Seanad Éireann debate -
Wednesday, 2 Nov 1977

Vol. 87 No. 2

Industrial Credit (Amendment) Bill, 1977: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Parliamentary Secretary to the Minister for Finance (Mr. Wyse)

The purpose of this Bill is to raise the statutory limit on the borrowing powers of the Industrial Credit Company and to bring up to date the formula for converting into their equivalent in Irish currency borrowings by the company in foreign currencies and guarantees of borrowing in foreign currencies given by the Minister for Finance.

The Industrial Credit Company was established in 1933. Its function is to provide industrial credit mainly of a long-term nature. There has always been a statutory limit placed on the extent to which the company may borrow in the conduct of its operations, and this limit has been extended from time to time as occasion required by amending legislation. The existing limit on borrowing is £75 million. Outstanding borrowings now total £72 million and are rising rapidly as the company's business continues to expand. On the basis of firm commitments already entered into by the company it is probable that the statutory limit will be reached by mid-November, 1977. It is essential, therefore, that the present limit be raised to enable the company to continue its very useful work.

The new limit proposed in section 2 of the Bill is £200 million. An increase of £125 million may be considered to be very large. ICC business is, however, steadily growing and is at present at a level of above £30 million per annum and it is likely that this growth will continue. Lendings of £30 million would involve borrowings by the company of some £25 million. Hence an increase of the limit on borrowings to £200 million should suffice to enable the company to borrow its requirements for a further four to five years before Oireachtas approval has again to be sought. This is the normal period which elapses before legislation of this nature is amended. I do not think that Senators will regard this period as too long.

The legislation applying to the Industrial Credit Company has incorporated in it a formula for converting foreign currency into Irish currency for the purpose of determining to what extent any particular borrowing in foreign currency counts against the statutory limit referred to above which is expressed in Irish currency. This formula provides that the basis for conversion shall be the International Monetary Fund parities in operation at the date of borrowing. The formula is no longer appropriate because of the increasing number of exchange rate changes and the prevalence of floating rates at present, and it is proposed to update the formula in the manner set out at section 2 (b) of the Bill. A similar updating is necessary in the case of the formula for converting into Irish currency borrowings in foreign currency which are guaranteed by the Minister for Finance pursuant to powers conferred by existing legislation. The new formula is to be found in section 3 of the Bill.

The company has budgeted to provide financial facilities totalling £30 million for industry in the current financial year. In the previous year— that is, to end of December, 1976— the company disbursed £27 million which was in itself a record figure. Of the £30 million which the company will advance up to December next, £5.3 million relates to loans for the building of new vessels within the country and will be provided by its subsidiary company, Shipping Finance Corporation. The balance will be disbursed by the ICC itself for the benefit of industry in general. Most of the capital needed by the ICC is secured from non-Exchequer sources, and it is hoped that this position will continue. The capital required to enable Shipping Finance Corporation to provide loans for ship-building is made available by the Exchequer as it is relevant at a subsidised rate of interest.

The Industrial Credit Act of 1933 conferred wide powers on the company enabling it to underwrite capital issues, to provide issuing house facilities and to make long and medium-term capital available, particularly for the establishment of new industries. While the Industrial Credit Company operates as a commercial undertaking and has been a profitable enterprise since its establishment, its primary aim is to contribute to national economic expansion. It examines sympathetically every project brought to its notice having regard particularly to economic soundness, employment potential, importance to the proposed locality and utilisation of indigenous raw materials and of the services and products of existing industries. Its facilities have been availed of over the entire range of industry and in all parts of the country by large, medium and small undertakings.

Over the last decade the ICC has considerably expanded its activities. The company has extended its services to include the provision of hire-purchase facilities for plant and machinery, equipment leasing and finance for distribution. In addition to the provision of capital, the ICC has also a subsidiary company, Mergers Limited, which specialises in the field of mergers and takeovers by undertaking share evaluations and by advising in negotiations for mergers between firms. As I have already mentioned, it is also concerned with shipbuilding finance through its other subsidiary company, Shipping Finance Corporation.

In view of the need for higher industrial investment to promote economic growth, there will be a continuing and increasing demand for the facilities provided by the company, particularly in the climate of great optimism which is currently manifesting itself. I am most anxious, therefore, that the company should be in a position to contribute to industry the fianancial and organisational expertise which it has built up over the years in addition to financial assistance. The proposed legislation when enacted will enable the company to maintain an appropriate flow of funds to industry.

Because of the probable high rate of demand for industrial finance over the next few years as industrial investment continues to recover and because of the capital intensive nature of modern industry, it may not be easy for the company to procure without recourse to the Exchequer all the funds which industry is likely to require. In seeking funds from the Exchequer, the company's requirements would have to be balanced against demands on behalf of other important services. It is hoped, therefore, that the initiative shown by the company in the past in raising capital from non-Exchequer sources can be maintained and intensified.

For over 40 years the ICC has been to the fore in the financing of Irish industry. Many of the successful indusries established over that period started from modest beginnings with the assistance of finance provided or arranged by the company. Facilities are provided for the establishment of new industries as well as the expansion of existing firms and the company has a tradition of giving special attention to proposals in regard to small projects. The continuing increase in the demand for the company's facilities is proof that its importance has in no way diminished with the emergence of present-day financial institutions in the private sector. The present legislation will enable the company to continue its important role in the development of the economy and I confidently recommend the Bill for the approval of the House.

Mr. O'Brien

I welcome the Bill and regard it as a mark of confidence in the industrial development of the country. The statutory limit placed on the amount which the ICC may borrow is to be increased from £75 million to £200 million, an increase which should draw public attention to the magnitude of the assistance to industrial development given by the ICC. It is sensible on the part of the Minister to enable the ICC to raise the limit and thereby enable the company to make plans for a period of four to five years. Attracting new industries to the country can often be a long drawn out process and it is essential that the ICC should be assured well in advance of the availability of funds. Modern industry is becoming more and more capital intensive and the requests for assistance are likely to grow accordingly. We hope, therefore, that the company will be progressively more and more successful in raising capital from non-Exchequer sources.

The greater public awarness of the part played by the ICC and the ACC in building up our economy should convince people of the desirability of investing with them, thereby contributing to the national growth. Investment in Irish enterprise is a very practical form of patriotism. When we use the phrase "Support Irish Industry" we should think of it in its broadest sense of helping to establish and develop industry as well as buying Irish-made goods as far as possible. In this way we support those who put their capital and their labour into industrial development.

I should like to see the maximum development of industry based on home-produced raw materials and I believe there is a future for the development of industry based on agriculture. I cite, for example, the success of Bord Bainne and Comhlucht Siúicre Éireann in this field. The development of small industries is to be encouraged and I believe there is a growing demand for handmade goods of good design and workmanship. The record of our small industries during the period of recession is highly creditable and would justify further investment in that type of industry. There is much to be said, too, for aiming at establishing industry based on highly technical skill and craftsmanship. The market for such goods grows and is likely to develop as the number of our tourists grows in coming years.

I should like to put on record our appreciation of the part played by Irish Shipping in the development of our economy and hope for its continued growth in this highly competitive sphere. The provision to help meet the difficulties arising from fluctuations in the rate of exchange is necessary and, of course, welcome. In general I extend to the Bill a sincere welcome.

Mr. Brennan

The present statutory limit stands at a figure of £75 million. The cumulative outstanding borrowing to date stands at a figure of £72 million. For those reasons, if for no other reasons and there are many, this Bill is necessary to extend the statutory limit on the amount which may be borrowed by ICC.

I want to raise one matter with the Parliamentary Secretary and it refers to the formula which is incorporated in the Bill. I presume the Parliamentary Secretary could assure us, in view of the recent British decision to allow the £ to float and uncertainties in exchange rates, that this formula will be able to stand up to the uncertainty in world markets and will protect the borrowing in which ICC will be involved. This is important, particularly in view of recent happenings on the monetary front, and would be if at some future date the position vis-á-vis sterling were to be re-examined. This formula should be looked at now in the light of all the developments in the international monetary situation.

The Minister, when this Bill was going through the Dáil, pointed out that he hoped the ICC would not have to borrow any of this £200 million from the Exchequer. That is a view that I share very strongly. I believe that we must encourage more and more State and semi-State companies to stand on their own feet and to do so as soon as possible. In underwriting the various activities of these organisations we should constantly encourage and remind them that they should as soon as possible endeavour to stand on their own feet without the necessity of continuous guarantees.

I want to join in the appeal made by the previous speaker and in the Dáil that the ICC should get more involved in helping small industries and do so rather dramatically, particularly in view of the unemployment problem. I know that this concerns the IDA as well.

The Minister mentioned in the Dáil that a proportion of the ICC capital would be available for what he termed venture capital. I would like to think that the proportion of venture capital which is available to the ICC is significantly high—not just a nominal or marginal amount but a realistic figure which is geared to helping small industries which do not involve a tremendous risk. An increased commitment is required from the ICC to the small industries of this country.

The Industrial Credit Company should not be allowed to become a commercial bank in the ordinary sense of the word. They were set up some 40 years ago to encourage Irish enterprise and they should keep that in the forefront of their mind and not get sucked into the world of general commercial banking at the expense of Irish industry generally. It is important that that priority of the ICC be kept firmly in their minds.

When this was going through the Dáil, Deputy Moore made what I thought was a novel suggestion, which was repeated in this House. He said the average Irish person is not aware of the work that the ICC do and for that reason a promotional drive should be undertaken to attract the money which is in the hands of Irish people into the ICC. He made the novel suggestion that the trade unions in particular might have a look at their own funds with regard to investing some of them in the ICC where the funds invested are State guaranteed. It is not our business to tell the trade unions how to invest their funds, but I for one would strongly recommend to them— I join with Deputy Moore in the suggestion—that they take a look at their funds with a view to helping Irish employment and an Irish semi-State company by investing their funds, thus reducing the necessity of the ICC to take up some foreign borrowing or indeed to come to the Exchequer. Indeed, all organisations should have that in mind, but particularly the trade unions who have such a tremendous interest in employment in this country and the money used by the ICC, I presume, is used mainly for the purposes of employment.

The urgency of the unemployment situation seems to dictate to us the necessity for big industry and the necessity for us to get a quick cure for unemployment problems. Indeed, large industry is a very dramatic, clean cut and quick way of doing this. I believe that in the long run a proliferation of small Irish-owned industries would provide diversification of financial risks, and we need that diversification in a commercial world which is very risk-ridden at the moment. In the long term we should encourage that, and the ICC should particularly look into their hearts on that point and see to it that in the long term we get this diversification of risk by having a greater proliferation of small industries.

This Bill asking for this rather large increase in authorisation demonstrates tremendous confidence by the Irish people in themselves. It demonstrates the confidence of the Houses of the Oireachtas in their own ability. Above all it demonstrates the tremendous confidence which ICC have in their future, and I for one, on my very first day speaking in this House, wish them the very best.

Mr. Keating

This is a Bill that will meet with widespread support for the precise reason that Senator Brennan has just given. In passing, may I welcome him. This is the first time I have heard him speak. I find myself in agreement with some of the points he made. I also welcome the Parliamentary Secretary. I am moved to notice, not because it is important in itself but because it relates to a trend that I find very worrying, a departure by the Parliamentary Secretary from the circulated script. It is a departure of two letters which he may have made accidentally, or it may have been subconscious or it may have been altered. On page three of the script I got, in the last paragraph it states, "particularly in the climate of greater optimism which is currently manifesting itself". What I heard the Parliamentary Secretary say was "particularly in the climate of great optimism", not "greater" but "great" optimism.

What worries me about that, and particularly if one takes it in the context of other things which I have heard in the House today—I will mention what they are in a moment and I am not being mysterious about them—I am afraid of complacency. The performance about investment, the performance of industrial production and indeed agricultural production, the performance of exports of both kinds, are very good now, but such is the time lag in the collection of statistics and at the level of national Government between decisions and the results of those decisions, such is the inevitable length of the pipeline, that the figures currently available to us are entirely the results of previous activities. Lest I be taken as simply emphasising the good figures, let me say that the bad figures in the economy—and there are bad figures in the economy—are also the result of inherited situations because with the time lag in statistical collection and the time lag in the turning around of such a large engine as the national economy there is, apart from a mood effect, no actual measureable physical effect in the performance of the economy and statistics coming through to us as a result of anything that the new Government have been able to do since 5th of July.

We were talking earlier today on another Bill about export promotion about some excellent figures. There are excellent figures. But this Bill is about industrial investment and about a large increase in moneys available and that is something that will certainly find no opposition from me. In regard to investment—I would be happy to be wrong and it is a thing that we will know one way or the other because these figures will come out—we have very elegant statistics but I often worry that they are a bit too slow to be of use to those persons who are trying to manage the economy. They come out of the pipeline so late that by the time we get a useful statistic the opposite trend may have set in in the economy. They are very well prepared by expert people but I should like to get them quicker. We know from the figures whether with "great" optimism or "greater" optimism is an adequately responsible way to look at the investment situation at the moment. Let me mention a few things.

I said earlier today that labour peace, good labour relations is one of the most important single determinants to making a ranking order. Can it be said in recent months that that characterises this island? While there will be another debate in another place, we have had a very striking intervention in one large and serious dispute. We cannot say that the labour front, from the point of view of investment, is a happy one at the moment. Far from it. We have had the dramatic surfacing in recent times of another very serious treat to investment which is the threat to export tax relief.

I think it is necessary that every possible working of the corridors and contents and intimate knowledge of the Brussels apparatus will be continuously developed by the new Government. I say this across the lines of party because this is a thing the country needs quickly— the best most delicate relationship with Brussels to see that that sort of threat to investment confidence does not surface in the way that it has surfaced. I do not think that the current unemployment statistics and the most recent ones, if you look at the figure again, show any grounds for complacency.

I heard the Minister for Industry, Commerce and Energy suggest here today that the upfloat of the pound from a low of about $1.58 to a current—I did not see today's figures— $1.86, an increase of almost 28 cents on a low point of $1.58, was not very important. I think when we start looking at export figures we have to take the agricultural exports at Community fixed prices to a British market out of them and look at the trend of what our industrial exports are doing on British markets. If you filter down to the real figures, where they are variable, because we have a good old market in Britain for agricultural stuff and the price of that is fixed, in the areas which are very price-sensitive in the industrial sector I think an increase from $1.58 to $1.86 in a short period is serious. I would not have expected it to show up yet. Certainly the downfloat was helpful to us and I say in diminution of the efforts of my own Department, which I am proud of, we were very much helped by the downfloat of the £, and the corresponding upfloat cannot be swept under the carpet.

Those are four major contributors to investment confidence, none of them great just now. I was very interested in what Senator Brennan said and was in agreement with it. What I see in the investment situation in Ireland is a differentiation because of the new high technology—let us take a pharmaceutical plant as an example with the best technology in the world, the best product development, the best R and D in the world doing superbly with a tremendous return on capital. What about footwear, clothing, textiles, furniture? As well as a differentiation about product area there is a differentiation about size, and that is where I agree so much with Senator Brennan when he asked what about the little ones and the weak ones? The dramatic overall figures hide a movement in office, a movement of the strong—I do not say that xenophobically but factually—there is a tendency for the strong and the firm to get stronger and for the small and indigent to get weaker. That is a very serious tendency for our economy.

When Senator Brennan asked us to remember the role of the ICC and let us remind them to aim their efforts towards the indigent and the small, I agree completely and I am happy to hear it expressed. Perhaps as a result of the efforts of being in Government I realise that structural reforms are very important for getting things done. I am repeating something I said previously.

I believe that the place of the ICC is in the engine department of economic growth, the Department of Industry and Commerce, which has already been improved by having Energy allotted to it. I thought we had a decision under the previous Government that the ICC would go to the Department of Industry and Commerce. They belong there. This is not empire building on my part, it is clearly a new element, and I can make that statement now because it does not concern me any more.

The Department of Finance, let us use the British name for it, the Treasury, are essentially restrictive. They are a gatherer and a hoarder and they say: "Fellows do not get too wild, do not get too expansive, do not go too hard." A Department of the Economy—if I use another British word for something that did not happen but the British wanted to happen: poor old George Brown blew it at the crucial moment, but it was a good idea, is essentially a go-go, invest, push Department and there ought to be a balance between them and there ought to be fruitful competition between them. The balance involves the strengthening of Industry, Commerce and Energy and the fruitful competition involves one gathering and holding, the other pushing out and concerning itself with every development. An organ of development ought to be directed towards the small and the indigent. primarily, because the big and the international are much easier to fund. better connected with banks, have much better return on capital and discount in cash flows. The ICC ought to be in Industry, Commerce and Energy. I offer that thought gratuitously to my successor.

Ruairí Brugha

I find myself in agreement with the theory of what Senator Keating said about the Department of Finance, although the practical effect over the years has been that the ICC has not been hampered by lack of funds. I was a Member of this House on the occasion five or six years ago when the forerunner of this Bill, bringing the amount up to £75 million, was introduced. The activities of the Industrial Credit Company should be encouraged and supported by us all. They have a record in the last 40 years of encouraging industrial expansion.

I agree with both Senator Brennan and Keating that the emphasis, whereever possible, should be on risk capital to the smaller type of enterprise and the capitally weaker individuals. This is the kind of person who will not get the opportunity that the big guns can get. We need to inject a flow capital here. Senator Keating said that there is a tendency for the strong to get stronger. We have a very good record in the past ten to 12 years in relation to the creation and development of small industries by the ICC. The proof is there, and we should encourage the ICC to go further and try to find more outlets for the injection of capital in industrial development. The board and the staff of the company can rest assured that they are making a significant contribution.

Mr. Reynolds

I should like to congratulate Senator Dolan on his appointment as Cathaoirleach and Senator McCartin, a fellow countyman, as Leas-Cathaoirleach.

It is very heartening to see that the ICC borrowing is moving up to £200 million. As Senator Brennan said, unions and people generally should invest money in it. I read somewhere that private enterprise, whether it is made up of unions or private individuals, has an investment of £80 million in the ICC. We should encourage everyone to invest in the ICC. Their terms are good and tempting and I doubt if there is better value anywhere, not alone the value they are getting but the value they are giving to the community as a whole. The ICC help more than the people in the industrial world: they help people in the retail and wholesale outlets.

One of the reasons why the ICC were established was to provide finance and capital for industries that could not obtain it from the commercial banks. It was not readily available at the time of the establishment of the ICC. They certainly answered the call and provided the money.

One might say that the ICC are now competing with the commercial banks. Senator Brennan does not think that is a good thing but I certainly think it is a good thing. If you approach a bank for loan for a ten-year period they are rather slow to consider giving you money. They term that as a long period and people in the industrial world who want capital for building extensions to their wholesale or retail business do not think a ten-year period is very long. For that reason I think it is a good thing that they are there.

At the same time the ICC provide what is called venture money to small industries. Some individuals might have a skill that could put them into some type of industry in a small town. They might be only employing two. three or four people. The banks would be reluctant to give these people any money at all. Naturally the ICC answer their call and there has been a number of these industries established in rural Ireland. particularly in the west, with the help of the ICC.

The Minister for Finance started a small industries scheme and I remember discussing it with him at the time. He did everything to see that the ICC made money available to those people. The results are obvious now. if one looks at the number of small industries in rural Ireland.

There is a question whether the Central Fund should subsidise the ICC because their rate of interest does not compare favourably with that of other lending societies. The rate of interest of the ICC is in the region of 141 per cent for a ten-year period. The rate of interest of the Agricultural Credit Corporation is 10½ per cent for a ten-year period. I do not begrudge the farmers cheap money; the cheaper they get it the more we would all like it because it will go for agricultural development which is an essential to keep our economy right, and I do not want anybody to misquote me on this. However, with the unemployment situation as it is whatever can be done to help the ICC to lend money at a cheaper rate of interest should be done. Even if you succeed in getting money from the commercial banks for a ten-year period—and it is rather difficult to get it from them—the rate of interest is 11¼ per cent. I am not commending that figure because of the difficulty of obtaining the money from the banks.

Parliamentary Secretary to the Minister for Finance (Mr. Wyse)

I will deal briefly with a number of points raised. I want to thank everyone who contributed to the debate this evening and paid tribute to this State body. As Senator O'Brien said, I would like to see the ICC deposit schemes supported. Very attractive rates of interest are available and I welcome the comments on this aspect of the Bill. It is of vital importance that people would consider investing in something that would give them a return and yet goes directly to the development of industry in this country.

Senator Brennan mentioned the great increase in small industries. There is a special scheme for under capitalised concerns and a significant amount of money is set aside for small and medium-sized industries. The functions of ICC are set out here in my speech and I agree with Senator Brennan's point regarding the promotional drive. A lot of emphasis is placed by ICC on bringing their services before the public. Senator Brennan also enquired about trade unions. Trade unions if they so wish could use the deposit scheme at the attractive rate of interest available. Senator Brennan also made reference to the question of rates of exchange mentioned in the Bill and also the very recent developments relating to the pound. This Bill is really updating a former Bill but these matters will be kept under constant review.

Senator Keating referred to the export sales tax relief. This is being looked at very closely at the moment by the Government and I can assure him he will be hearing something more about it shortly. There was no departure from the supplied script. We do not just look at optimism. The figures are there to justify it. In 1976 it was £27 million and we will be spending over £30 million this year.

Venture capital is another matter referred to by Senators. Frequently individuals with good ideas have difficulty in raising funds. ICC are receptive to these ideas and back them financially. Senator Keating suggested that ICC would go to Industry and Commerce. ICC is a financial instittion and as such appropriate to the Department of Finance.

I have dealt with a number of questions in the contributions and I want to thank Senators sincerely for their co-operation and for extending their good wishes to me in my new post. I only hope that I will be worthy of this appointment.

Question put and agreed to.

Agreed to take remaining Stages today.