"Ireland's future economic growth and prosperity will depend in very large measure on our continued investment in research, development and innovation." – John Halligan, Minister for Training, Skills and Innovation, speaking in February 2018.
It's a familiar statement. We're used to declarations that Ireland should be a world leader in research and development. But how does the rhetoric match the reality, and how do we compared globally when it comes to R&D?
Ken Hardy, head of KPMG's R&D Incentives practice, says we are doing relatively well in Europe. "In a recent survey conducted by Red C Research on behalf of KPMG and published in our annual innovation monitor, we again found that Ireland has a significant amount of innovation going on. Of the companies surveyed, 88 per cent engaged in innovative activity in Ireland and/ or abroad – up 8 per cent on the previous year. This innovation culture has developed over a number of years, with longstanding Government and related agency supports, including R&D tax credits, R&D capability grants, innovation vouchers and third-level collaboration schemes."
Globally, the intensity of R&D spending is measured as a percentage of gross domestic product (GDP) and, with Ireland's GDP rising significantly without a corresponding increase in R&D spending, we are falling behind. Ireland is currently spending about 1.3 to 1.5 per cent of GDP on R&D. This compares to an EU average of 2.03 per cent while in Finland, expenditure on R&D is more than 3 per cent.
Gearóid Mooney, divisional manager for R&D at Enterprise Ireland, explains that this is making the gap harder to close. "In terms of gross expenditure, we are in the lower half of the class, although there are countries spending less. Under the Lisbon Agreement, we should have reached 3 per cent of GDP by 2020, but I don't think we will make that. Enterprise Ireland's expenditure base has been rising and more companies are spending."
Why are companies reluctant to spend? “I don’t think it’s about reluctance,” says Mooney. “It’s that money and investment is tight. But we know from the data that R&D does make a significant difference to companies.”
Lance O'Brien, head of strategy and international relations at Teagasc, explains why R&D matters at all: "Our future competitiveness depends on it. R&D is about innovation, sustainability, new services and access to new markets. In the food sector, it is about safe, high-quality food to meet consumer demand, ensuring they are nutritionally safe and sustainably produced. If we look, for instance, at the impact of Brexit on the food sector, the worst outcomes could see World Trade Organisation rules imposed on Irish food products entering Britain, which would be a serious problem. So we have to find new markets and send our food further, and this means enhancing the food's shelf life, finding and understanding new markets and providing what the consumer needs. Innovation and new knowledge is required."
Scope for improvement
There is scope for improvement, says Hardy. “The Government has achieved a lot, as evidenced by 62 per cent of those surveyed for the innovation monitor rating Ireland’s innovation culture as ‘friendly’ or ‘very friendly’. But there are always areas that can be improved.”
In the survey, KPMG asked companies what would improve innovation in Ireland, with 27 per cent of respondents saying the tax regime should change, 17 per cent saying direct grants would help, 16 per cent asking for red tape to be cut and 14 per cent calling for improved staff training and education.
O’Brien says we need to change our mindset on R&D. “Innovation is at the end of it all but it is about more than simply research. It is also about collaboration, especially with the third-level sector; getting that research taken up by the private sector is especially critical. Finance is important for innovation too: we can do all the research and develop new knowledge but the business sector needs to take it up and get new products onto the market.”
Is there anything that other countries are doing which we should seek to emulate? “Research is a global activity so Ireland will always be a small player,” says O’Brien. “Even if we do reach 2 per cent [of GDP], it will still be a relatively small amount of money.”
Both Hardy and Mooney say that most of our competitor countries have similar initiatives to us. “I think where we excel is that the supports we have in place work really well together,” says Hardy. “We offer a very effective integrated package: access to skilled people with strong educational support; a progressive tax system; world-class clusters of like-minded companies; access to venture capital; and a proven track record of delivering innovative solutions.”
“The bigger, more mature companies have stabled out at a high level but we are still in a growth phase,” says Mooney. “Every year for the past three years, we have seen a €100 million per year increase on Enterprise Ireland’s client companies, with about 1,200 companies using our supports that include innovation centres, tech centres and innovation partnerships for projects between €100,000 and €1 million, and that is up 45 per cent on what it was four years ago. Things are getting better and companies are becoming more sophisticated: when they spot sensible spending opportunities, they’re doing it. I’m optimistic we will reach our 2020 target. The temptation may be there to throw more money at it by filling the companies up with cash. From a business point of view, however, I think a slower growth is more real and sensible.”