Inward Investment Aids Ireland's Economy

WITH a highly-educated, skilled and flexible workforce operating within a business landscape that boasts a globally competitive 12.5% corporation tax rate, it isn’t hard to understand why Ireland is such a desirable investment location. The boom years of the Celtic Tiger phenomenon saw the country transformed from one of Europe’s poorest countries into one of its wealthiest. Between 1995 and 2000, GNP grew between 6% and 11%, propelling the country into the realms of  the super-rich and attracting an even greater diversity of foreign investment.

Yet, as the global financial downturn began to take its toll on the world’s economies, Ireland felt its effects more dramatically than many other EU states. With high levels of public spending and increasing amounts of unemployment, the country has had to dramatically restructure its national priorities to ensure it can once again enjoy the sort of growth and stability that had hitherto been the hallmarks of its economy. But, Ireland has continued to develop a powerful presence and play host to many of the world’s most innovative companies, particularly in ICT and digital media, life sciences, engineering, business and financial services. This continued success has allowed investments fueled by Foreign Direct Investment (FDI) to temper the economic downturn and serve as a vital part of the recovery. One such example is IBM Smart Cities Technology Centre. The Centre will be located in Dublin, where IBM will build a highly skilled and cross-disciplinary team to help cities around the world better understand, interconnect and manage their core operational systems such as transport, communication, water and energy.

Indeed, Ireland’s continued success in attracting foreign investment despite the economic downturn is not surprising considering the many advantages it offers to investors. Chief amongst these is the 12.5% corporate tax rate which is one of the most competitive in the EU and one of the lowest “onshore” rates in the world. In fact, to facilitate international business, Ireland has signed comprehensive double taxation agreements with 56 countries, of which 48 are in force and the remainder are pending ratification. These agreements allow the elimination or mitigation of double taxation and where a double taxation agreement does not exist with a particular country, unilateral provisions within domestic Irish tax legislation allow credit relief against Irish tax for any foreign duty paid in respect of certain types of income.

Of course, choosing where to locate international operations has never been a more consequential decision for multinational companies and the market for FDI has never been more competitive. Long-term trends in the policy environment and the economic balance between the developed and developing world are already reshaping the choices companies make. The global economic downturn and technological change have combined to accelerate those trends.

Recent legislation has put Ireland in a position to compete with other established European holding company locations. Because of its attractive tax, regulatory and legal regime, alongside its open and accommodating business environment, Ireland’s status as a world-class location for international business is well established. In recent years Ireland has increasingly emerged as a favoured onshore location for multinational corporations establishing regional or global headquarters to manage the profits, functions, and shareholdings associated with their international businesses.

In fact, Ireland has retained its global second-place position for attractiveness to foreign direct investment when adjusted for economy size. According to the National Irish Bank / fDi Intelligence Inward Investment Performance Monitor 2010, it shows that Singapore remains the most favoured destination, with Thailand following in third place. The number of projects coming to Ireland increased by 15% in 2010, with a corresponding  increase in the rate of job creation. Moreover, the study revealed that the quality of those jobs was high, with a relatively large proportion involving R&D and headquarter facilities.

Dr. Ronnie O’Toole, Chief Economist of the National Irish Bank, commented: “2010 was another good year for FDI into Ireland, and 2011 has started well. We continue to see a steady flow of mid-sized projects, particularly in services industries such as software and customer support, though also with some high quality manufacturing projects.”

O’Toole added: “The quality of these projects was high. Fifteen per cent of projects involved the establishment of headquarters in Ireland, second only to the Netherlands. Ireland was also very successful in attracting R&D projects, coming in fifth in the 100 countries ranked, behind Finland, Taiwan, Israel and Puerto Rico.”

There are a number of reasons Ireland remains attractive to foreign multinationals, despite the economic crisis. It offers access to a highly skilled workforce and a low corporation tax rate, while cost-competitiveness has improved as many non-pay costs have fallen since 2008. In addition, Ireland has built a critical mass of firms in a number of important industries such as pharmaceuticals, internet services and financial services, which, in turn, makes Ireland attractive for further investment in these areas.

And heralding more good news for Ireland: the number of mobile investment projects this year should increase internationally, according to the UN trade and investment body, UNCTAD. It forecasts that FDI flows will rise to between $1.3 trillion and $1.5 trillion in 2011, up from $1.1 trillion in 2010. Improved macroeconomic conditions in 2010 strengthened multinationals’ cash holdings and boosted stock market valuations, which firms can start to translate into new investments in 2011.

The prospects for the global economy in 2011 are positive. According to Dr. O’Toole, “Asian growth is strong and activity indicators in the US and Europe have turned higher. While the euro debt crisis remains unresolved, the immediate sense of crisis has passed, with countries like Germany returning to strong economic growth. If Ireland can continue to win a disproportionate share of this FDI pie, then further growth in inward jobs should be seen this year.”

For further information about business opportunities in Ireland, visit our IDA Ireland pages