In a global political environment where news coverage appears to endlessly suggest that populism and protectionism is the new norm, it’s perhaps easy to believe that global trade is fast cooling off.
And while that may be the case, there's nothing to suggest the appetite of US companies to invest in Ireland is coming to an end. If anything, evidence from 2018 shows how US businesses in the Republic are becoming increasingly important.
Data from the State's inward investment agency, IDA Ireland, shows that there are more than 760 US companies operating within its portfolio of client companies. Between them, they employ 160,000 people, accounting for a staggering 7 per cent of total employment here.
More importantly, these companies are uniquely positioned to contribute positively to rural development, given that almost 60 per cent of employment in US companies is located outside of Dublin.
While our corporate tax rate of 12.5 per cent is often touted as the most attractive feature of our economy, US executives and the IDA are quick to point out that access to talent is fast becoming our most important selling point.
“There’s competition right across the globe for talent and for us, we have home-grown talent and access to talent across the EU. That’s really good for us,” says IDA executive director Mary Buckley.
“In tandem with that, we’re seen as politically stable. Increasingly so when you look at what’s going on across the world, we’re very strong members of the EU,” she adds.
So while we’re adept at attracting top companies to set up shop here, the question must be asked as to how this benefits Ireland Inc. According to Buckley, the spin-off from these companies is hugely significant. Payroll alone amounts to about €11.7 billion while the various companies spend about €7.5 billion a year on goods and services. Additionally, combined they spend about €5.7 billion on new buildings, machinery and equipment. And, of course, they’re a big contributor to corporate tax receipts.
Ongoing commitment
Even as storm clouds gather on the horizon relating to transfer pricing and digital tax, some of the biggest companies have signalled their ongoing commitment to the country. Facebook, for example, acquired a long-term lease on 14 acres for a new campus development in the heart of Dublin 4 while Amazon Web Services signalled its intention to double its Irish operation with the creation of 1,000 highly-skilled technology jobs in Dublin.
For PwC managing partner Feargal O'Rourke, the short-term outlook is "still very positive". But he does recognise those storm clouds as we adapt to a new way of taxing business.
“The tax world is changing. For 100 years, companies paid tax on profits where they had their physical sales activity. The 21st-century business model means that you don’t need to have a presence,” he notes.
With Minister for Finance Paschal Donohoe’s apparent support for the way the world is moving in tax terms, that could well mean that change is coming. For Ireland, O’Rourke sees the impact as being “modest” but he does have one fear: a trade war. So while he doesn’t have any localised concerns related to the Irish economy, a global trade war, he says, “would not be good for a small open economy like Ireland”.
While a Sino-US trade war appears to cool off and heat up every other week, protectionism has certainly been increasing over the past couple of years.
Asked whether the global trade environment, and by consequence investment in the Republic, is becoming less attractive, IDA executive director Mary Buckley instances the cases of Pfizer, IBM and Apple, which have had a presence in Ireland for "many years", through boom time and deep recessions.
Nevertheless, our inclusion on a US treasury department watchlist in recent weeks is unlikely to warm the hearts of civil servants in the Department of Finance. As O'Rourke sees it, our focus is on a two-way street of trade, which encompasses both services and goods.
And this was mentioned by Paschal Donohoe the day after our inclusion on the list. While we run a large goods trade surplus with the US, “we simultaneously run a large services trade deficit”.
“The Irish economy is deeply embedded in global supply chains – we are a very open economy. This is especially evident in our trade with the US, where our two countries have integrated and complex supply chains,” he added.
Even though our inclusion on the watchlist isn’t exactly positive, Paul Burfield, Enterprise Ireland’s senior vice-president for the west and southern US, is sanguine. He suggests that inclusion will focus the minds on a market that’s in a “Goldilocks state”.
“It is a market where Irish companies have done well over the past three decades and there is a lot more runway to go,” he says. “Part of our diversification strategy away from the UK is very much focused on the eurozone and US. We do see potential for some of our early-stage companies to start thinking about US-first strategy,” he adds, noting the shift from the more traditional UK-first attitude of Irish exporters.
Attractive market
While foreign direct investment has become increasingly important, what the inclusion on the watchlist shows is that we need to pull our weight where companies setting up a presence in the US is concerned. And for Burfield, it’s an unquestionably attractive market, given the market size.
That’s not to suggest our contribution hasn’t been significant. FDI into the US by Irish companies is about €150 billion, making us the ninth biggest contributor to US FDI. In the US, there are more than 950 businesses employing just over 100,000 people, Burfield says. That’s certainly not insignificant given our population size.
So, are the scales starting to tip in our favour? “It’s tipping for sure and we don’t expect it to stop,” Burfield says.
An increasing Irish presence in the US may lead to a softening of trade rhetoric, but our focus also needs to be on ensuring our continuing competitiveness. For O’Rourke, that means quickly solving issues like the housing shortage. And even though US companies are aware of it, he notes there’s no sense yet that we’re becoming uncompetitive. “After the crash, we really got competitive again. I don’t think we’ve gone the wrong side of that yet,” he says.
Buckley suggests that nobody is taking their foot off the peddle where competitiveness is concerned, something she says we always have to be cognisant of. Rather positively, she adds, we have managed to improve in that regard, even with domestic changes like near full employment and wage inflation. According to the IMD business school in Lausanne, the Republic ranks in seventh place out of 63 countries, up from 12th in 2018, for competitiveness.
The ingredients appear to be right for continuing investment by US businesses in Ireland and the same from our exporters in the US. And while there are challenges on the horizon, as evidenced by US president Donald Trump’s tax changes, Ireland has managed to maintain its competitive edge in the face of an ever-changing global trade environment.
Top companies by revenue:
Apple Ireland
Medtronic
Microsoft
Eaton Corp
Allergan
