Plenty has been written about Ireland’s economic problems and the sea of red ink surrounding the country. Much less has been said about one of the country’s success stories: its continuing role as a global leader in attracting FDI. Indeed, its economic problems have in some ways helped to bolster Ireland’s competitiveness by reducing the costs of doing business.

There is ample evidence of Ireland’s success, despite an OECD analysis showing overall global FDI remained flat in 2010. Examples of this include:

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  • After a rocky 2009, 2010 saw a 20% increase in companies investing in Ireland for the first time, with 47 taking the plunge, according to IDA Ireland, the nation’s development agency. An additional 79 investments were made by foreign companies with existing operations in the country. Together they created almost 11,000 new jobs, compared with just 4615 in 2009.
  • Ireland achieved a 6% share of FDI investments in western Europe in 2010 and an 18% increase in total projects when compared with 2009, according to fDi Intelligence’s latest Global Outlook Report. Dublin was the third most popular location in Europe for such projects behind London and Paris, recording a 27% increase, and was bested only by London in the number of jobs created.
  • As a destination for FDI per capita, Ireland held top billing in IBM’s 2010 Global Location Trends report – a telling measure. Ireland also pulled off another coup by rising one place to ninth as a destination country for jobs in R&D. Globally, Dublin ranked 15th as an investment location.
  • Ireland ranked second on Ernst & Young’s 2010 Globalisation Index. The index measures the extent to which the world's 60 largest countries by GDP enable crossborder integration of business.

The secret of Ireland's success

There is a general consensus that Ireland's 12.5% corporate tax rate is the bedrock of its success. Small wonder then that any Irish government will fight tooth and nail to preserve it, even in the face of efforts to force Ireland to harmonise its tax rate with the rest of the EU. For the same reason, Ireland is fiercely resisting the European Commission’s recently proposed common consolidated corporate tax base, which it fears will diminish Ireland’s locational advantage.

Ireland’s status as an English-speaking state within the EU is another important factor, especially for US companies seeking direct access to the European market. IDA’s CEO Barry O’Leary also cites the country’s highly educated talent pool, technological and research capabilities and pro-business environment. Furthermore, Ireland possesses a sophisticated legal and financial services sector able to meet the needs of global clients.

Another advantage Ireland holds is a less tangible but powerful asset: its huge diaspora, including an estimated 40 million Americans of Irish descent. As its ambassador to the US, Michael Collins, noted recently in Atlanta, Georgia: “There is a reservoir of good will that wants to be mobilised.”

A tale of two economies

Even with these advantages, Ireland’s broken banking system and enormous budget deficit might have been expected to dampen FDI. However, as Joanne Richardson, CEO of the American Chamber of Commerce Ireland, notes, Ireland’s is a tale of two economies: the indigenous economy, which is struggling, and the multinational economy, which is thriving.

IDA’s Mr O’Leary says he brings the issue up himself in meetings with potential clients. Then he drives home his point: “The international business community is doing very well because it does not come to Ireland for its domestic market but for the EU market.”

Indeed, adds Mr O’Leary, Ireland’s competitiveness has been bolstered by the effects of the downturn: sharp drops in labour, energy, housing, and hotel and restaurant costs, which had driven some companies such as Dell to shift their manufacturing operations to lower-cost countries.

Global leaders

Ireland has consistently focused on capturing companies in high-value industries: IT, life sciences, international financial services, digital media and communications, clean technology and engineering.

As a result, it now boasts an enviable roster of global market leaders: Google, IBM, PayPal, Intel, eBay, Facebook, Zurich Financial Services, State Street, Axa Insurance, Abbott, Eli Lilly, GlaxoSmithKline, Merck and more than 750 others. Once established, many continue to make significant investments in the country. Remarkably, 62% of FDI in Ireland in 2010 came from existing companies.

IDA recently moved to fund competence centres in key sectors, such as energy, that enable multinational companies to leverage their investment in applied research.

The agency is also turning its attention to building infrastructure and teams in growth markets such as the BRIC countries of Brazil, Russia, India and China. Mr O’Leary’s aim is to have 20% of first-time FDI from this region by 2014. In contrast to the US model, he expects much of this investment to come through acquisitions of Irish companies.

US companies will remain IDA’s major target, however. US firms represent 65% of total FDI in Ireland and directly provide some 100,000 jobs, according to Ms Richardson. She notes it is hard to predict what effect Ireland’s current troubles might have on FDI but she believes many of the regulatory problems that caused the financial crisis have been aired and are being resolved. “For any company starting up, the system is very transparent and very pro-business,” she says.

Reaping the rewards

The benefits for Ireland of FDI have been significant. In addition to providing employment and revenue, the particular mix of multinationals in the region has boosted exports and helped stabilise the economy, says Frank Barry, a professor in international business and economic development at Trinity College Dublin.

“Pharmaceuticals and medical devices and business services have been doing well, and IT services returned to strong export growth in 2010,” says Mr Barry.

The financial services sector also experienced relatively little impact, he notes. While the banking sector took a hit, the insurance side and fund management firms performed quite well.

So far, 2011 looks to be another good year for FDI in Ireland. The giant pharmaceutical company Amgen, which previously had only a small marketing operation in the country, has announced plans to acquire a manufacturing facility being vacated by Pfizer to formulate biological products for sale worldwide. It will also expand its manufacturing capabilities there over time.

In another coup, ZeniMax Online Studios will open a customer support centre in Galway for its online games business that is expected to create hundreds of jobs.

If the trend continues, economists say Ireland can expect continued export growth and improved GDP. In a time of gloom, it is something to look forward to.