Ireland lagging in global research race due to little public spending on R&D

Investment in research, development and innovation (RD&I) is now accepted as a key determinant of economic performance, yet Ireland remains in Europe's second division when it comes to this hugely important benchmark.

The Department of Business, Enterprise and Innovation published the “Research and Development (R&D) Budget 2019-2020” report on January 20th, 2021. The report outlined that Ireland spent just over €4 billion in 2019 in gross expenditure on R&D, which includes all public and private R&D spend.

As a percentage of total Government expenditure it has been at about 1 per cent since 2011 but has decreased slightly each year. In 2019, it was 0.92 per cent, which although a small percentage change, is a significant quantum in real terms. Countries with advanced economies like Denmark and Sweden typically invest two to three times this much. Ireland is currently fifth last out of 27 states.

While Ireland ranks below the EU average when it comes to benchmarking its total expenditure on R&D, the spend in this space undertaken by the business sector in Ireland, at 73 per cent, is ahead of the current EU average of 66 per cent. Therefore, the private sector in Ireland is punching above its weight, Damien Flanagan, partner in KPMG's tax practice says.

Recognise

Ireland did recognise the need to pull up its R&D investment socks 20 years ago, Dr Graham Love, partner with Mazars says, with the launch of the Programme for Research in Third-Level Institutions, the formation of Science Foundation Ireland and then the launch of the Strategy for Science Technology and Innovation.

“The latter committed to an investment of 2.5 per cent of GNP in R&D by 2013. However, this target was missed by a wide margin, partly due to the impact of the financial crisis. We recommitted to this target in the successor national strategy for R&D for 2015-2020, Innovation 2020: Excellence Talent Impact but we have again missed it by a long, long way. The simple truth is that the public investment has not gone in. Government has not matched its policy objectives/statements with the requisite investment,” he says.

“It’s a bit frustrating, because where Government leads, the private sector follows. So, for every €1 invested by the State, the private sector typically invests €2. This is true for Ireland and for nearly all countries. So, an increased State investment would be followed by an increase from non-exchequer resources,” he says.

In order to bridge the gap to some of the top innovators such as Denmark and Sweden, increased focus on collaboration within, and between, industry and academia is important.

"The European Commission has made specific reference to the strength of these ties in increasing innovation rankings of such jurisdictions. In practice, I have seen that administrative and IP ownership challenges can make such collaboration difficult but that it is ultimately possible to successfully deliver such collaborative efforts from Ireland," Mark O'Sullivan, partner, research and development incentives practice at BDO, says.

“There are challenges in terms of attaining the talent needed in key sectors; however, our clients in the RD&I space are generally still looking to expand their efforts here in Ireland so there is clearly a good level of confidence that the talent is here and will be available to support ongoing RD&I,” he adds.

So why aren’t Government making the necessary investments?

This is a really hard question to answer, Love says. “I guess there are always more pressing political needs. We were in a bank bailout, and an IMF/EU programme. Now it’s housing, climate and health. I guess R&D investment is seen as a cost by Government (though it should be seen as investment). Investment in R&D by the State requires long-term thinking and commitment. The rewards are not immediate; they are much shorter than electoral cycles. I and others have spent the best part of two decades arguing for increased State R&D investment, but to little avail. It’s a long-term play like education but, collectively, those of us interested in R&D have ultimately failed to convince those who allocate resources,” he says.

The Government has indeed faced a lot of challenges in a range of areas over the past two years and therefore it is understandable that the focus on RD&I and increasing investment in this space has not accelerated at the same rate as the overall economy, O’Sullivan says. “However, I feel that it is important that we now refocus efforts on supporting the next wave of RD&I, be that in our well-established sectors or in new areas such as AI and sustainability, so that we can once again position ourselves as one of the global leaders in the RD&I space,” he says.

For the private sector, the incentives on offer to invest in R&D typically take the form of grants and R&D tax credits. With grant support, there is often an agenda which dictates the direction of RD&I. The R&D tax credit, however, is open to anyone who meets the criteria, Flanagan says. “As such, it allows for the growth and development of any eligible company and so is not impacted by what RD&I topic is ‘on trend’. The R&D tax credit is the backbone of the private sector’s R&D incentive funding,” he says.

Uncertainty

However, O’Sullivan says that the “uncertainty and changeable nature” regarding the administration of the tax credit has led in some cases to a diminished appetite to set up or expand RD&I operations in Ireland. “For example, I have had discussions with companies who feel that the ability to claim and successfully defend claims in other jurisdictions is more straightforward,” he says.

Countries that are getting it right in this space, like Denmark and Sweden, are investing significantly in R&D in a sustained manner. “This has enabled a sophisticated ecosystem of human, technological and financial capital. At the right scale in the right proportions this provides high-skilled workers and advanced know-how in sufficient quantities to produce products and services that people/governments want – of economic and social (think of knowledge and people for pandemic response) importance. This may be data analytics, it may be in green technologies or pandemic know-how, to name but a few,” Love says.

Meanwhile, the link between university research and industry research has been traditionally very strong in countries that excel in R&D investment, with university researchers and industry researchers working in close proximity to each other. “In Ireland, most of the university research centres are located on campus and are funded through central funds and/or the EU, therefore the priority of the university research is not as focused on industry needs as other countries. Also, countries with better records than Ireland for R&D have a critical mass of non-governmental research centres, with enhanced multidisciplinary research networks, giving greater integration across the country,” Flanagan says.

“We should consider moving academic industrial research off university campuses and closer to industry. For example, we could have more university presence in the EI Enterprise Centres and IDA industrial parks so that academic researchers can interact socially on a daily basis with companies which are undertaking R&D,” he adds.

Ultimately, in order to catch up with big players like Denmark, Ireland needs to treble its level of public R&D investment from where it’s at currently, about €1 billion per year.

“If that was done incrementally over a decade, the private sector – currently putting in close to €2 billion per year – would respond and we could realistically be looking at an overall level of investment of €9 billion per year by 2030, where Denmark is currently at,” Love concludes.