they would be paid in the US but US companies say they can do that in the Philippines. Ten years ago they might have said they could do it at half the price in Ireland.

We cannot compete on costs alone, it has to be on the quality of the people and how they do and offset the cost disadvantages against any number of other locations. The quality is in the performance of people, their efficiency and flexibility, on which we get very good feedback from investors and that is why an operation as significant as Dell in Limerick can continue despite competing against China and similar locations. They are so efficient in Limerick that they can sustain their activities there. All of that has to be sustained.

North Tipperary has been one of a range of counties that have not had a great deal of new investment and have had closures. We were pleased that Taro went in there earlier this year, following a lot of work with them. Other investments are still possible but we have to continue working on them and I cannot give any guarantee that we will have delivery of further investments this year but between Taro in Roscrea, and ALZA in Cashel a new base is being built up and more other Irish businesses are growing also in similar locations.

In terms of how we deal with property and other developers, we are obliged under our legislative framework to deal with all property on a commercial basis. We are not allowed to give discounts and if we were to give them it would raise State aid issues with the European Union so we have to deal on a commercial basis. We are also required to use property only for the defined range of manufacturing and international services listed as in the Industrial Development Acts and we are obliged to sell property on 999 year leases unless we have a specific exemption from the Minister which we can seek in particular cases. Property that is not on a 999 year lease where we sell the freehold has a different value and because we are under the commercial mandate we have to seek that value. There have been some particular issues in Cappoquin of which I do not have the detail and we are always open to discussing those issues but we are under that requirement to act commercially. If we are not acting under the 999 year lease we have to seek ministerial approval and charge the commercial price.

Chairman

West Waterford has its own TD now so you can take it from there.

Deputy Wilkinson

I accept what Mr. Dorgan says but in view of the changing environment is it not time that issue was addressed? If we look at a situation today where land is unused for upwards of 20 years and is likely to remain unused, is it not time that the IDA seek ministerial approval and change its approach?

Mr. Dorgan

The circumstances are quite different now from when the legislation was written and there is a good case for changing the basis, but I do not want to anticipate what Ministers or Departments might say to us if we went with that case.

Chairman

It was an enlightening experience for all the members of the committee to have you here today in your capacity as chief executive of the IDA and we assure you of our full support for the next four years, the duration of this Government. We look forward to your visit every year with your annual accounts when we can exchange our views and you can update us on the progress the IDA continues to make.

I do not want the midlands to be left out and my colleagues have asked the relevant questions about other areas. It has not been a good week for the midlands in particular in my town of Kilbeggan and in Westmeath. I congratulate the IDA on acquiring a new 68 acre site in Mullingar. Since Mullingar is the nearest large town in the BMW region to Dublin and with the road infrastructure, broadband, the gas line and the various other services that are coming to the town, maybe the IDA would look favourably on Mullingar at the earliest opportunity. I would appreciate your comments on whether that is possible. We have GMAC in Mullingar which is very welcome and but is there something in the Mullingar region that you would maybe comment on before we close the meeting.

Mr. Dorgan

GMAC has been very good for Mullingar. It started as a service centre and is now developing a significant software development activity. All the indications we have seen suggest there are further opportunities for GMAC to grow but I would not like to speculate at this stage over what timeframe. Oakley Optical has also opened up in Mullingar, producing high quality sunglasses and other products. Iralco has been a significant employer in Collinstown, County Westmeath. It may be reducing numbers on a temporary basis, but hopefully, will recover. The success of Iralco has been very much an unsung success story. Mullingar is within an hour of Dublin Airport and has a good catchment area. This will work to its advantage but, perhaps, to the disadvantage of some other towns whose claims are being put forward. That is an issue we will always have to balance.

Chairman

There was always a great imbalance in the county for the last 20 years. The people in the Mullingar area like to think their turn has come. I could not agree more with Mr. Dorgan on Iralco which is the unsung heroe of the north County Westmeath, as well as Mergon International in Castlepollard.

On behalf of the committee, I thank Mr. Dorgan, Mr. Ryan and Mr. Bury for attending. It was an informative discussion.

The joint committee adjourned at 10.45 p.m. until 1 p.m. on Thursday, 3 July 2003.