Taoiseach Brian Cowen on the floor of the New York Stock Exchange, Monday, July 12, 2010.

Taoiseach Brian Cowen on Thursday announced the appointment of a panel to oversee the Government’s new €500 million Innovation Fund - Ireland. Half of the membership is on the public payroll.

At the New York Stock Exchange  on Monday, the Taoiseach launched ‘Innovation Fund – Ireland’, a €500m fund to support enterprise development and job creation. Cowen said the Fund is a key pillar of the Government’s Smart Economy strategy. As Finfacts noted on Tuesday this week (see bottom of page), the new Fund is just another tool in the arsenal of enterprise incentives but contrary to the popular myth, venture capital in the United States supports only a small number of start-ups. Both in Ireland and the US, bank credit will continue to be the main funding source. 

The target of 120,000 new jobs from primarily university research in the next ten years, is not supported by a credible case and most high tech firms remain small with less than 10 employees. The response of policymakers is to ignore evidence-based criticism and pack advisory committees with individuals who have a professional interest in boosting public funding.

The Taoiseach said on Thursday: "Innovation Fund – Ireland is a key driver of the Government’s strategy to position Ireland as a Global Innovation Hub. The objective is to make Ireland: the best place in Europe to turn research and knowledge into products and services; the best place in Europe to start and grow an innovative company; the best place to relocate or expand and scale a small or medium-sized company; and, the best place in Europe for research-intensive multinationals to collaborate with each other and with clusters of small companies.

Innovation Fund – Ireland will result in the establishment of the European operations of a number of leading or ‘top quartile’ international VC Fund managers in Ireland. It is a key pillar in the Government’s strategy to make Ireland one of the most attractive places for entrepreneurial activity and job creation."

He said lack of finance consistently emerges as a key impediment for innovative firms. Successful companies like Google, Facebook and Staples, relied on venture financing to achieve the scale necessary to become multinational companies and provide large numbers of jobs. Innovation Fund – Ireland is being set up to provide the same opportunities to Irish companies.

Announcing the membership of the advisory panel, he said: "We have lived through the worst global recession of our lifetimes, but it is imperative that we position Ireland so that we can take advantage of the global upturn when it comes. We have a clear vision of what we want to achieve for Ireland and we are building on a range of policies introduced to make Ireland a thriving centre for business development and employment creation. Innovation Fund – Ireland is a key initiative to make this happen”

The panel will be chaired by Damien Callaghan of Intel Capital. The other members are:

Bernard Byrne, CFO AIB Bank; Martin Kelly, Partner, IBM VC Group; Ray Nolan, Software Entrepreneur; Bernie Cullinan – CEO Clarigen; Helen Ryan, CEO Creganna-Tactx Medical; Dr. Hugh Brady, President UCD; Prof Peter Clinch, Special Economic Adviser to the Taoiseach; John Corrigan, Chief Executive, NTMA, Prof Frank Gannon, Director General, SFI; Barry O’Leary, CEO IDA Ireland; Frank Ryan, CEO Enterprise Ireland; Secretariat: Department of the Taoiseach

Ireland is among the world’s most competitive locations for R&D investment, according to a study by Mazars. The accountancy firm undertook an evaluation of the cost of global R&D initiatives after tax and other cost incentives in 20 countries.

Of the 20 countries examined, 8 with attractive R&D tax regimes were analysed in depth to ascertain the most effective tax rate for companies making R&D investment.

Of the 8 countries examined - - Australia, Canada, France, Ireland, Israel, Netherlands, UK and the USA - Ireland had an effective tax rate of 1%, making it the second most competitive of these 8 countries. Israel had the most competitive effective rate at -6%.

Noel Cunningham, Tax Partner, Mazars says changes introduced on R&D tax credits in recent budgets have greatly enhanced the attractiveness of investing in R&D by both Irish and multinational companies.

“A tax computation was completed for each country to determine the after tax cost of a given level of R&D expenditure so as to arrive at an effective tax rate”, said Cunningham. “Israel and Ireland had the best corporation tax rates at 11.5% and 12.5% respectively. However, Israel’s regime provides for grants of 50% of the R&D investment whereas Ireland provides a tax credit of 25%. This is where Israel leads the rest of the world in terms of supporting R&D investment”.

“IDA Ireland has been successful in attracting R&D investment to Ireland from leading multinationals. So far this year 14 companies have made R&D announcements including IBM investing €66m in its first smarter cities technology centre which will create 200 jobs and a €23mm investment by Analoge Devices in Limerick. Based on our analysis, Ireland should attract continued R&D investments to Ireland”, he said.

According to Cunningham there are also a number of critical non-tax factors which multinationals consider when evaluating a location for R&D investment. These include; the availability of qualified research institutions; the education level of available workforce; the cost and availability of resources, facilities, equipment and materials; the proximity of the R & D location to the multinational group’s existing operations; a country’s intellectual property (IP) laws regarding ownership and protection of IP and a country’s political stability.

“Ireland rates highly on all of these critical factors, although the government’s failure to meet its Lisbon agenda targets for 3% of GDP to be invested in Research and Development is a cause for concern. Recent media reports have highlighted concerns expressed by Trinity College which forecasts that the numbers of post-doctoral research staff in the university will fall by 67%, and postgraduate research student numbers by 33%, in the academic year 2015-16. Clearly without a strong base of indigenous researchers and research facilities our attractiveness as a location for R&D investment will diminish,” he said.

It is foolish to claim Ireland should compete with for example Sweden and Finland, countries which spend more than 3% of their respective GDPs on research. In contrast with Ireland, these countries have several world class companies with research competences.

The Irish international tradable goods and services sectors are overwhelmingly dominated by foreign firms. Their main function in Ireland is not research e.g. the pharmaceutical/medical device sector, which is responsible for more than 50% of Irish merchandise exports.

As public funds usually supports about two-thirds of R&D spending, it is a recipe for monumental waste to suggest Ireland should be spending €3bn annually  - - equivalent to 10% of tax revenues -- on the employment of tens of thousands of researchers.

It would of course be good news for university presidents and academics who dream of creating a new Nokia without having to abandon the padded safety net of public employment and pensions.

Finfacts article: Cowen's Innovation Fund Ireland, jobs, Irish start-ups and failed entrepreneurs

Extract:

It is important to understand that over 90% of the firms which survive are termed 'micro firms' and never exceed more than nine employees. High tech firms have a 25% chance of getting beyond their seventh birthday and while the survival rate rises to about mid thirties for non-science sectors, the challenge of generating start-ups in new growth areas as well as in domestic market sectors, is enormous. Not only will bank credit availability not return to a reasonable level anytime soon, growth in developed economies will be hampered by high public debt for many years.

Irish Economy Blog thread on the Innovation Fund