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Ireland's innovation opportunity and potential

Aug 16, 2018
With so much opportunity ahead for Ireland, business owners need to make the most of the supports that are available to them, says Orla O'Leary.

The Irish definitely aren’t ones to shy away from opportunity. For such a small population, we certainly punch above our weight. Even the rugby team is flying at the moment, being the Six Nations grand slam champions! The far-flung global influence of Irish culture is a testament to our cavalier attitude of optimism. We are now, however, at a pivotal moment in Ireland’s economic history. Innovation is booming and opportunity is presenting itself.

In recent years, Ireland has flourished into an open and dynamic economy. According to the EU commission, Irish GDP grew 7.8% in 2017 – three times faster than any other country in the Eurozone. These figures are made more impressive as we prove to be somewhat of a Eurozone anomaly in the wake of the 2008 global economic crisis. For instance, we are the largest exporter of pharmaceuticals in the world – a sector which accounts for 28% of our total exports.

R&D credit system

In 2004, the Irish Government implemented a new research and development tax credit system which is certainly among the most beneficial in the world; a fact which firms are beginning to better understand. The system allows for companies to claim a tax credit of 25% on qualifying R&D expenditure as well as a corporation tax deduction of 12.5%, bringing the overall relief to 37.5% – one of the most favourable globally. 

The attraction of Ireland’s research R&D credits system is undeniably playing its part in the GDP growth. The economy is driven primarily by pharmaceuticals, technology and machinery, all of which are industries heavily reliant on successful research to thrive. Taking away the influx of large multi-national activity in Ireland brings GDP growth figures down to around 4.9% – still double that of the euro zone average, but a significant drop nonetheless.

Yet, despite this, the latest figures indicate R&D expenditure is around 1.2% as a proportion of GDP, trailing far behind the European average of 2%. With a self-imposed Government target to bring this up to 3% by 2020, more needs to be done to increase R&D expenditure and encourage innovative practices more thoroughly.

Contrarily, in Bloomberg’s Innovation Index – which takes into account a variety of factors such as grants, patent activity and high-tech density, as well as R&D – Ireland fares far better than the European average, coming thirteenth globally. 

Support for businesses

The Government is certainly playing its part in nurturing innovation by providing grants and support for businesses set up in Ireland, and Enterprise Ireland has setting up innovation and tech centres, encouraging collaborative partnerships. The Science Foundation Ireland (SFI) has also set up 16 new research centres, working in conjunction with companies and universities to guide locally-based businesses and provide support by giving them access to resources, such as professors or other industry experts – an effective blueprint which could be expanded. So, there are plenty of initiatives at play.

The missing piece of the plan

Momentum is building, but there is one key element to the Irish innovation plan missing. Organisations such as Enterprise Ireland and IDA Ireland are successfully boosting innovation and investment but, on a local level, Irish-based businesses remain relatively unaware about the processes of the R&D tax credits system.

This lack of awareness means that Irish businesses aren’t able to receive that game-changing R&D tax rebate. Without this valuable knowledge, all the other forms of support will only go so far. Admittedly, the 2004 system is fairly new, meaning many businesses are not particularly well-rehearsed in the processes of applying.

Encouraging a transparent and collaborative system whereby the Government and businesses work together to expand use of the tax system will ultimately be the key to reaching that 3% goal. Only by using the system in tandem with the sufficient guidance will businesses manage to get to grips with what needs to be done.

In addition, with Brexit fast approaching, Ireland has a unique opportunity. Not only is there plenty to attract business and investment in terms of tax benefits, but Ireland will soon be the only English-speaking country in the EU. There will be a gap in the European market to provide an effective stepping stone from Europe to America and Ireland could become that hub.

There is definitely something stirring in Ireland. Things are off to a good start but if this lucrative opportunity to turn us into an innovation powerhouse is to be fully capitalised, businesses need to make the most of the support available to them, which will see the innovation flourish into new sectors and across all regions.

Orla O'Leary is the Senior Business Development Manager at Ayming.