The Irish government wants to dilute Dublin’s remarkably high share of the country’s total foreign direct investment (FDI) by encouraging companies to set up and invest in other parts of the country, it says in a new white paper.
The capital city has attracted 50.2% of Ireland’s FDI projects and 47.7% of the jobs created by foreign investors over the past two decades, according to foreign investment monitor fDi Markets, which stands among the highest FDI concentrations of Europe’s large economies.
The government made its ambition to redeploy FDI clear in a white paper on enterprise published December 7, which promises “at least half” of all FDI investments and two-thirds of new jobs will land outside Dublin between 2021 and 2024.
“Dublin is the powerhouse of the economy, but we are committed to promoting policies that strengthen the enterprise potential of all parts of the country,” the paper says.
London and Berlin attract roughly 37% and 11% of their respective countries’ FDI, compared to Dublin’s half-share. Discounting city-states such as Luxembourg and Monaco, the only European cities that swallow a larger FDI share than Dublin are Helsinki, Finland; Riga, Latvia; and Copenhagen, Denmark — all of which lie in the same percentage point.
Frank Crowley, co-director of the Spatial and Regional Economics Research Centre at University College Cork in Ireland, says capital cities tend to attract FDI more than they once did.
Investment increasingly relies on access to pools of educated people, office space and developed infrastructure, he explains: “This trend is even more pronounced in smaller, open, fast-growing economies, like Ireland.”
Research by the OECD underlines this same phenomenon at the regional level, with the top 10% of OECD regions in terms of greenfield FDI attracting on average 700 times more than the bottom 10% of regions.
Though historic FDI distribution across Ireland has seen chemicals and pharmaceuticals in Cork, medical devices in Galway and electronics and software companies in Limerick and Dublin, Mr Crowley says that in the past decade, Dublin’s “greater scale of human capital and firm density” has made it a magnet for FDI.
“It’s the scale of clustering effects and critical mass,” he says, “and these effects are becoming more the precursor for the survival of the fittest cities."
“While this effect is more common in smaller European economies, larger economies like the UK are also experiencing capital city FDI dominance,” Mr Crowley adds.
The government’s white paper comes as Dublin falls victim to its own success. In the wake of the Brexit referendum, record numbers of foreign investors looking for an EU alternative to their London headquarters — particularly in business services and financials — flocked to Dublin, fDi Markets data show. This influx of investment has saturated the housing market, with prices and rents both running at record levels.
After announcing the white paper, the minister for enterprise, trade and employment, Leo Varadkar, admitted in an interview on the same day that the current housing shortage is a “drag” on foreign investment.
“Certainly, when I’m meeting the senior executives and senior board members of big companies that are thinking about investing in Ireland, they do ask about our infrastructure ... [it] is definitely a barrier to further growth in Ireland,” he said.