Key growth drivers in the coming years will be in high-value emerging tech in areas such as renewables, cleantech, ultra-personalised medicine, quantum computing and AI, says Feargal de Freine
The results of EY’s 2023 Europe Attractiveness survey indicate a marked improvement in sentiment regarding Ireland’s attractiveness for foreign direct investment (FDI) compared with 12 months ago. Of those surveyed, roughly 46 percent believe Ireland’s attractiveness for FDI will improve over the next three years, an increase of nine percentage points on the 2022 survey result. A further 34 percent believe the country’s attractiveness will remain unchanged over the period. Only around 18 percent said it would decrease (down from 23 percent last year).
Future investment growth drivers
Next generation FDI is likely to be very different. High-value emerging technologies in various areas, including renewables, cleantech, quantum computing, AI and ultra-personalised medicine, will be key growth drivers in the future.
Countries competing for investments in these new battleground areas must demonstrate high levels of expertise and research capability and a ready supply of top-tier talent.
Competitiveness, agility, proximity and access to key markets, and tax remain important considerations when choosing a location. New imperatives, including political stability, security of energy supply, and creative subsidy and support programmes such as the US Inflation Reduction Act (IRA) and the EU Green Deal, are rising up the agenda.
Businesses also look for locations to support them on their net zero and digitalisation journeys. Coupled with those factors are the evolving priorities of governments and local communities.
Governments across the world are aiming to reshape investment agendas through new policy instruments such as the US CHIPS and Science Act. As the incidence of FDI mega projects increases, investors increasingly seek direct subsidies and other supports.
Tax reforms
There is continuing uncertainty related to the global tax reform process. Ireland is committed to the new global minimum tax rate of 15 percent, which will come into effect next year. Global adoption of new nexus and profit allocation rules is less advanced.
Respondents to our survey highlighted the importance of increased support for overseas investors and reductions in business tax in the countries in which they invest. Globally, increased levels of state support may present challenges to countries in Europe that are constrained by EU state aid rules and may require new and imaginative policy responses at EU level.
Amid this uncertainty, Ireland needs to continue to set a stable and reliable course in terms of tax policy – this has been a key reason for the country’s attraction over the years.
Ireland also needs to respond creatively to remain competitive. That response could include continuing to improve incentives like the R&D Tax Credit, investing in our universities to nurture the next generation of Irish talent, and ensuring high-quality property and real estate options are available nationally for prospective investors.
Ireland will also need to continue to challenge itself in terms of how tax policy supports the ability to attract key senior talent as part of the strategy to secure and retain critical investment.
Policy responses can be highly effective if they are responsive to investors’ needs, and not every policy requires a material investment of government funds.
Risks to future FDI performance
There are identifiable risks to Ireland’s future FDI performance.
During the National Economic Dialogue in early June, the Department of Finance cited the “Four Ds” – demographics, decarbonisation, digitalisation and deglobalisation – as the key trends likely to transform the Irish economy over the next decade. They are also likely to have a profound impact on our competitiveness as an investment location.
Survey respondents noted the ongoing war in Ukraine, the level of public debt and its potential impact on taxes, the tight labour market, high inflation and a rising interest rate environment as key risks impacting 2023 investment plans in Ireland.
For those who believed that Ireland’s attractiveness would diminish over the next three years (18 percent of respondents), the top concerns were higher costs and political instability, followed by increased incentives available elsewhere.
Future growth
Ireland’s future FDI growth hinges on embracing high-value emerging technologies, demonstrating expertise, nurturing top-level talent and addressing evolving priorities.
Uncertainty surrounding tax reforms and potential risks such as geopolitical conflicts and economic challenges must be carefully navigated. Ireland’s stability, competitiveness and proactive policy responses will be vital in maintaining its attractiveness as an investment destination.
Feargal de Freine is Assurance Partner and Head of FDI at EY Ireland
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