Report dismisses impact of Intel move

Foreign direct investment will continue to flow into Ireland, a new report has suggested, despite concerns following last week's decision to withdraw grant aid to a new Intel facility.

The report by Dermot O'Leary, economist with Goodbody Stockbrokers, suggests last week's "doomsday predictions" about investment flows may have been misplaced. Low corporation tax, the report claims, is the "biggest carrot of them all" and should ensure that Ireland remains one of the most attractive economies in the world to invest in.

Mr O'Leary says grants to foreign companies have been important over the years, but are becoming less so.

"In 2004, grants amounted to €65 million, relative to the total of €2.7 billion paid in corporation taxes by IDA supported companies," he states.

He says scrutiny from the EU Competition Commissioner, Neelie Kroes, will pose challenges for some Irish projects, but grants are becoming less important anyway.

"The €65 million paid out in the form of grants by the IDA in 2004 compares to €96.5 million in 2003, which was an altogether weaker year for investment globally".

He says concentrating on grants alone ignores the fact that large firms tend to "cluster" around each other. He also says corporation tax remains a key concern.

"A corporation tax rate of 12.5 per cent applies to companies who have operations in Ireland.

"Such a rate of tax on profits is unique in a euro-area context, with the average rate in other countries at 30 per cent.

Even with a few notable low corporation tax countries joining the EU last year, the current Irish corporation tax rate still compares favourably," he claims.

The Goodbody report agrees that certain grant-based projects based on the east coast could face challenges in the future, but it points out that other regions may not have this problem.

Projects earmarked for the BMW region (the border, midlands and western regions) will "fully qualify" for EU incentives to encourage economic development.

"The ramifications of the Intel decision should not apply to state aid projects planned for this area," states Mr O'Leary.

The report is overall highly upbeat about Ireland's chances of holding onto major foreign companies.

It says while costs are lower in some regions, a well-educated workforce is not always guaranteed.

It also points out that existing companies have got "sunk costs" in Ireland. For example, Intel has already invested €4.5 billion in Ireland.

"The risk of firms who have committed such resources terminating operations here are negligible, given the enormous costs of establishing a greenfield facility in lower wage economies".

"To sum up, we believe Ireland will not suffer unduly from the recent developments in relation to Intel, provided that the policies which have created enormous prosperity are maintained going forward".