Ireland’s economy is highly reliant on Foreign Direct Investment from the US. But with labour costs and housing prices on the rise, can we continue to attract US multinationals? Feargal de Freine discusses.
The fundamental importance to Ireland’s economy of Foreign Direct Investment (FDI) from US multinationals is difficult to overstate. US companies in Ireland employ 190,000 people directly and a further 152,000 indirectly.
These companies — close to 900 in total — spend more than €12 billion on payroll, €8.8 billion on goods and services, and €6.5 billion on capital expenditure each year. They are responsible for an estimated 60 percent of Ireland's corporation tax income.
Ireland’s continued appeal to US multinationals will be critically important to our future prosperity. So, how are we faring in these uncertain economic times?
Fortunately, according to EY's latest European Attractiveness Survey, Ireland is maintaining its position as one of the most attractive countries in Europe for FDI.
Ireland continues to punch well above its weight when it comes to FDI investments. A total of 152 FDI projects were recorded here in 2021, giving Ireland a three percent share of the FDI market among the more than 40 European countries surveyed.
This result places Ireland in the top 10 locations in Europe for FDI and in first place when it comes to projects per head of population.
The strength of the relationship between Ireland and the US is highlighted in the survey by the fact that American companies accounted for 59 percent of Ireland's FDI projects in 2021.
With competition for investment intensifying, the question arises as to whether Ireland may be over-reliant on the US for FDI, however.
While we must maintain and strengthen our attractiveness for FDI from all markets, it is crucial that we do not make the mistake of weakening our well-established business relationship with the US in our efforts to attract FDI from other countries.
The attraction of Ireland
Our survey of Irish decision-makers drilled down into the factors that make Ireland attractive for FDI generally.
Unsurprisingly, top of the pile was our tax regime, highly-skilled and educated workforce, quality of life, and business-friendly environment.
Thirty-nine percent of our survey respondents said that current and planned tax policies would improve Ireland's attractiveness.
Labour costs and the affordability of housing were among the least attractive factors identified, however.
No surprise here, but the findings highlight the importance of finding practical solutions to the housing crisis and avoiding a damaging inflationary wage spiral as the Government seeks to combat the rising cost of living in Ireland.
Other areas that need to be addressed, according to our survey results, include: government prioritisation of the geographic rebalancing of the economy; increased investment in international connectivity; skills development; lower business taxes and; decarbonising the country's energy system.
The high ranking given to international connectivity isn’t perhaps surprising, given that our survey respondents were drawn mainly from the multinational community.
Recent events at airports across Europe highlight the fragility of international connectivity, however.
As an island nation heavily dependent on inward investment and international trade, Ireland must redouble its efforts to enhance connectivity, particularly with North America.
The FDI market is intensely competitive and highly dynamic. American companies do not choose to locate in Ireland for sentimental reasons. They do so because it makes sound financial and business sense.
Countries worldwide are constantly seeking to improve their offering to inward investors. Ireland must preserve its existing strengths and build on them if we are to retain our position as one of the most attractive locations in Europe for US FDI.
Feargal de Freine is Assurance Partner and Head of FDI at EY.