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The Impact of Foreign Direct Investment In Ireland

The Impact of Foreign Direct Investment In Ireland

We may be an island nation on the periphery of Europe, but we are very much at the core when it comes to foreign direct investment (FDI) in Europe. Ireland consistently ranks in the top ten globally for high-value FDI flows (see IBM’s annual Global Locations Trends reports). The Global Cities of the Future 2018/2019 report recently ranked Dublin as the number one large city in the world for FDI.

There are many reasons why Ireland has become such a power with respect to FDI in recent years, including:

  • EU membership provides access to almost 30 other countries;
  • an open, business-friendly economy, with few restrictions on trade has also been critical;
  • a young and educated workforce;
  • a transparent tax regime;
  • an English-speaking jurisdiction;
  • a straightforward common-law environment;
  • Ireland’s National Development Plan

The latter will see capital public investment in Ireland move from €4.8 billion in 2017 to €7.8 billion in 2021 putting it among the highest in the EU.

The impact of FDI can be seen both across Irish society and across the EU. The IDA’s annual report for 2018 shows FDI employment growth stands at 7%, compared to the national average of 3% in other sectors. Last year, exports from FDI sources experienced annual growth of 10%. The corporation tax paid by IDA client firms make up an estimated two-thirds of Ireland’s total and one-third of the country’s combined income tax, employer PRSI tax and USC.

FDI – Not an overnight success

The legacy of Ireland’s FDI success and its impact on Irish life stretches back to the late 1950’s. Ireland was then a poor country with inward-looking and protectionist economic policies.

TK Whitaker’s transformative economic programme with its emphasis on free trade and foreign direct investment, would change the course of the country forever. Along with the work of former Taoiseach (prime minister) Sean Lemass, Whitaker’s industrial policy encouraged overseas investment and an open economy that has become a cornerstone of modern Ireland’s economic success.

Today, attracting FDI has stood firm as one of Ireland’s three pillars of industrial policy – along with supporting indigenous companies to grow and investment in Research & Development and innovation.

It’s important to remember that FDI in Ireland has a long history with many multinationals operating for a considerable length of time. Almost 60% of multinationals have been here for over a decade, with one-third of them having established operations here more than 20 years ago.

Some familiar household names who’ve shown decades-long commitment to the country: IBM has been here since 1956; Pfizer setup here in the late 1960s, while Apple set up its European HQ in Cork back in 1982.

Over 219,000 people are directly employed by multinationals which represents 10.2% of the total employment in this country. Including indirect employment, the figure rises to over 20 per cent. From Donegal to Kerry and Wexford to Galway, a huge number of families’ incomes and livelihoods depend on multinationals.

Many companies provide business support services to multinational operations in Ireland. Through this interaction, Irish firms have gained invaluable experience from working with best-in-class global corporations. It’s helped them improve business processes while working with top international brands. Some of our most successful Irish companies today have grown from where FDI activity is strongest, including pharmaceuticals, technology, and MedTech.

The ‘multiplier effect’

There’s little doubt that FDI and multinationals have helped to strengthen some of our best domestic businesses.

In 2016, overseas firms spent €17.9 billion in the Irish economy on payroll and on Irish-sourced materials and services. The result of such expenditure has created what is referred to as the ‘multinational multiplier effect’.

Indigenous companies are growing due to the many downstream benefits to Ireland from FDI projects. As multinationals make further investments, the effects become amplified supporting further employment and sustaining local businesses and communities.

A national experience

FDI’s impact has not only been in Dublin, Ireland’s capital and best known city and largest population centre, but across the country.

The IDA’s policy to diversify investment locations around the country in recent years has delivered jobs and opportunities to regions outside of the capital.

Almost 60% of employment now resides outside of Dublin, the highest number of people employed by IDA clients outside the capital in the history of the organisation. Half of multinationals’ €5 billion annual capital expenditure is now being spent outside the capital.

There may be trouble ahead…

No article about business or economics is complete without mentioning Brexit. With the leaving date fast approaching, signs from the FDI markets suggest that there’s been a slowing down in FDI investment in the UK.

There is considerable uncertainty about the impact of Brexit on the Irish economy but there are also opportunities.

The IDA has recently said it has continued to secure a “substantial number” of Brexit-related investments in 2018. The overall figure stands at more than 55 investment approved IDA projects, bringing with them 4,500 associated jobs.

Ireland’s advantages in a post-Brexit context include our commitment to the EU, being the only English-speaking country in the Eurozone, a common law system and an open, competitive tax regime.

Companies like, Morgan Stanley, Legal & General, Everest Re, Central Pharma, Bank of America The Standard Club, Coinbase, Citi Group, Barclays, Thomson Reuters and AXA have all announced a new or expanded presence here in 2018.

Benefits beyond business

A positive impact of FDI in Ireland is has made Ireland a more open and multicultural society. In the information and communications technology (ICT) for example, foreign workers account for almost 45% of employment in the sector. With the ESRI predicting that the unemployment rate will drop to just 5% in 2019 –thousands of staff from abroad will be needed to fill the new posts.

All in all, the future looks bright, but more importantly, sustainable.