Sunday, January 19, 2020

State of Irish high tech and biotech 2020

The state is not easy to discern because of the dearth of data, delusion and distortion.

For the third time in 14 years, an Irish government has published another plan to turn Ireland into a "world-class" knowledge economy, despite falsely claiming that the economy is among the most innovative in the world.

Earlier this month the Government accepted its Advisory Group's endorsement of Trinity College's proposal for a Grand Canal Innovation District (GCID), in an area where the university would build a second campus in proximity to the offices of American tech companies such as Google, Facebook and Twitter — housing mainly administration, call centre and sales staff.

With the exception of a member of a local community group, the other 16 in the Advisory Group were insiders: 5 senior civil servants including the CEO of Dublin City Council; 4 university presidents including Patrick Prendergast,  the Provost of Trinity College; 2 senior executives representing Google and Microsoft's LinkedIn; 2 venture capitalists; the heads of the State enterprise agencies, IDA and Enterprise Ireland, and the head of a tech lobby group.

When Dr Prendergast saw the list of members, he knew they would be in his Amen corner even though the Government's commitment of €150m over 10 years for a €1.1bn project was underwhelming.

The big foreign companies are likely to agree to some 'window dressing' research projects subsidised by the taxpayer but Prendergast will be challenged to raise almost €1bn privately and may be back for more public support in time.  

Both foreign and domestic firms have a poor record of supporting Irish university research — see OECD table below (base of GDP does distort the data, but the ratio would still remain high.)

There are more than 100 Innovation Districts in the world and it's not a new concept. They used be known as clusters and in the 19th century Alfred Marshall, the British economist, called concentrations of specialised industries in particular localities, "industrial districts."

When an Irish government states in a publication (Page 6), "Ireland placed 12th out of 129 economies in the Global Innovation Index 2019. Out of the EU member states on the list, Ireland was placed 7th. The Global Innovation Index identifies the top 25 economies as innovation leaders," without any caveats, either policymakers are ignorant or deliberately being economical with the truth.

Corporate tax shenanigans involving fake goods and services exports; Intellectual Property (IP) revenues (typically there are no actual transfers to Ireland); distorted inward and outward foreign direct investments (FDI) and indicators such as productivity and GDP (gross domestic product) present a false image of reality,  that is officially sanctioned. See here.

Why exclude innovation in food?

The GCID will only focus on high tech/ biotech research. 

The government report says, "Unlike many other countries, Ireland, in the Grand Canal Area, already has many of the essential ingredients to establish a first-class innovation district: global firms at the leading edge of technologies; highly-rated research universities; an enabling environment for startups and a dynamic city location. With a clear strategic ambition and associated policies, we can lead in this era of innovation transformation."

This is aspiration and wishful thinking not based on evidence.

It's delusional to argue in respect of young tech firms that the GCID "could help them scale globally from Ireland."  

Finfacts reported in 2015 on research by Pegasus Capital, a Dublin-based corporate advisory group, which showed that about 215 Irish technology companies had been sold since 2000 for a combined €7.9bn. More than 300 shareholders and executives at the Irish technology companies had become millionaires over a period of 15 years from selling their businesses according to the research. 

The simple fact is that a young Irish tech firm with venture capital support and which generates international interest, is typically sold.

The Irish employer startup rate is low while commercial and residential rents in Dublin are high. Pay also is inevitably high. 

Two European small economies, the Netherlands, the world's second-biggest exporter of agri-foods/drinks,  and Denmark, are innovators in food as well as sustainable energy and that's very important in an era of climate change.

Denmark is a European leader in food innovation, cleantech, wind energy and pharmaceuticals.

This week the Netherlands reported that it exported €94.5bn worth of agri products in 2019, including agricultural machinery, greenhouse materials and machinery used in the foodstuffs sector. The export of agriculture-related goods grew by 8% to a value of €9.9bn — the Netherlands said, "The vast majority (92%) of exports were products made in the Netherlands, while the remaining 8% came from goods that were first imported before undergoing limited processing and then being exported." 

Ireland's food and drinks exports in 2019 are expected to be worth only €13bn.

While Ireland should invest in both basic and applied research, it's about time to end delusions.

The local linkages and potential to create international markets for sustainable food at a time of significant change, should not be ignored.

Inconvenient facts

  • The tech industry is adept at exploiting the naïvety of politicians in being taken in by the marvels of tech and it's potential for job creation;
  • "The initiative is central to the Government’s aim to make Ireland the tech capital of Europe," Leo Varadkar, the taoiseach, said in 2018 when announcing the Innovation District project.This is a ridiculous goal mainly dependent on US tech firms with little spent locally on R&D;
  • In 2019 there were few Irish firms in the FT Top 1000 & Inc. 5000 Europe lists of fastest-growing companies;
  • Ireland has too few exporters and a low employer firm startup rate reflecting poor entrepreneurship;
  • US firms in Ireland do little significant research and over 80% of research and development done by American firms is located in the US;
  • Foreign firms account for 60 to 65% of business spending on R&D in Ireland and according to a government report in 2015, "13% of foreign-owned firms (107 firms), each spending over €2m, account for 88% of R&D spending in the foreign-owned sector in 2012"
  • The Knowledge Development Box, a so-called Irish patent box with a tax rate of 6.25% was introduced in the Finance Act 2015 to attract significant research to Ireland but the take-up has been very low;
  • While there has been a pickup in patenting following the streamlining of applications to the European Patent Office the level remains low for an economy with units of big global firms;
  • Even in Isreal which has been called the 'Startup Nation,' prosperity has not spread to the rest of the economy: See here: Irish Government as alchemists in innovation game
  • Irish venture capital data are boosted by foreign firms transferring headquarters to Dublin;
  • Earlier in the last decade data on Irish indigenous tech firms was available by employment level. Today TechIreland has a database which shows that there are over 1,900 Irish tech firms in the Republic. However, while it's possible to check data on individual companies, it's currently at a basic level. Most firm wheter in tech or other sectors either die or remian micro — less than 10 jobs;
  • Information and communications technology (ICT) based on NACE (La Nomenclature statistique des activités économiques dans la Communauté européenne) codes for economic activities includes staff at newspapers, broadcast media, printers, telcos, and computer consultancy (Computer audit consultancy services  Computer hardware acceptance testing services etc). The items of interest here are Computer programming, which had 1,424 people employed in permanent full-time positions in Irish tech firms in 2018 according to a government report (see page 42). Other Information technology and computer service activities had 7,423 employed, including web development. Data is for firms of 10 or more employees.

Related

Atomico: State of European Tech 2019

US FDI into Ireland and Irish investment in America — facts and myths

Ireland's record trade surplus of €107 billion in 2018 — an illusion?

Business funding for university R&D, 2011–2017