Is Ireland starting to lose its attraction for international investors?

Intel may have announced a significant multi-million-euro investment locally last year but news that the State is likely to miss out on another one is causing anxiety in some quarters.

While the chipmaker says no final decision has yet been made on a planned $80 billion (€70 billion) European investment, few expect it to come our way. This is despite Intel chief executive Pat Gelsinger telling The Irish Times last September that the State was in contention.

Bloomberg, citing people familiar with negotiations, recently said the company's push to increase capacity will see it adding facilities in France and Italy, as well as putting a major production site in Germany.

Several reasons have been put forward for why the State won't win the investment, including issues surrounding planning, energy. housing and education. There is a fear that such problems could impact future investments by other multinationals, with Apple's decision to ditch a planned data centre in Athenry after planning delays offered as evidence that damage has already been done.

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With inward foreign direct investment (FDI) flows in decline in part due to the Covid pandemic, and the Republic preparing to wave goodbye to the 12.5 per cent corporate tax rate that has applied in the State since January 2003, attracting multinationals here may not be as easy in the future as it once was.

"Ireland should be winning projects like this and it is a little worrying if it isn't because it could be a sign of things to come as we lose the tax advantage. If we don't have that, we need to look at what we are competing on, which is to a large degree primarily access to talent," says Ed Brophy, a former special adviser to Minister for Finance Pascal Donohoe and now a consultant.

“If the reasons for Intel not choosing Ireland are, as is being suggested, around failings of the State to provide sufficiently in areas such as water and energy, along with offering a predictable, effective planning regime, that is a particular concern because it hasn’t been great at planning for these in the past and they take time to do,” he added.

Corrective turns

Frances Ruane, chair of the National Competitiveness Council, agrees to an extent but notes that the State has been able to take corrective turns quickly when necessary. She highlights progress in areas such as education, and the move to find other trade routes to avoid the UK landbridge following Brexit as examples of how things can change given the willpower.

“Ireland is very unusual in that it has given corporate tax certainty over a long period of time, which has helped enormously with investment planning. Companies make project decisions based on an extended period of time and need to have certainty, whether on tax or other issues,” Ruane says.

“We have been weak on planning historically. It hasn’t been as thought out as it should be and efforts have often been under-resourced. As FDI projects take a long time to come to fruition, it should mean that any supply-side issues are worked out early enough.

“I’m sure IDA is aware of them but it doesn’t necessarily believe it is its responsibility to resolve them all. The role for government on FDI is on the infrastructure side but sometimes the joined-up thinking required isn’t there, even in individual departments,” she adds.

There are concerns that, given Intel's strong relationship with the Irish State, the loss would be widely felt

Brophy suggests that it may be time to think more broadly in terms of FDI requirements.

“We need to give a clear signal that we are investing for the long term in areas such as education, housing, infrastructure and so on. We also need to get more strategic about what sort of industries we want to attract here rather than just taking every passing job.

"We must also think some unthinkable thoughts, such as recruiting people from the outside and paying them more, like we did with the National Treasury Management Agency. Something that might not be popular in the short term but may deliver results," he says.

“Things have become more diffuse in recent years and there are a lot more players involved and so maybe we need to take a different approach to ensure the urgency required.”

Not a contender

Some industry insiders say Ireland - Galway was the location put forward - was never really a contender for the latest investment, regardless of what Intel has said publicly.

"Ireland was never really in the running for this. There is EU money involved so the pressure was on for new facilities to be built in mainland Europe, " said one informed source who declined to be named.

Losing the investment may not be the end of the world. After all, on his recent visit to the group's campus in Leixlip, Gelsinger himself said the Irish operation would gain regardless of the outcome due to more work being done in Europe.

But, there are concerns that, given Intel’s strong relationship with the Irish State, the loss would be widely felt. Intel has long been a jewel in IDA Ireland’s crown, with the State agency responsible for inward investment using it to help lure other companies here. The chipmaker was a landmark client to secure back in the late 1980s, a time when few companies considered Ireland as a viable place to invest.

IDA Ireland remains confident that inward investment will continue to be strong in the coming years

Intel’s investment in Ireland is about to top $22 billion (€18.6 billion). The announcement last year that the company was to double manufacturing capacity and create 1,600 new roles here was seen as proof of the company further cementing its relationship with the State.

However, it was only a few weeks after Gelsinger's visit to Ireland last year that reports began to emerge that all might not be well in terms of Intel's future plans. A former Defence Forces firing range in Oranmore, Co Galway had emerged as a possible location for a new chip fabrication facility. But it became clear that concerns over constraints in the State's energy infrastructure and water services were worrying the company, as was the rising number of judicial review cases being taken against planning decisions.

Planning challenges

Having endured significant planning challenges in recent years, Intel has been wary of getting caught up in new ones.

Neil Walker, head of infrastructure, energy, environment and transport at lobby group Ibec, cites planning as a particularly big issue locally. "The default is that any project of scale tends to go to judicial review and I think Ireland is an outlier in this," he says.

“Whether it is electricity, water, sewage, telecoms or whatever, a project is likely to face a challenge if it is visually intrusive, which given the disperse nature of the population is always possible. This means projects will be held up for two years or so, which immediately makes them more expensive and can obviously be a cause of concern,” Mr Walker adds.

A secure energy supply is arguably just as critical for companies as for households. There were eyebrows raised all round when news emerged last year of a series of “amber alerts”, warning that demand had stretched the system close to its limit.

The rise of data centres, which IDA Ireland has had great success in encouraging, has been blamed for the problem, although many argue their impact has been somewhat overstated.

Speaking to The Irish Times, Mark Foley, chief executive of national grid operator Eirgrid, admits the body has had to reassure multinational customers after rising demand and falling supply brought the electricity system to a crossroads. Referring to 2021 as an "awful year", Foley says a perfect storm occurred with the temporary shutdown of two gas-fired power plants and low wind at a time of increased demand.

EirGrid has sought to alleviate future problems by recruiting 300MW of emergency generation and with a plan to add a further 2,000MW of gas-fired plants to the network through to the end of the decade.

“The events of last year did cause people to ask questions and understandably so. It led us to having to reassure customers that this was not an enduring crisis. It did cause concern, and confidence may have been somewhat eroded, but we got through the year,” Foley says.

Technical solutions

He adds that the operator engages directly with industries that demand heavy electricity consumption to work out technical solutions based on their needs now and in the future. Foley added that having told them of its plans and highlighting risks, they have largely been reassured.

Kieran Donoghue, global head of strategy, public policy and international financial services at the IDA, agrees that both prospective and existing clients were extremely worried about the energy warnings last year.

“It has caused some disquiet and concern, particularly for those clients that either need large amounts of energy because of the nature of their processes or that have very sensitive manufacturing processes where a failure in power could destroy some very valuable products.

“They have been very quick to tell us their concerns both on this and other issues such as housing, and we’ve been completely frank with them and outlined the plans in these areas.

“What they want to hear from us is an assurance that there is a recognition of a challenge or a deficit and that a plan is in place to address it. Once you can explain this to them, it gives them the confidence to consider investing, particularly as these issues are also ones that arise in many other jurisdictions,” Donoghue adds.

IDA Ireland remains confident that inward investment will continue to be strong in the coming years, regardless of whether Intel goes elsewhere this time around. Mr Donoghue says the agency is continually making its case for investment in areas such as infrastructure, with successive administrations largely open to its recommendations.

“The message we have been conveying to government for quite some time is that FDI is an important part of our development model. We want to continue to win and so that requires us to create additional capacity.”

He says this is being done in some quarters but not all the time despite awareness that problems could arise in areas such as electricity demand.

“A lot of the issues that have come to the fore in recent months were foreseeable. If you find yourself in a situation where you’re behind the curve and find yourself reacting to supply-side constraints, they can take a long time to resolve. There have been areas where we probably should have moved faster and I think energy is definitely one of them,” he adds.

Donoghue says that even with changes to the State’s taxation rate and capacity issues, Ireland remains an attractive proposition to investors. Neil Walker of Ibec agrees.

“Companies have to make a decision on where to locate across several countries and it can be a bit like a beauty competition. Historically, we’ve done extremely well and we still have a lot to offer,” he said.