Ireland records first net outflow of investment since 2011

OECD’s latest analysis of FDI trends suggests Irish figures remain highly volatile

The fist net outflow of foreign direct investment (FDI) from Ireland since 2011 has been linked to the restructuring of balance sheets amid the current clampdown on multinational tax avoidance.

The OECD’s latest analysis of FDI trends and developments shows the flow of foreign investment into Ireland fell to minus $0.4 billion in the first half of 2016, driven by a $19 billion outflow in the second quarter. This compared to the record $150 billion inflow reported during the first half of 2015 and reflects the enormous distortions caused to Irish figures by multinationals.

The OECD linked the Irish outflow to intercompany debt, whereby money or debt is shifted between multinational subsidiaries for investment purposes.

"It is normally difficult for us to understand what is going on with intercompany debt as it is often driven by factors specific to the company, but it is especially tough for the Irish data this time as much of the detail is confidential," an OECD spokeswoman told The Irish Times.

However, another expert linked the Irish outflow to the transfer of assets out of Ireland in the wake of the EU’s clampdown on tax avoidance and its investigation into Apple’s tax arrangements here.

During the six-month period, Dublin-based drugmaker Shire also acquired US rival Baxalta in a so-called mega-merger worth about $32 billion (€29bn).

Inversion transactions

The deal went ahead despite US efforts to clamp down on inversion transactions which allow companies move addresses overseas for tax purposes.

The OECD spokeswoman noted that Ireland would have recorded a marginal FDI inflow of about €0.6 billion during the period but this turned negative when the euro figure was converted to dollars.

Overall, the OECD’s report indicated global FDI flows decreased 5 per cent to $793 billion in the first-half of 2016 compared with the second half of 2015, but remained above the half-year levels observed in 2013 and 2014.

The increased volatility has been linked to concerns about the global economy and the possible impact of Brexit on the European economy, albeit the figures capture the period prior to the UK’s referendum.

Largest recipients

FDI flows in the US and in the UK more than tripled compared to the second half of 2015 and they were the largest recipients of FDI flows in the OECD area, accounting for $254 billion and $72 billion respectively.

The OECD's report said "highly volatile" FDI flows reached $513 billion in the first quarter due to large flows in the US and to a lesser extent in the UK after Royal Dutch Shell bought British Gas, before dropping to $279 billion in the second quarter.

It noted the US remained by far the largest source of FDI worldwide, followed by China, the Netherlands,excluding investments from special purpose entities, and Japan.

Inflows to OECD countries increased 14 per cent on the second half of 2015. FDI inflows in non-OECD G20 countries decreased in all economies except in Russia where they almost tripled from $3 billion to $9 billion but still well below the levels seen a few years ago.