One of the few genuinely bright spots in an otherwise quite bleak economic picture during the Covid-19 pandemic has been the strong performance of the US foreign direct investment (FDI) community in Ireland. In the great majority of cases, US companies in Ireland continued to operate as normal – and in some cases increased production – and made an important contribution both to society and the economy in the process.
That performance is likely to grow in significance in the months ahead when a new administration takes office in the United States, the Brexit process is finally complete, and the world hopefully returns to some semblance of normality having brought the pandemic under control.
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To put the importance of US investment in Ireland in context, American companies located here now employ 160,000 people directly and a further 100,000 indirectly. According to the most recently available data, those Irish operations of US multinationals accounted for exports to markets outside of the US and Canada totalling €161.1 billion in 2018 – or 80 per cent of total global exports from Ireland that year. In addition, they spent almost €10 billion on payroll, over €6.3 billion on goods and services, and over €5.3 billion on capital expenditure.
The contribution to the exchequer has been no less important, according to KPMG international tax partner Anna Scally. "We know the multinational sector contributes significantly to corporation tax receipts," she says. "Foreign multinationals pay three-quarters of our corporation tax receipts. That's why revenue from that tax has stayed so resilient during the pandemic. Multinational companies, and US firms form the majority of them, have made a major contribution to the sustainability of the public finances. We are in a much better place than we would have been otherwise as a result of their contribution."
Revenue contribution
This extends beyond corporation tax with 44 per cent of all employment taxes being paid by multinationals, Scally adds. “That’s a huge contribution. At a time when tax revenue is under pressure and government spending is hugely under pressure, the contribution made by US multinationals has been critically important.”
She attributes the strong business performance at least partly to the nature of the companies located here. “Obviously, all businesses have been impacted by the pandemic to one extent or another, but US business has been incredibly resilient. A lot of that is due to the type of US business which has invested in Ireland. They tend to be in sectors like pharma, medtech, ICT and financial services – all areas which performed well during the pandemic. That’s been very important for Ireland.”
PwC managing partner Feargal O'Rourke believes the experience during Covid-19 mirrors that of the great financial crash a decade ago. "The FDI is performing well once again," he says. "Big companies are better able to withstand a crisis like Covid-19 and they haven't been dependent on Government support in the form of wage subsidies and so on. We have been fortunate in having such strength in our FDI sector."
And the investments have continued to flow despite the economic dislocation encountered over the past nine months with the OECD saying Ireland has been the biggest single recipient of global FDI during the first half of the year. “The companies already here are continuing to do okay and they have been a fount of growth,” says O’Rourke. “The expected slowdown has not been as bad as had been feared and we have been better than all other countries.”
IDA excellence
The strength of that investment pipeline has been quite remarkable, according to American Chamber of Commerce chief executive Mark Redmond. "Against a backdrop of the more or less complete impossibility of site visits and tours, what the IDA has achieved is quite extraordinary," he says. "We have seen some very significant jobs announcements from major companies like Pfizer and Amgen and there has been a plethora of smaller announcements across the country from Galway and the northwest down to Wexford. That's very important. Google started out very small in Ireland as well and Intel started in a used car dealership in Leixlip. There is a huge appreciation among American Chamber members for what the IDA is doing."
Scally believes the international reputation of the Irish workforce has played a significant role in this. "Covid-19 has highlighted just how flexible the Irish workforce is," she says. "It's the youngest and among the most highly educated in Europe and when the international competitiveness scorecards get published each year the Irish workforce always ranks very highly for adaptability, flexibility and productivity. Those attributes are highly rated internationally, and they have helped US companies to thrive here during the past few months."
Tax continues to play a role of course. "None of this has happened by accident," says Scally. "The Irish Government has been very supportive in assisting companies to build resiliency over the years. The 12.5 per cent corporation tax rate is very important and the R&D tax credit that was introduced back in 2004 enables companies to strengthen and deepen their research capability here in Ireland. That has strengthened the depth of their presence here and has made a major contribution to making investments sticky."
Brexit attraction
Brexit will have an influence on future investment decisions, of course. “Ireland’s position in the EU is critically important at this time,” Scally adds. “It’s very important for US investors to have guaranteed access to a market of 450 million. It’s the third-largest and the richest market in the world – even after Brexit.”
Patrick Kelly, chief commercial officer of Irish-owned global localisation business Vistatec, agrees. "While Brexit will have very little impact on our business it will strengthen Ireland's position in relation to US investment for sure," he says. "US companies will be looking more to a country like Ireland than the UK following Brexit as it offers a smoother pathway into the European market. We have already seen businesses like banks move from the UK to Ireland in preparation for Brexit."
That will be a welcome development for companies like Vistatec. “The transatlantic trade relationship is absolutely key for us,” he says. “Ninety per cent of our business comes from US multinationals. We work with some of the largest companies on the Fortune 500 and we are constantly talking to and building relationships with US companies. Given the political turmoil as well as the global pandemic, there have been some wait-and-see attitudes around business and investment decisions but hopefully that will change in the coming months.”
Looking ahead, Anna Scally says it is crucial to maintain the strength of the relationship between Ireland and America. “We need to emphasise the importance of Ireland to multinational companies and that it’s not possible to bring everything back to the US and serve the world market. The pandemic has underlined the need for multiple locations and Ireland with its pro-business environment and proximity to key markets will continue to play an important role there.”