Committee Reports > List of Committees > Dáil > 1987 > Committee on Public Expenditure > Report No. 24 - The Industrial Development Authority

APPENDIX 4

SUMMARY
of
White Paper on Industrial Policy

Chapter 1 — The Objectives of Industrial Policy

1.1 The White Paper is intended to give a new impetus to industrial development. In recent years the number of new jobs created in industry has been less than those lost and there has been a continued run down of traditional industries. The role of the Government in industrial development is to provide grants and tax incentives (£750m in 1983), a good infrastructure, a favourable economic and fiscal environment and to encourage viable job creating projects in the commercial State sector.

1.2 The primary objectives of this industrial policy are:

(i)to create and maintain the maximum number of sustainable jobs in manufacturing and international services;

(ii)to maximise value-added in industry and to retain the wealth created for further employment-creating investment;

(iii)to develop a strong, internationally-competitive industrial sector in Ireland made up of both Irish and foreign industry;

(iv)to promote the rapid development of our natural resource-based industries;

(v)to integrate foreign industry into the Irish economy through greater linkage with Irish industry and the educational institutions; and

(vi)to improve the rate of return in the commercial State companies.

1.3 To achieve these objectives:

(i)incentives and advisory services will be applied selectively. concentrating on internationally-traded manufacturing and service industries particularly Irish owned firms;

(ii)there will be a shift in State resources from fixed asset investment to technology acquisition and marketing development;

(iii)priority will be given to the attraction of overseas projects which will perform key business functions in Ireland;

(iv)a risk capital market for investment in industry will be created;

(v)the business environment will be improved to increase the competitiveness and profitability of industry; and

(vi)effective educational, training and worker mobility measures will be promoted.

The achievement of the objectives of industrial policy will be measured regularly and systematically to ensure that the nation is getting good value for money.

Chapter 2 — Review of Industrial Performance and Policy

Industrial performance in the past decade has been characterised by annual increases of:

4.1% in manufacturing output;

10.7% in manufacturing exports; and

4.5% in productivity.

Manufacturing employment is now at a lower level than for many years. The number of jobs created in recent years fell far short of the number of jobs lost. Job losses were particularly concentrated in the older traditional industries. Weak Irish industry include poor management, a low and development, an inadequate financial to exports and a failure to achieve significant with foreign industry located here. Irish industrial reviewed in depth by the National Economic the major part of the study being Consulting Group. The White Paper is the response to the NESC and Telesis reports, published in October 1982 and reflects the contents of IDA’s Strategic Plan.

Chapter 3 — The Place of Manufacturing in Economic Development

3.1 Industrial development in Ireland for the next decade will take place in a highly competitive international environment with relatively slow growth rates, rapid technological change and intensifying competition for a declining pool of mobile investment. Industrial policy is being framed as part of a concerted response to the employment challenge. It is not a substitute for an employment policy but it is an important part of it.

3.2 Employment in industry alone will not grow sufficiently rapidly to absorb the prospective growth in the labour force of 17,000 a year. Increased output will be partly offset by inevitable and rapid increases in productivity. It is difficult to forecast the precise job creation potential of manufacturing as forecasts have to be based on assumptions about:

—the level of world market growth;

—the growth of Ireland’s share of that market; and

—the rate of growth in productivity in manufacturing.

3.3 Nevertheless the Government believe that manufacturing output can be doubled over the next ten years and that this doubling of output can lead to an overall growth of between 3.000 and 6.000 jobs a year in manufacturing. It is not possible to predict accurately the level of non-manufacturing jobs which will arise from the achievement of these targets. A number of measures are, however, being taken to capture the gains of industrial development:

—the National Linkage Programme:

—the IDA’s International Services Programme:

—the improved arrangements for worker shareholding: and

—the proposed establishment of the National Development Corporation.

3.4 Ireland’s prospects of meeting its employment needs will be greatly improved if it can respond more quickly than its competitors to new markets and new technology. This requires greater mobility of labour and greater flexibility in work practices. We must also ensure that industry has a favourable environment in which it can earn profits for investment in marketing, new technology and product development.

Chapter 4 — Creating a Competitive Economy

4.1 The Government are determined to halt the deterioration of recent years in the business environment in Ireland. An Industrial Costs Monitoring Group has been established to assess the effects of changes in costs and prices on industry. The Minister for Energy is taking action to bring energy prices into line with those in Europe. There will be no immediate increase in postal or telecommunications charges. Transport costs will be reduced with the proposed liberalisation of road freight haulage. The National Prices Commission and the Restrictive Practices Commission (which is to be merged with the Office of the Examiner of Restrictive Practices) will be more active in promoting competition in the provision of professional services.

4.2 The Minister for Labour, following with ICTU and FUE, will bring forward in 1985 proposals for the reform of industrial relations. A Group of Ministers of State will be reporting in September on measures to curb absenteeism.

4.3 Closer links between industry and the higher education institutions are being developed and a £2m fund will be established in 1985 for joint industry and higher education projects.

Chapter 5 — General Incentives for Industrial Development

5.1 Broadly in line with the recommendation by Telesis and NESC for greater selectivity in the use of assistance will be confined to firms which meet one the following criteria:

—will produce products and services for sale overseas markets;

—will produce products other skilled

—will supply other niches on the Irish market which are now wholly or significantly supplied (minimum 25%) by imports.

5.2 To obtain grant assistance, firms will also be required to have a business development plan and be able to demonstrate that their project is viable and actually requires State assistance to go ahead.

5.3 The practice will continue of giving new industry grants only to firms which maintain or increase employment. Re-equipment grants, introduced in 1969 to help industry adapt to free trade, are being discontinued. With the aim of building strong Irish companies that can compete successfully in world markets, a company development, rather than an individual project approach, will be adopted.

5.4 This new approach will mean that executives of IDA and other State agencies will develop a closer relationship with selected companies and the full range of both financial and non-financial services will be directed towards the company’s key activities. Grants of up to 50% of the cost of acquiring technology from abroad will be available from IDA. New and improved schemes are proposed for export marketing. There will be a gradual shift of resources from fixed asset grants to technology acquisition and export marketing.

5.5 Many Irish companies have capital structures which rely unduly on debt finance and State grants, and too little on risk or equity capital. The Finance Act, 1984, introduced a scheme under which income tax relief is provided for investors in manufacturing and international service companies. The relief allows a qualifying investor to write-off annually up to £25,000 against taxable income in new ordinary share issues, on condition that the investment is retained for 5 years.

5.6 Tax-based financing will continue to be available to manufacturing industry or international services approved for grant assistance by the State agencies and subsidiaries of agricultural or fishing co-operatives. Measures are also being taken to promote worker shareholding in industry. The provision of waste disposal facilities is also being tackled. New guidelines for land acquisition and advance factory construction have been set for IDA.

Chapter 6 — Export Development

Greater emphasis has to be placed on the adoption by industry of a market-led approach. The Government have decided to introduce a range of initiatives to address identified weaknesses in Irish companies and to contribute to an improvement in their export performance. Amongst these initiatives are:

(i)market entry and market development scheme: This scheme will help offset costs such as travel expenses, promotion and overseas warehousing. It will be introduced initially on a pilot basis. The principal feature of the scheme will be:

—a Ministerial guarantee on bank loans in respect of market development plans which have been approved by CTT;

—the amount of the loan covered by the guarantee will be a portion of the market entry development costs, less grants; and

—repayment will be by way of deferred payments in the earlier years so as not to impair the company’s cashflow;

(ii)market research: CTT will initiate an expanded market research programme. Firms will also receive assistance for this purpose. To qualify for assistance a firm’s activity must be related to a specific export development plan;

(iii)group marketing for small exporters: CTT is to increase group marketing programmes for small firms exporting complementary but non-competing products so as to enable them to establish a foothold in export markets and to gain experience;

(iv)building marketing strengths in firms: Measures include the extension of the Employment Support Scheme to cover marketing managers, market researchers and marketing trainees, making the European Orientation Programme more attractive and arranging training courses and study visits involving CTT, IMI, AnCO and others.

(v)export of services: The Export Act, 1953 enables CTI to promote and develop certain designated services exports. An Export Services Marketing Committee under the aegis of the Department of Industry. Trade, Commerce and Tourism is being established:

(vi)warehousing and distributor support programmes: CTT will be empowered to provide grants and information to assist exporters in relation to warehousing and distribution facilities and in maintaining product publicity campaigns in selected markets;

(vii)export credit insurance finance: Initiatives here include:

—the participation of non-associated Banks and the ICC in export credit insurance related financing, thereby permitting the development of a more competitive and flexible regime of financial services;

—the setting of performance and marketing targets for the operation of export credit insurance; and

—the establishment of the Export Credit Advisory Committee to assist the Minister in the continuous appraisal of export related insurance and finance.

Chapter 7 — The Development of Industries Based on Agriculture and Natural Resources

7.1 The produce of our natural resource-based industries is still largely exported in an un-processed form.

7.2 Initiatives to involve the grocery trade in the development of the food processing sector are being taken. A Group of Ministers of State has been established to streamline the State agencies dealing with the food industry. An expert with international business experience in the food marketing sector is being recruited for two years to assist the Group in the task of synchronising supplies to market needs. A system of long-term contracts between producers and processors is being developed to ensure that both parties achieve an adequate rate of return and thereby ensure greater regularity and quality of supplies. Where outside equity is required the services of the National Development Corporation will be sought. SFADCo will conduct a pilot project in the food processing sector and will establish a food processing centre at the Raheen Industrial Estate, Limerick. Consideration is being given to ways of improving the capital base of the co-operatives. The NDC will also have a role in the development of our timber resources.

Chapter 8 — The Attraction of Investment from Abroad

Foreign firms in Ireland have contributed significantly to our economic development in the past 25 years. They now employ over 80,000 people and account for 70% of industrial exports. Foreign investment will continue to be important to industrial development in Ireland. No sudden or radical changes are proposed in incentives for foreign investment, but relatively higher grants will be awarded to projects which perform key business functions such as R&D and marketing in Ireland.

Chapter 9 — The Development of an International Services Sector in Ireland

International trade in services now amounts to one-third of total world trade. The IDA’s International Services Programme, launched in September, 1981, has not so far achieved the results expected of it. To give it fresh impetus, the 10% manufacturing tax concession has been extended to computer services A National Software Centre has been established. A major study commissioned by IDA on the potential of other service sectors is nearing completion.

Chapter 10 — Small and Sub-supply Industries

10.1 The IDA’s Small Industries Programme will be fully regionalised over the next two years. Since 1978, SFADCo have had a special role in the development of small industries. The results of successful initiatives developed by SFADCo will be applied nationally. A Small Industries Board that operating for the Cork area since mid 1983, will be established in all regions. From now on IDA will have responsbility for coordinating the full range of State services to small tries. In each region there will be a selected office in whole a “one-stop shop” service will be available to small In accordance with the new eligibility criteria, there greater selectivity in grants to small industries A Linkage Programme has been launched. It has been concentrated on the electronics sector which has a raw materials requirement of £400m. of which only 16% is met at present by Irish firms. The IDA has built up a comprehensive data base on the raw materials components of large industry and compiled a capability register of sub-contractors. A new linkage unit has been established in the IIRS. IIRS staff will be seconded to major IDA offices abroad to promote linkage and technology acquisition.

10.2 An Enterprise Allowance Scheme has been introduced to assist unemployed people set up their own businesses. By mid-June, 1984, the number of participants in the Scheme had reached 130 a week.

Chapter 11 — Commercial State-Sponsored Bodies

11.1 The Government want commercial State bodies to reestablish themselves as a source of strength and innovation in industrial development. Due to a variety of factors, the financial performance of the commercial State enterprises has been poor in recent years, investment errors have been made and charges for services, in certain cases, are excessive. The Government have decided that the Orders of Reference of the Joint Oireachtas Committee on Commercial State-sponsored Bodies should be extended to enable it to undertake a more general study of the common problems of public enterprises.

11.2 Immediate improvements in the performance of the commercial State enterprises will be achieved through:

(i)requiring the enterprises to produce corporate plans;

(ii)more intensive monitoring of operations;

(iii)strengthening the Boards of the enterprises, and reviewing the fees and conditions of Chairmen and part-time Board members;

(iv)stricter appraisal and management of capital projects;

(v)the use of modern internal management techniques and improved work practices:

(vi)earlier publication of annual accounts; and

(vii)encouraging new viable business opportunities in association with the National Development Corporation.

Chapter 12 — The National Development Corporation

12.1 The National Development Corporation will have an important industrial development role. The Corporation’s functions will include:

(i)investing in new or existing private enterprises;

(ii)investing, on a selective basis, in the development of structurally-strong Irish firms;

(iii)acting as a State investment vehicle in natural resource-based commercial projects in the food, forestry and marine sectors;

(iv)initiating new projects on its own;

(v)participating in the establishment of development companies to provide shared services to small firms; and

(vi)where appropriate, acting as a holding company for equity investment in new projects in the public sector.

12.2 The operational procedures of the NDC will ensure that a commercial approach to projects is adopted. The aim will be for the Corporation to become self-financing and to compensate the Exchequer for the cost of funds needed to finance the NDC in its earlier years. The NDC will replenish its capital through the sale of its investments. It will be required to set for itself from the outset, predetermined time limits for involvement in each of its investments. The Corporation will be required by statute to achieve, after an initial period, a rate of return on capital employed which is at least equal to the cost of the accumulated funds invested. It will seek to encourage private sector participation in its projects and subsidiaries.

12.3 A separate subsidiary of the NDC will be set up to undertake its role in relation to the development of structurally-strong Irish firms. An operating agreement will be drawn up to govern the NDC’s relationship with IDA The NDC will have a small expert Board and its professional stall will be a tightly-knit group whose contracts of employment will incorporate maximum flexibility. The National Enterprise Agency will continue with its existing work until the NDC is formally established.

Chapter 13 — Institutional Arrangements for Industrial Policy

The Department of Industry, Trade, Commerce and Tourism will reassume its primary role in the formulation and evaluation of industrial policy. There is some duplication in State services to industry. This is being tackled initially by operating agreements between agencies and by giving them a more clearly defined role. To achieve greater coordination between (i) IDA and CTT, and (ii) IIRS and NBST, these two groups of agencies will each have a common Board of directors. To improve the monitoring of industrial performance and the effectiveness of agencies, a Management Committee, under the chairmanship of the Department of Industry, Trade, Commerce and Tourism, is being established. It will be representative of relevant agencies. There will be major reviews every three years on the effectiveness of our industrial development policies. These reviews will be published.

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