This is an unspectacular and non-controversial Bill, basically consolidating previous legislation in 1976, 1979 and 1981. It is built on the Telesis report of 1981 and the industrial White Paper. I will quote a section of the Telesis report which must be borne in mind when we are analysing the role of the IDA:
A development effort aimed towards new indigenous industry must be re-organised to emphasise the building of structurally strong Irish companies rather than strong agencies to build weak companies.
The IDA have served the country well but I suggest that to some extent they have got off the rails and that there are aspects of their activities that need to be examined.
I believe the amount of their expenditure on administration is excessive. Section B of the Bill deals with this. There is a simple, almost colloquial, saying going around in the business community that a number of years ago the IDA had three guys out in the field acting for one administration guy, and now the ratio is the opposite: they have three administration guys in their ivory towers at Wilton Place for every one guy out there doing the job. In Business and Finance recently I spotted a colourful remark about the IDA's “all singing and all dancing” annual report. I should like the Minister to convey to the IDA that we are not interested in their public relations, that we are interested only in their policy, and that they must ensure they will not become another quango, a top heavy organisation.
Section 4 of the Bill deals with designated areas. The existing code for designated areas was based initially on the 1850 Congested District Boards legislation under the old British authority. As with many other things like the PLV, it is antiquated and outdated for today's needs. Subsequently there was the Under-Developed Areas Act, 1952, amended by the Industrial Development Act, 1969.
Through the NESC, the Government commissioned a report to get new criteria for designation. The NESC report is No. 81 of 1985 and it deals with designated areas for industrial policy. The recommendation in that report emphasises the strong need for change. In my view, it is unfair that the county with the lowest rate of unemployment at the end of January 1986, Roscommon, with 9.4 per cent unemployment, with a total on the live register of 1,909 out of a total workforce of 20,000 should be a designated county.
Similarly, Sligo had an unemployment rate of 12.4 per cent at the end of January 1986 with 2,613 unemployed, while Louth, Wexford and Wicklow, the top three countries are not designated. Wexford has an unemployment level of 8,034, a ratio of 21.3 per cent of the workforce. It is inexplicable that the criteria going back to the nineteenth century should be in force today. This is one bullet the Government must bite.
The NESC report said in chapter 6 that the granting of designation reflected the recognition of the area's needs which are special and greater than the national average needs. Further on it said that designation should therefore apply only to a relatively small part of the economy which is selected on the basis of its above average needs. That is a very clear and unambiguous reason for changing the rules. The economic problems of County Wexford are clearly greater than the national average under the criteria laid down by the NESC. Any rational and reasonable observation of the figures will show that this matter must be moved on, and designation must be given to Wexford. Most of the unemployed in that county are in receipt of farmers' assistance. Wexford is the worst hit county, as statistics show.
I believe the White Paper covered many important areas but it missed a golden opportunity to set out explicitly a new departure for industrial development. We should have a very active promotion policy and we should do our best to attract mobile international investment, but if we want real growth we must have a comprehensive policy for small business development. This will not happen simply by saying small is beautiful. The Department and the IDA must address themselves to this key issue. We need an industrial policy for small businesses because all the pointers show that the growth is in that area.
I wish the Minister well in his new appointment. Today he announced a package of 1,000 new jobs in small industries. As regards the black hole, we learned that small businesses must keep their money at home, unlike big businesses. The value to the Irish economy of small indigenous businesses is greater because we get a greater net return from them. We must discriminate in favour of indigenous industries.
All the large industries in my constituency started under the small industries programme. It must be remembered that when we are grant aiding small industries we are grant aiding a sector which has the potential to grow. Small industries are more flexible, more durable and more adaptable in good times and in bad, and can cope with market changes much more easily than companies with larger fixed assets and investments. I would like to tell the House the measures I think should be taken to develop the second tier of industrial policy.
First I will deal with IDA aid. I am not satisfied that the current system of grants is in the best interests of small industry development. The small businesses committee, of which I am the chairman, strongly recommended in favour of the regionalisation of the one-stop-shop. We will have to look at the 45 per cent fixed asset capital grant given by the IDA as it affects small businesses. I cannot understand why approvals for grant aid cannot be given for secondhand machinery. There has been a great deal of concern about taxpayers' money. We should not force small business to buy expensive machinery they do not want. This puts receivers and liquidators in a position where they can sell the assets when a company is winding down. I feel very strongly that approval should be given for the purchase of secondhand machinery.
Because of the cash flow difficulties of small firms, instead of giving an up-front payment of 45 per cent, we should give an equivalent amount of money in the form of an interest subsidy on a fixed loan over 15 to 20 years. In other words, if a person takes out a term loan of £80,000 and if the grant aid is £24,000, that £24,000 would be fixed into the term loan and would be an interest subsidy so that he would not be affected by the changes in interest rates. If one reads reports dealing with equity finance and venture capital, one will realise that what is needed is long term finance at a price small business can afford. There is a need to review grants so that all grant aid could be in the form of export marketing expenditure, if required. The White Paper moved in this direction but, in my view, even for the purposes of advertising budgets on the domestic market, IDA aid should be flexible enough to be given for this purpose.
I spent the last three years studying small business development. Small companies fail not because their order books are not full, not because they are not making money, but because they have acute cash flow problems in the second or third year of operation. Given that the banks' collateral arrangements are crazy, that they will only lend what you already have, and even then, only if you give a personal guarantee, what we must do is alter the grant aid scheme in such a way as to make loan finance available to small firms. I believe that a substantial degree of entrepreneurial potential is being stunted because of a lack of available finance, due mainly to a lack of financial security. The only way to overcome this problem is by establishing a Government loan guarantee scheme similar to that in the United States and the United Kingdom.
The objective of this scheme would be to make commercial finance more readily available to new and existing small firms on the basis that they would be a lender of last resort. They would have to get perhaps three rejection letters from the banks. They would need to have IDA approval as a prerequisite and that guaranteed loans would be repayble over periods of up to seven years with an initial repayment holiday of up to two years being made available. I believe a very simple pilot scheme could be introduced for £15 million which would say that 80 per cent of the loan requirement would be guaranteed. At the end of the day, when the IDA do their sums and the Department of Industry prepare their Estimate, it will be found that the cost is a lot less than the administration and the level of grants obtaining some of which are irrecoverable in the current situation. I am advocating that we do away with the 45 per cent grant aid on capital and instead allow an option to have an extension of the enterprise development programme to a wider sector of small business development. That would be absolutely vital.
If the purpose of granting IDA aid is to deal with the capital and equity problems of small firms or manufacturing firms generally, we must address the whole need of capital finance and loan finance for small firms. I welcome the developments in relation to over-thecounter shares on the Stock Exchange. I welcome the extension of the business expansion scheme. All of these are worthwhile measures. What we need is a simple mechanism such as a small business bond. In the United States there is a debenture system under which one can claim tax relief if one invests small business bonds in a wide variety of companies. Briefly, it operates as follows. There are bonds of £500 which, if one is paying tax at, say, 58p in the £, means that in respect of every £1 one invests one gets back 58p. One must keep the bond in the company for three to five years. There is a maximum tax relief ceiling to any individual taxpayer of £10,000 and to any company of £50,000 per annum. It is a very simple scheme. Similar to the US debenture scheme, a small business bond here would constitute a very simple but effective way of harnessing local personal finance into small industries and which would deal with many of the capital needs of firms that the IDA are endeavouring to address. That, coupled with approvals for secondhand machinery, with the loan guarantee scheme, with a widening of the restrictions in relation to marketing expenditure, expeditious payment of any grants, along with an option of grants per employee or for fixed assets, would form part of a new strategy for a second tier of industrial development for small firms. That is where the growth sector and the real value to the economy are to be found.
It strikes me as very wrong and quite improper that the second most crucial factor of business survival here, outside of finance, is one of management and that it is not a brief with which industrial development deals at all. The IDA have no brief or no business whatsoever in dealing with management. All the books published, whether by the OECD, EC, all of the consultants' reports, come to the universal conclusion that, whether one is in a good or bad trading environment, faced with high or low inflation rates, high or low interest rates, the universal conclusion is that the difference between success and failure is good management, proper planning, proper financial control and proper organisation within the firm. If we want a new generation of small industrial development, or industrial development per se, we must address the issue of management. It strikes me as quite incredible that the Department of Labour, almost in isolation, can be preparing a White Paper on Manpower Policy, along with its State agencies, such as the IMI, ICC, AnCO, without reference to this Bill, when the survival of many new firms to be established and the expansion of others is dependent on good and sound management practices. I strongly recommend that, in the same way as part of the decisions of the White Paper on Industrial Policy was to have the same board members for CTT and the IDA and to have a correlation between the two, we must move in the same direction of integration with regard to the management field.
There is no doubt that when the IDA issue grant aid of any form they should have reference to and place emphasis on the assessment of the management ability or capability prior to its approval. Part of the aid should be the "hands on" approach they have adopted in other countries to the extent that they will say: "We will give you an annual or six monthly evaluation. We will tell you where we feel your business could be running stronger." We must tie those links together. Good management must be viewed by the Government as a good investment. There should be a significant increase effected in both the expenditure and effort on management training here. From start to finish the IDA should restate that there is a fundamental need in our economy for more management skills in small industry. There should be a clear policy statement to address that issue.
I hope those two areas can be taken up in the three year review of industrial policy as set out in the White Paper. I might point out that section 13 of the Bill allows a Minister, to lay before this House, by way of ministerial order, what the IDA should or should not do. It is my belief that the economic Departments of this State have been led by the nose by the State agencies under their aegis. I believe that to a large extent the IDA wrote the White Paper on Industrial Policy. I admit it was vetted and approved. Indeed, the principal recommendation of the Telesis report was to strengthen that Department, to ensure that the policy decisions reverted to that Department, that there was a strong grip maintained and that the directive came from the top, not the IDA leading anybody by the nose.
In regard to section 16, which deals with land banks and premises, it is difficult to understand the IDA contending that they will not in any given area—in my constituency or any other—build another advance factory or buy another piece of land for land bank purposes because they have four million square feet of advance factory space already and there is an embargo on it. I can understand that from the sense of economics, but it strikes me as very much a Civil Service approach. There are many such premises from which the IDA are turning people away because they are ineligible for grant aid. Many firms have come to me—they have been manufacturing perhaps aluminium or PVC windows, engaged in certain aspects of food processing, involved in joinery, all manufacturing—but, because they are not grant aidable on account of surplus capacity, they are refused entry into these premises. Thus these premises remain idle, costing the taxpayer money—four million square feet in all. It strikes me as only reasonable to ask the IDA, under section 16, to be less restrictive and to allow manufacturing companies which are not necessarily grant-aided into some of this advance factory space so that there can be a turnover, and industry got moving. In many provincial towns there is no alternative proper infrastructure of an industrial nature by way of premises. Therefore, we have the worst of both worlds. We do not have more advance factory building. We do not have progress. There are factories remaining idle into which people want to move; but, because the IDA are too restrictive in their interpretation of the criteria, manufacturing firms cannot occupy them. They do not want grant aid, they do not want subsidies, they just want decent premises and are prepared to pay for them. I would ask the Minister and his departmental officials to take up that question with the IDA.
I might turn now to the marketing area. I am aware, a Leas-Ceann Comhairle, that you have already ruled two previous speakers out of order in relation to marketing. Never being one to question your eternal wisdom, might I say——