Multinationals operating in Ireland buy less from local suppliers than the average in other wealthy countries, according to research carried out on behalf of State investment agency IDA Ireland.
Foreign direct investment (FDI) companies in the State spend about 24 per cent of their output trading with local businesses, compared to the 41 per cent average across the OECD (Organisation for Economic Co-Operation and Development) area.
The trend accelerated following the 2008 financial crisis, when the IDA intensified its efforts to attract services firms to invest here as the focus switched away from attracting FDI companies in the manufacturing sector. Foreign manufacturers based here were much more likely than tech or services firms to make purchases from local suppliers.
According to the research conducted for the IDA by the OECD, as tech firms flooded into Ireland between 2008 and 2016, the absolute value of purchases made by multinationals from local Irish suppliers decreased by 40 per cent. The OECD said the same thing happened during that time in other small, open economies, such as the Netherlands, but not as much as it did in Ireland.
The OECD's report, FDI Qualities Assessment of Ireland, comprises a deep dive into the data around Ireland's FDI sector, covering a 10-year period from 2006. It was launched on Tuesday in an online event with State officials including Martin Shanahan, the chief executive of the IDA, as well as OECD researchers in Spain and France, and it was hosted by economic commentator Dan O'Brien.
Hundreds of people from Ireland's economics community tuned in, including former minister for finance Alan Dukes and Paul Sweeney, former chief economist of the Irish Congress of Trade Unions. Although the report was finished in late 2019, it was not launched until now because of the pandemic and also because researchers did not want to release it around Ireland's 2020 election, the OECD said.
The report, which was used by the IDA to help prepare its next five-year strategy released this month, praises much of Ireland’s FDI policy and the State’s success in growing jobs and investment, especially in the most productive economic sectors such as technology and pharmaceuticals. However, it also warns of an emerging “concentration risk” in targeting too many US companies in too few sectors. The US accounts for 70 per cent of Ireland’s inward FDI stock.
Mr Shanahan said that if there has to be a concentration risk, the State is “better off” having it in the most productive sectors of the economy.
The report found that that the productivity gap is widening between local Irish businesses and FDI companies, which were far more productive. It highlighted, however, that one in three local people who had set up a new company here had previously worked in a multinational.