Foreign direct investment and multinationals – Irish exporters or Ireland-based exporters?

Susan
By Susan August 30, 2011 20:24

Foreign direct investment and multinationals – Irish exporters or Ireland-based exporters?

 

If you have bookmarked the Irish Exporters’ Association website (as recommended in the first post about Irish exports), you might have browsed through their news and press releases. And you might have noticed this: “Multinational Companies Account for Bulk of Irish Exports”

Ireland has a deep and long-standing relationship with foreign direct investment. Like it or not, multinationals are here – but are they here to stay? And if we depend on them for as much as three quarters of our exports, should we not worry that we are too reliant on them?

In the heyday, multinationals settling in Ireland were welcomed as they created jobs. However, some of the big names left as our competitiveness dwindled. Dell just upped sticks and left for Poland – and who could blame them? Ireland got too expensive…

We love multinationals for job creation, but we hate it when they prove to be demanding economic partners – we feel blackmailed into granting their every wish to make them stay. So imagine what it means that, as the press release from the IEA makes clear, these multinationals actually account for 75% of our exports…

How dependent are we on FDI, and what can we do to protect ourselves?

 

Ireland remains very attractive to foreign direct investment

 

Ireland has been and likely will continue to be a preferred destination for investors, second only to Singapore. And this is not a fluke.

Let’s put ourselves in the shoes of a multinational (very often American) company that wants to expand into European markets. Let’s see : they need to find a country that belongs to the European Union and so would be a springboard into the EU, that would have a highly qualified, skilled workforce who speaks fluent English. And low corporate tax would be nice as well…

That sounds a lot like Ireland, doesn’t it ? Of all those points, only the last one, low corporate tax, could change quickly. As regards being geographically close to Europe and speaking English, none of those are going to change any time soon… And as for belonging to the EU and having a highly educated workforce, we put a lot of work into both.

The Irish education system creates vast amounts of highly skilled graduates every year and now that many people have chosen to pursue fourth level education, the labour  supply will only continue to strengthen.

Even if the EU seems to have more than its share of problems at the moment, Ireland has been a member of it for more than twenty years. Personally, I don’t think the EU is going to disintegrate and if some countries do decide to leave, I don’t think Ireland would be one of them. And it is this continuity of membership that multinationals are interested in.

Moreover, government agencies like the IDA, the Irish Development Association, are here to make things as easy as possible when a multinational considers and eventually decides to settle down in Ireland. By providing information and helping at every stage of the process, they make setting up business in Ireland a no-brainer.

Many of the reasons that make us attractive to multinationals are not down to luck – they are permanent characteristics, which means we don’t need to worry so much about their upkeep.

 

But how about corporate tax – and Ireland’s economic situation?

 

There has been much discussion  recently that the introduction of CCCTB, or the Common Consolidated Corporation Tax Base, might cause multinationals to leave Irish shores. Indeed, with the CCCTB, the 12.5% rate would only apply to the proportion of business that actually takes place in Ireland.

As a result, a multinational would have to pay all other countries’ rates on the respective amounts earned in those lands, eradicating the CT advantage of locating in Ireland. This would of course be rather unpalatable to multinationals, so much so that American ambassador Dan Rooney warned authorities against it.

The same goes for research and development tax credit that the multinationals have been taking advantage of. If this is abolished, will Ireland still be seen as attractive?

And this is not the only thing that might have multinationals looking for greener pastures. Ireland has been through a lot of uncertainty recently, what with the news of the IMF and EU bailout, and the general difficulties that the EU is facing. As a country, having your reputation bandied about negatively in the media can have many unpleasant consequences.

If confidence in a country is waning, if you are afraid they might default on their bonds or land themselves in a very tight spot financially, why would you want to go there and invest? It does matter to a massive multinational company whether they have confidence in where they are domiciling – they cannot put their operations in jeopardy.

 

So what good are multinationals to Ireland?

 

And this is the frustrating side of the presence of multinationals in Ireland. Of course they have their own interest at heart, not ours. It feels like we are walking a tight rope and cannot rest on our laurels even for a moment, or they will leave. The word that comes to mind is “ungrateful”…

You also have to take into account the fact that yes, those multinationals are big exporters and they contribute to growing exports in Ireland, but their headquarters are not in Ireland. That means a large part of their revenue is sent back to their home base – and that money doesn’t stay in Ireland.

This sounds like more trouble than we bargained for. But then again, there’s no denying that multinationals have been and continue to be beneficial to Ireland’s economy. Foreign investment grew and averaged €11.5 billion in 2009 and 2010, which, according to the IEA, shows “strong solidarity with Ireland as a respected base for investment and exporting”. Investors do trust Ireland and think that it is the country most likely to rescue itself.

There is a very precious lesson in this: yes, we are dependent on multinationals and foreign direct investment for a huge part of our exports and for some of our economic growth and stability. But by working hard at attracting them, we grew ourselves in the process.

It’s highly unlikely that the multinationals will all leave at once in the near future: after all, they have invested in Ireland and it would be very cumbersome for them to have to uproot and start all over again in a different country.

Of course, we need a “Contingency Plan” to deal with the risk of a mass exodus of these companies, which I definitely don’t think is there. But we also need to consider how to continue to offer both competitiveness and value added services.

Also, remember that if the government improves business conditions for multinationals, the SME sector also feels the benefits. We have learned a lot from doing “big business” in this country over the past number of decades. Let’s use that to increase the number of companies and jobs in the country instead of complaining when they leave. Give the multinationals enough reasons to stay and we all benefit!

I personally think there is a lot to be said for the presence of multinationals and foreign investment in Ireland – and not just because they contribute massively to our exports: it keeps us on our feet, it prevents us from getting complacent or stop trying hard enough. What we might want to look into, though, would be to start applying those lessons and skills to benefit Irish businesses, in order to be less dependent on foreign investment.

 

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Susan
By Susan August 30, 2011 20:24