Ireland needs to catch up when it comes to R&D spending

1 day ago

Image: Dermot Casey

IRDG Innovation Network’s Dermot Casey examines Ireland’s current research and development landscape and what the future holds.

TK Whitaker is seen as one of the key architects of modern Ireland. His programme for economic expansion in 1958 was step-change in Irish development and prosperity. It may come as a surprise that this revolution in industrial development contained 23 pages on agriculture, fisheries and forestry and just 12 on industry.

Yet those short 12 pages included key strategic policy objective of removing protectionism, encouraging foreign direct investment (FDI) and promoting exports key elements of growth and development that are a core part of Irish policy 66 years later.

Our history of progress is one of punctuated equilibrium, where bold steps taken at specific times underpin ongoing prosperity. Whitaker’s work was one example. The founding of SFI in 2003 and the introduction of R&D tax credits one year later in 2004 was another step change.

Due to these change over the last 20 years, Ireland has gone from a base of 800 R&D active firms, with research spend of €300m per year, to more than 1,800 R&D active enterprises spending more than €4bn in 2023. CSO figures from 2021 also show that almost 80pc of Ireland’s total investment in R&D was being performed in private enterprises.

Ireland is now at another critical point in our history. Globally, there are key challenges in climate, digitalisation, impact from the pandemic, supply chain and international crises. Domestically we have full employment, a buoyant economy that will generate significant surplus revenues this year and over a number of future years.

Our population has grown by 50pc over the past 25 years to 5.3m and 2022 CSO figures show that 12pc of the population are non-Irish citizens living in Ireland, who have added immeasurably to society and the economy.

An increasingly competitive global economy, characterised by rapid technological progress, talent shortages and changing consumer preferences means the pathways to growth have become ever more challenging.

Businesses around the world are increasing their knowledge investments, which is changing the global research, development, and innovation (RDI) landscape. As Ireland navigates this ever-evolving landscape of innovation, it is crucial to recognise the interconnectedness of research, development, innovation and prosperity.

Ireland is playing catch-up

Research serves as the foundation for generating new knowledge, development involves transforming that knowledge into tangible applications and solutions. Innovation focuses on the successful implementation and commercialisation of these solutions, driving economic growth and societal progress.

Strengthening and deepening RDI capacity and infrastructure is essential to ensure the build on our existing prosperity. The world has evolved over the last 25 years, and we have not kept pace.

Economies as usually measured in terms of gross domestic product (GDP). In Ireland, it’s measured as GNI* – modified gross net income – which accounts for the concentration of multinationals.

In 2022, that economy was €273bn. The Danish economy, with a population 10pc higher than Ireland, has an equivalent GDP of €381bn. Our ambition should be to have an economy underpinned by innovation that delivers the resources for the best place to live and work in the world and to invest appropriately to deliver that outcome.

Critically one thing that Denmark does differently is that they really value innovation. They and other similar countries spend €2 per citizen for every €1 per citizen that Ireland spends. We see this in international benchmarks.

Figures from 2022 show that Denmark spent 2.8pc of its GDP on research and development compared to Ireland’s spend of 0.96pc.

The Global Innovation Index (GII) and the European Innovation Scoreboard are two objective measures of international innovation performance. Ireland’s performance in the GII (produced by the World Intellectual Property Organisation, WIPO) was 22nd in 2023 slightly ahead of 2022 but well below its five-year average ranking from 2018-2022.

Ireland was ranked 10th on the GII as recently as 2017. In terms of the European Innovation Scoreboard, which is a similar regional metric focusing on innovation within Europe, Ireland was categorised as a ‘strong innovator’ in both 2022 and 2023.

Critically, the European Index notes that the countries ahead of Ireland are increasing their performance gap over the strong innovators while the rest of the EU is improving their performance faster than the strong innovators group. From an Irish perspective, those ahead of us are moving further ahead and those behind us are catching up.

The need for further investment

Ireland’s challenge in becoming an innovation leader is reflected in our underinvestment in R&D, the knowledge that enables us to create new products and service, at national level.

From 2012, government budget allocations for R&D have hovered below 1pc of total government expenditure, only growing above this in 2019. This falls well below the EU target of 1.34pc.

In other terms the Government Budget in R&D (GBARD) – whether compared against GDP, GNP, or the Government’s preferred measure of GNI* in percentage terms – is significantly behind 2010 (a decline from 0.65pc of GNI* to 0.43pc across that decade). We’re spending significantly less in real terms than we were at the height of the financial crisis. We have never really recovered from cutting investment during this period.

Total Government expenditure would have been 50pc higher in 2020 if it had expended the same percentage on R&D in 2020 as it did in 2010. We’d be spending €2bn rather than €1bn per year. That’s a billion of investment per year that’s missing from the system. A billion of opportunity cost. And a billion more every year. Put very crudely, State support is similar to 2009 levels of investment in actual cash basis.

Having experience the trench warfare of World War I, the French invested heavily in the Maginot line to avoid a repeat disaster. That didn’t work out too well at the start of World War II. Having experienced the state going broke in 2010 due to overspending on housing, Ireland is prudently putting large sums of cash aside for a rainy day.

Some of this is prudence, but prudence while failing to invest properly in the underpinnings of prosperity is a false economy in the medium and long term. It’s not just a wet summer in Irish terms. Economically, I would suggest that it is currently raining. Saving up for the ability to buy umbrellas in the future is risking fighting the last war.

We urgently need to double investment by the state in knowledge production. We are a small state and not capable of doing everything, so we need to pick strategic targets to focus on. Three clear obvious and necessary ones are sustainability, decarbonisation and energy as one strand, food and food security as a second and medical technology as a third.

Security and the ability to export and trade expertise and knowledge in energy, food and health build on existing domestic strengths and can create the secure prosperous future that is within our grasp if we are bold enough to invest in it.

By Dermot Casey

Dermot Casey is chief executive officer of the Industry Research and Development Group Innovation Network.

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