I move: "That the Bill be now read a Second Time."
The provisions of the Bill are explained in the memorandum which was circulated to Deputies on 26th November last. I would like first to discuss the objectives of the Bill and then to make some comments on industrial development generally.
The objectives of the Bill are, first, to introduce two new incentives dessigned to encourage new enterprises and to facilitate sectoral restructuring; secondly, to provide an additional function to the Industrial Development Authority concerning technical assistance to developing countries and, thirdly, to make a number of technical amendments to the existing legislation mainly in the matter of limits on certain incentives.
I am pleased to introduce a new initiative to encourage first time entrepreneurs to set up industries. Native entrepreneurs have not been coming forward in sufficient numbers. This means that a vital spark is missing from Irish industry, despite the good results being achieved by the overall development programme and more particularly the very welcome upsurge in the development of small industries which was one of the more noteworthy and encouraging aspects of industrial development in 1976. I have no doubt that there is a great deal of latent business talent which could be tapped with the right encouragement. Many Irish people, both in this country and overseas, have the qualifications, the experience and the ideas to make successful industrialists. The authority have informed me that they have had contact with a number of people who had ideas for seemingly viable industrial projects, but who were unable to raise the working capital to get the projects off the ground. Such people, with the talent and ability to become successful manufacturers, should be given every encouragement to get into industry; there is a clear need for a new initiative to help provide that part of the financial package which the first time entrepreneur cannot supply on his or her own.
Accordingly, this Bill proposes that the authority's power of loan guarantee and interest subsidy be extended to working capital borrowed for such ventures. Of course, facilities relating to fixed assets will continue to be available in the ordinary way. Projects assisted would generally be small in size initially and the financial package would be determined in the light of the needs of the project, and of the finance available from outside sources. The House will note that the new guarantee facilities are limited to £150,000 in any one case, but the Government may permit a higher figure. This type of scheme is new in this country and is frankly experimental, but the indications for its success are good and the Minister has every confidence that it will become a useful generator of new industrial activity.
The enterprise development programme will complement the present small industry programme in that it will develop projects which in time will move into the small industries category. I should add that the small industry programme has been remarkably successful especially last year when projects approved under the programme had an employment potential of 3,000, the highest level ever. But the number of projects established by first time entrepreneurs has been small. The new facilities proposed in this Bill will help to fill this gap in our incentive system.
It is an essential part of our industrial strategy to strengthen and develop our existing domestic industry. In this way we will be able to get the maximum possible number of jobs from existing firms and to reduce our dependence on prospects generated abroad. Therefore, every effort must be made to assist the home sector and especially the weaker parts of it. The re-equipment grants scheme for example is geared to promote investment in new plant and machinery to enable industry to become more efficient. Re-equipment, however, is only one aspect of modernisation. For some sectors re-equipment alone is not the answer; there is also a need for reorganisation and restructuring. The proposal in the Bill concerning sectoral restructuring is designed to meet this need which has been accentuated by the recession.
I do not propose to examine in detail how specific industries might be restructured, but it is obvious that the present powers of the authority are inadequate to encourage desirable amalgamations and acquisitions in problem areas. The existing financial incentives are confined to projects involving new fixed asset investment. In many cases of amalgamations and acquisitions no new assets are required, merely financial reconstruction. The additional measures to aid restructuring of industry proposed in the Bill would extend the powers of loan guarantee and interest subsidy to capital required for amalgamations and acquisitions. It is just the type of enterprise that the Bill is directed at, which often has difficulty in raising finance from the commercial institutions. I would hope that the new measures will encourage the financial institutions to be more forthcoming in financing industrial restructuring.
The Minister believes that the benefits in the form of savings to the Exchequer would be significant. When firms close down which might have become viable under stronger management and more secure financing, the cost in capital grants to the State of creating substitute jobs in new industry is considerable. On the other hand, the new incentives in themselves are unlikely to demand extensive financial commitments by the State. The industries for which the proposed scheme would operate are not capital intensive and units within those industries tend to be medium to small scale in size. The Bill would set a limit of £500,000 on the amount of borrowings the authority could guarantee without Government permission. This limit is the same as that introduced in 1975 for ordinary guarantees.
The second objective of the Bill is to provide an additional function to the authority, that of giving assistance of a limited nature to developing countries. I would like to stress at the outset that the kind of assistance I have in mind is of a purely technical nature. Furthermore, there is no question of this work interfering in any way with the principal functions of the Industrial Development Authority. The demand for this assistance has developed in a rather ad hoc manner. In the past, visiting groups and individuals from developing countries have been provided with information and data concerning various aspects of industrial development organisations such as the World Bank and the EEC Development Fund award development contracts under which technical assistance is provided to developing countries by bodies possessing the appropriate skills and experience. The Industrial Develment Authority have extensive expertise in the promotion of industry and in the assessment and planning of projects. They have also been involved in the assessment and planning of labour requirements, infrastructure and services. This knowledge and experience could be valuable to developing countries.
The authority have no legal power to undertake work of this kind and to enable them to provide such services the Minister proposes that the functions of the authority as set out in existing law be amended to provide that the authority may, with his approval, give assistance of a technical and advisory nature to developing countries. The cost of this assistance is expected to be met, in practice, from funds already available to international institutions, such as the World Bank and the EEC Development Fund, to buy consultancy services for developing countries.
The third objective of the Bill is to make a number of technical changes to the existing legislation, particularly in the matter of limits on some of the present incentives.
Expenditure and financial commitments made under the present Bill are brought within the scope of the present limits in the existing legislation, that is £400 million for grants of a capital nature, which includes interest subsidies, and £100 million for loan guarantees. In addition moneys spent on equity, which formerly were not covered by any ceiling, are also brought under the ceiling for grants of a capital nature.
For the avoidance of doubt, the term "current expenditure" for borrowing purposes is defined to cover all types of expenditure by the authority. I should add that such borrowings are exceptional and have arisen mainly from the exhaustion of the maximum amount the authority have been entitled to draw upon from the Exchequer pending further legislation.
The authority have been empowered to give training grants. These have proved very useful in direct industrial promotion. A more important aspect is that they have helped to upgrade the level of skills in the community.
Existing legislation imposes no limit on the amount in training grants that can be paid to any one undertaking. Recently, however, single grants for training have become much larger, partly due to the scale of enterprises, and partly also because of the IDA's programme for services or non-manufacturing industry. All other types of financial incentives are subject to a maximum limit per individual case which can be exceeded only with Government approval and so the training grant provision is now being brought into line with the limit which applies to fixed asset grants, that is, £850,000.
Investment in research and development to improve or develop products or processes is essential if Irish industry is to remain competitive in free trade conditions. Over-dependence on one product or on a limited range of products can leave a firm vunerable to changing market requirements. New production methods can reduce manufacturing costs significantly and many Irish firms have been reexamining their production techniques in the light of rapidly escalating costs of labour, energy, and raw materials.
Since 1970 the IDA have approved R + D proposals for over 350 projects. In the last three years the authority have tried to convince firms of the need to get new products or to adapt existing ones, and the response from Irish industry has been very positive. In many cases too, overseas parent companies are now delegating R + D work to their Irish subsidiaries. However, per capita investment in R + D in this country remains low by European standards: it is roughly one-quarter of the EEC level. The authority have found that because of inflation and technological change the upper limit of £15,000 on grants for a specific R + D project is now inadequate. These grants cover the personnel, equipment, buildings and materials mainly for commercially-oriented product development programmes of Irish companies. Accordingly, it is proposed to increase this limit to £50,000. Grants in excess of this figure will require Government approval but the absolute maximum of 50 per cent of the total approved costs will continue to apply. The Minister thinks the new limit is a realistic one and will help to advance technological development in Irish industry.
The authority in the past have taken equity stakes in a number of industrial projects of particular commercial interest. Since, however, it is sound principle that the total commitments of the Exchequer should be quantified and planned for, the Minister proposes a limit of £1 million on the amount the IDA can commit without Government approval. I should stress here that provisions which bring the limits of various IDA facilities, without Government permission, into line with one another are simply in accordance with good administrative practice and do not in any sense imply a criticism of the scope of the authority's functions or of the manner in which they have been discharged.
The proposal regarding sealing of documents is, quite simply, based on the authority's experience that the required presence of two members of the authority to seal hundreds of documents per year leads to practical difficulties and delays. This applies particularly when documents have to be sealed at short notice to facilitate urgent transactions. In a recent two-year period, over 1,000 such documents had to be sealed and, since the members of the authority are fairly busy in their own right it is easy to see that some change in the present provision is necessary. It is intended to give the Industrial Development Authority power to delegate to two of their officers authority to authenticate the seal.
I have outlined the provisions of the Bill. Planning and promoting industrial development is a dynamic process, and the authority must be able to adapt their methods to changing needs and economic conditions.
The Industrial Development Authority have performed well during the seven years of their existence in their present form. In the period 1970 to the end of 1976 they approved grant assistance to projects with an employment potential of about 110,000 new jobs at full capacity. The Minister is pleased to see that for 1976 the authority exceeded the target of 17,000 new job approvals by more than 1,000 jobs.
I have already mentioned the importance of getting the maximum contribution to job creation from existing domestic industry. This task is not of course confined to the IDA; progress in the industrial field depends on the combined efforts of many different organisations at national and local level. In the context of this debate, however, we are discussing matters relating to the authority and in that connection I would like to mention the principal activities that are especially directed towards domestic industry. These are the re-equipment scheme, the small industries programme, joint venture unit, product and process development, and the service industry programme.
Since the re-equipment scheme was introduced, 2,700 re-equipment projects have been approved and assisted. The total approved investment was £330 million and the total of grants approved was over £78 million. The money spent on re-equipment does not immediately translate into jobs, but in terms of maintaining jobs and strengthening our industrial fabric to create more jobs it is a very important incentive. It ensures that enterprises remain efficient and competitive and provides a strong basis for future expansion.
The Minister is especially pleased with the development of the small industries programme. As I mentioned earlier, the programme had a record number of 3,000 job approvals last year. The success of the small industries programme is perhaps one aspect of industrial development that is insufficiently appreciated. Since its introduction about 1,400 enterprises have been supported with a job potential of about 15,300 jobs. Many of these industries have developed by taking advantage of the ancillary business created by foreign industries established here. In this connection it is appropriate to mention project identification. This is a new approach in which the IDA take the initiative and identify manufacturing opportunities for Irish firms. There are many opportunities to supply materials, components and services to the new industrial firms setting up plants in Ireland as well as to a large number of Irish firms expanding their production.
In the past 18 months the IDA have gone to about 400 Irish firms with specific propositions. Many of these projects are aimed at an initial import substitution market, but they have strong export potential. About 20 projects have been brought to the final approval stage; in the case of 50 others negotiations with Irish manufacturers are taking place.
Joint ventures is an area of considerable opportunity for Irish manufacturers. In 1973 the authority set up a special unit to help Irish firms seeking further opportunities through partnership arrangements with overseas companies. This unit acts as a broker in matching suitable Irish firms with an overseas partner who has a good product idea, the technology to make the products and access to markets. Since April, 1973, 19 joint venture projects representing 1,500 jobs at full production have been approved for grant assistance.
Since 1973 the IDA have been actively promoting product and process development in Irish industry. There has been a very positive response. In 1975 alone, the number of proposals from industry doubled to almost 150, half of them for product development, the other half for more efficient manufacturing processes. This progress was maintained in 1976 when 151 projects were approved. Grant commitments under the scheme have increased rapidly from £100,000 in 1970 to almost £1 million in 1976.
Since the introduction of the service industries programme in 1973, 38 projects with an employment potential of almost 2,900 new jobs have been approved for grant assistance. The aims of the programme are to create jobs for highly skilled people many of whom might otherwise emigrate, and to generate extra invisible earnings from export work. By encouraging Irish companies selling export services to expand their operations overseas very significant opportunities are being created for graduates, professional and technical personal and people with commercial and business experience.
One of the encouraging results of these and other initiatives is that the share of industrial investment by existing industry is increasing. The share was just over 50 per cent of the total planned investment in industry between April, 1972, and December, 1976. In the food industry, for example, approved investment during the past five years totalled £152 million the greater part of which was committed by Irish firms. Domestic industry has also featured prominently in new investment in the drink, tobacco, paper and printing, chemicals and engineering sectors.
Our industrial base has been strengthened and extended during the last few years. This is reflected in the volume and variety of the products which we now export and in the range of technologies which we possess. Nevertheless, an integral part of our industrial policy will continue to be the attraction of overseas investment.
Foreign firms have contributed 43,000 actual jobs in Irish manufacturing industry since 1960. New overseas projects approved for grant assistance between April, 1972, and December, 1976, have an employment potential of over 44,000 at full production. Overseas firms which began production here between 1960 and the end of 1976 invested over £548 million in fixed assets. It is particularly significant that the vast majority of the firms which in 1973 and early 1974 announced plans to set up factories in Ireland have carried out those plans. The fixed asset investment of overseas industries which began production here last year is about £200 million.
Although we still rely to a considerable extent on the attraction of overseas investment, we are selective about the kind of investment which we want to attract, in terms of the quality of jobs created, use of our resources, protection of our environment, new technology, marketing strategy creating work for existing firms and downstream manufacturing opportunities. The attraction of overseas investment also involves keeping under constant review the effectiveness of the instruments of our industrial policy.
We can be under no illusion as to the magnitude of the task with which we are faced. Our population and labour force will grow significantly in the years ahead. Added to this there is the need for the expansion of employment to absorb those who lost their jobs from the severe cyclical downturn of 1974 and 1975, and to make progress in tackling our long standing problem of structural unemployment. All of this is in the context of net immigration far removed from the emigration pattern of recent decades and centuries.
The achievement of even medium term employment targets up to 1980 requires a variety of policies and methods. A high level of investment in productive projects, both in the private and public sectors and by way of joint ventures will be of central importance. Training and infrastructure are also vital elements and it will be essential to ensure an adequate level of industrial training so that new industries can draw on skilled workers without poaching on existing industries and to ensure that our physical infrastructure keeps pace with the needs of industry.
It is well recognised by the Government that adequate profitability throughout industry is essential if sufficient funds are to be ploughed back into employment-creating projects. The taxation provisions of the budget demonstrate our serious intent in this regard. We will maintain an environment that encourages enterprise —what we need is more of the type of enterprise that will evolve into viable manufacturing businesses with a potential for employment expansion. In turn, we now look to existing industry for investment in Irish projects to make a major contribution to the generation of employment. Indeed, the Minister hopes that the entire work force, employers, employees and service agencies, can organise themselves to work effectively for the benefit of the economy. If we are to make progress towards the solution of our problems, rapid economic growth is essential in the years ahead, and this cannot be achieved without maximum growth in manufacturing industry. The Government, I can assure the House, will continue to encourage vigorously the development of Irish industry. Ultimately, however, even with significant State aid, the ability of industry to expand will depend on its competitiveness in terms of wage-costs, management performance, marketing skills, customer service and capacity for innovation and technical adjustment. The challenge before us is immense; there will be need for shared sacrifices and a common determination not to take out today in incomes and other rewards what today's performance cannot sustain.
The new level of technology, managerial skills and investment in plant throughout the entire spectrum of Irish industry inspires reasonable confidence for the future. We now have the emerging opportunity for the rational planning and development of industries based on our mineral resources.
Our structures and policies will be designed to accommodate this. There has been, in addition, a definite recovery in industrial output and exports from the latter part of 1975. Our performance in 1976 was remarkably encouraging; manufactured output increased by more than 11 per cent and the volume of manufactured exports increased by some 20 per cent. The over-riding requirement is for investment in projects that will stand the test of time in competitive home and export markets. It will require a major input of resources and skills from domestic Irish industries, foreign industry, public sector companies and State agencies such as the IDA.
The IDA, as they have shown in the past, are capable of responding in a flexible and coherent manner to the changing industrial scene. This Bill adds to their range of instruments in support of industrial development. I am confident that the passage of this Bill will be facilitated so that the authority can better carry out their increasingly demanding task of creating new employment. I accordingly recommend the Bill for the approval of the House.