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Over the years, Research and Development (R&D) has proven to be vital to Ireland's economic prosperity. But how does the Republic compare to other countries - and why does it matter?
Put simply, if Ireland is to grow and thrive in future - both culturally and economically - then investment in research, innovation and development is key. The world is forever changing and adaptation is essential - particularly against the backdrop of Brexit. The good news however is that compared to other EU nations, the Republic of Ireland has weathered the storm pretty well. In fact a recent study found that Ireland has a notable amount of innovation going on already, and with lower levels of unemployment compared to other European countries, it’s in a strong economic position. In fact, of the companies surveyed, 88% engaged in innovative activities in Ireland and/or abroad, representing an 8% increase from the previous year. Over recent accounting periods in particular, companies have taken full advantage of a range of Revenue-backed schemes, including R&D Tax Credits, innovation vouchers, R&D capability grants and third-level collaboration schemes.
However, the intensity of R&D expenditure is measured as a percentage of a country’s gross domestic product (GDP). Worryingly, despite a relatively strong Irish economy and a significant rise in GDP of late, R&D spending has started to lag behind. Latest figures show that Ireland is spending around 1.3% to 1.5% of GDP on R&D. This is in comparison to an EU average of 2.03% while in Finland, R&D expenditure stands at over 3%.
Enterprise Ireland has recently spoken out about these figures and has said that a lack of appetite for R&D is making the gap harder to close. In terms of gross expenditure, Ireland is in the lower half of the class, meaning that although it spends a good amount, there are many countries spending more. Under the Lisbon Agreement, it was predicted that Ireland would reach 3% of GDP being spent on R&D by 2020 but that figure is now looking increasingly unlikely.
This could be down to a number of reasons and it isn’t necessarily about reluctance; it’s more that the purse strings are tight. Although R&D makes a substantial, positive difference to a company long term, it does require money pumped into it to start with. Additionally, there is a backdrop of Brexit uncertainty regarding the current lack of any deal between the UK and the EU, making a “crash out” all the more likely. Irish companies are perhaps hanging on to the money that they would have invested in innovation to divert towards protecting themselves from World Trade Organisation (WTO) terms.
R&D matters because Ireland’s future competitiveness depends on it. R&D is about moving on, promoting sustainability, innovation, new products and accessing new markets. In the food sector for example, it means high-quality, safe, nutritional, sustainably produced food that meets customer demand. If we consider Brexit for example, specifically its impact on the food sector, at worst we may see a reversion to WTO rules. If these are enforced on Irish foodstuffs coming into the UK, there would be a big problem; Ireland would need to find new and/or emerging markets, and sell its produce further afield. This in turn would mean enhancing the product’s shelf life, locating and understanding new markets and providing what the customers in that new market need. It would be a steep learning curve, although packed with the chance for innovation.
Although there’s room for improvement, the Irish Government has already achieved a lot in encouraging a culture of innovation across all industries here. The task is in tackling the areas that can be improved. Anecdotally, many Irish companies see the country’s tax regime as somewhat outdated, with a large amount of bureaucracy and red tape. Others would like to see further grants being made available alongside improved communication and training around R&D with company employees.
Essentially, it’s the mindset that’s important here. Innovation is about much more than just research; it’s about collaboration, particularly with the third-level sector, and making sure that new solutions are taken up by the private sector. Financial backing is the lifeblood of innovation too; research, development and gaining new knowledge is great, but it relies on the business sector taking it up and getting the new products to market.
Simply due to the fact that Ireland is a small country with a small population, in relation to global R&D activity it will always be a small player. Even if the country does reach 2% of GDP, it’s still not going to involve vast sums of money, relatively speaking. Having said that, a large number of Ireland’s competitor countries have similar initiatives to us and there is mutual interest in working together. Nowadays, Ireland has a good reputation for being a financially, politically and culturally stable place to do business with a skilled workforce and good education system. Compared to other countries, Ireland also has a progressive tax system and access to venture capital, plus it’s home to some large, highly innovative companies in a range of sectors.
There’s still space to grow though. According to studies carried out by Enterprise Ireland, over the past three years there’s been a €100 million per year increase in its client companies. Around 1,200 companies also used EI’s various support systems, including tech centres, innovation centres and innovation partnerships for projects of between €100,000 and €1 million; that’s an increase of 45% compared to five years ago. Additionally, Irish companies are becoming more savvy; they’re aware of potentially destabilising developments such as Brexit and are keen to innovate against the possible consequences. They appear at least to want growth that is impactful but long term more sustainable.
At Myriad Associates we deal in R&D tax credit and grant funding affecting businesses across the Republic of Ireland as well as the rest of the UK. With offices in Dublin and London, we’re here to help with all aspect of R&D tax claims and grant bid writing, whatever your business size or sector.
For a discussion about your company’s innovative projects or to ask us a question, simply contact the team on +353 1 566 2001. Alternatively, please feel free to leave us a message using our contact form and we’ll get straight back to you.