Factors that Make Ireland an Important FDI Destination for US Technology Firms
In recent years, Ireland has become a magnet for many foreign direct investments (FDIs). The leader in those investments is the United States, followed by Germany, the UK, and Russia. Ireland has many attributes that draw the foreign investments, and they have cultivated these attributes carefully to draw tech companies to their shores. However, with the looming Brexit rapidly approaching, the careful work that has gone into making Ireland an attractive place for foreign investors could suffer some damage, but the extent of the damage is difficult to predict. The opposite effect is also a possibility as Ireland could benefit from companies wanting to invest but not in a UK that is not part of the EU. However, Ireland is prepared for either possibility.
How Ireland Attracts FDIs
One of the main reasons foreign investors look to Ireland is their workforce. Ireland has invested in technical training so that when foreign investors look to Ireland they see an already trained workforce just waiting for jobs to come to them. This is especially important for U.S. companies, which make up the bulk of Ireland’s foreign investors. O’Brien (2018) of the Irish Times says, “US companies have been clear: what keeps them coming back to Ireland, and investing here, is talent. More specifically, the talent they can find inside the country, and the ease with which they can bring others into the country should they fail to find the skills they require in locally available talent pools” (O'Brien, 2018). That ease of bringing in talent and similar concerns is another reason Ireland is so attractive to FDIs.
Several financial surveys and reports have been done that analyze why Ireland is so attractive to investors. Taylor (2019) also of the Irish Times reports on one by AT Kearney that stresses the educated Irish society as the number one reason for Ireland’s attractiveness to foreign investors. “The authors said a plan to establish the Republic as the European leader in Stem in Europe by 2026 ‘will be a key labour force differentiator in the 21st century digital economy and has likely helped Ireland to become the top FDI destination for US technology companies’” (Taylor, 2019). Still, it is not just the educated citizenry of Ireland that makes it so attractive to foreign investors.
Another aspect of Ireland’s attractiveness to FDIs is their vision toward the future. Ireland has been attracting business to its shores for a quarter of a century now, and while Google, Facebook and Amazon have all invested there, so have many smaller companies. Ireland welcomes them all in the hopes that one of those smaller companies may turn out to be the next big thing in the tech market. The head of the Industrial Development Authority (IDA) of Ireland, Martin Shanahan, points out that it is also about keeping the citizens of Ireland employed. “In 2017, IDA Ireland had 764 client companies of US origin, supporting more than 152,000 employees. To put it in context, employment in foreign-owned companies as a whole reached more than 210,000 – a target the IDA has hit two years ahead of its plan” (O'Brien, 2018). This means that many of the jobs that left the United States for greener pastures for investors in terms of labor costs ended up in Ireland.
Finally, another component of Ireland’s success with IDAs is the relationship it has with the European Union (EU). Some feel that this could be damaged by the looming Brexit issues based on its strong trade partnership with the UK. Others feel that UK’s exist from the EU may be a good thing for Ireland because they will pick up investments that may have once gone to the UK once Brexit is complete.
How Brexit will Affect Ireland
Many predictions of how Brexit will affect Ireland have been made. Some fear that Ireland will lose some of the gains it has made in terms of FDIs. The significant trade relationship Ireland has with the UK makes it vulnerable to an economic downturn once Brexit is complete. Taylor (2019) explains, “The [AT Kearney] report noted that while the Republic received several high-profile M&A’s last year, overall FDI inflows plummeted due to the impact of US corporate tax cuts in late 2017” (Taylor, 2019). With the instability in the U.S. economy also posing a threat to world markets, some fear that Ireland could suffer even more losses in FDI.
However, O’Brien (2018) points out that Ireland is connected to other economies besides the UK’s and the United States’ such as the economies of the Germany and Russia. It is also currently seeking FDIs from the Asia Pacific region and other countries in Europe (O'Brien, 2018). Investors in each of these nations and regions remain interested and desirous to invest in Ireland with it highy trained talent and its investor-friendly attitude toward tech companies. Since it is a member in its own right in the EU, Brexit effects in terms of trade may not affect its economy much especially if investors shift to Ireland rather than the UK because of the severed ties with the EU.
Another bright spot for Ireland is that those who invest internationally say that now is the best time to do so. “According to the AT Kearney latest FDI confidence index, more than 75 per cent of investors say that foreign direct investment is more important now that it has been in recent years. In addition, almost four-fifths say their companies will increase their level of FDI in the next three years” (Taylor, 2019). With Ireland’s attractiveness to business, it is possible they may not experience any negative results from Brexit. Yet, there are characteristics of Ireland that could deter FDIs if Ireland is not careful.
There are several concerns surrounding Brexit and FDI in Ireland. One of those issues is the tax rate in Ireland. The country needs to remain competitive in their tax rates with other countries if they want to continue to attract business to its shores especially personal taxation if they want foreign talent to move there to fill the tech jobs that Irish citizens do not want or cannot fill (O'Brien, 2018). For now, Ireland’s tax rate remains stable, but Brexit could negatively affect that. While the post-Brexit UK may be able to lower its tax rate to attract investment, there are also proposals from opposition party Labour to increase the rate. That may cause a ripple of nerves among potential investors there – and paint Ireland in a more favourable light” (O'Brien, 2018). But taxes are not the only concern.
Data has become an issue of concern for many tech firms. Feargal O’Rourke, the managing partner of Price-Waterhouse-Cooper, a leading tax firm in Ireland, points out that the EU has very strict laws surrounding data and the collection of personal data. O’Rourke says, “It will anchor a lot of countries more in Ireland if they have to keep their data here” (O'Brien, 2018). However, once Brexit is complete, the UK will no longer have to abide by those laws, and that may be a favorable aspect for investors looking at the UK.
Should the UK Exit the EU?
The answer is no. At this point, the mess that has been made of the Brexit strategy and the looming loss of investments and support that the EU brings may severely hamper the UK economy for many years. Of course, it could turn out not to be so damaging if enough FDIs decide they like the new rouge state without the limitations of EU laws. However, from the current standpoint, the future is not bright for the UK. In a report published early in 2019, the financial firm Ernst and Young (EY) (2019) found, “In total, businesses from around the world completed 6,356 projects in Europe last year, a 4% annual decline from 2017. The downturn was caused by a sizeable 13% decrease in FDI in Europe’s two largest economies — Germany and the UK — which together account for around one-third of FDI in Europe” (EY, 2019, p. 7). The report goes on to say that while FDI declined in the UK and in Germany, it increased in Spain, Poland, Belgium and Ireland. EY (2019) believes that Ireland is experiencing a “Brexit-led investment surge” making FDI jump by 52% in 2018 accounted for mostly by investments in digital, business services and finance (EY, 2019, p. 13). EY (2019) thinks Brexit will be a positive event for Ireland and that they will come out winners, which means the UK will lose investors to Ireland and the other countries that are now surging in popularity with FDIs.
Conclusion
Ireland is doing well thanks to numerous FDIs, but it has earned it by educating its citizens in technology so that they can fill the much needed positions in the tech companies who want to invest in Ireland. For now, its tax rates remain stable and competitive; however, with Brexit just a few weeks away, it is possible that Ireland could be caught up in the fallout of it. Yet, most are optimistic that the consequences from Brexit for Ireland will for the most part be positive.
References
EY. (2019). How can Europe Raise its Game: EY Attractiveness Survey. London: Ernst and Young. Retrieved from https://www.ey.com/Publication...
O'Brien, C. (2018, July 4). ut who do not have editorial control. Retrieved from Irish Times: https://www.irishtimes.com/spe...
Taylor, C. (2019, May 7). Brexit uncertainty leads to fall in Irish FDI confidence ranking. Retrieved from Irish Times: https://www.irishtimes.com/bus...
