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Ireland’s FDI prospects ‘very positive’

Despite both global and domestic challenges, industry leaders remain upbeat about Ireland’s future prosperity

In 2017, IDA Ireland had 764 client companies of US origin, supporting more than 152,000 employees. Photograph: iStock

In 2017, IDA Ireland had 764 client companies of US origin, supporting more than 152,000 employees. Photograph: iStock

 

It has been a rollercoaster few months for US businesses in Ireland. In May, there came the confirmation that a two-year delay in the planning process had finally put paid to Apple’s plans for an €850 million data centre in Athenry.

Apple hasn’t completely closed the door on more investment into the country. In 2015, the firm announced an expansion at its Cork premises that would give the firm room for an additional 1,400 people. Chief executive Tim Cook was in Ireland in June to officially open that expansion, and in an interview with The Irish Times, he said the company would still consider locating a data centre here when the time came to build its capacity further.

That loss may be a blow to the country’s investment record, but in true Irish style, there was something good just over the horizon. In June, Amazon said it planned to create 1,000 jobs in Ireland over the next two years. Not only are they extra jobs for the economy, but they are highly-skilled jobs, with Amazon on the hunt for engineers from software and DevOps, which may have gone some way to easing the sting.

“I think Ireland has a great track record in terms of investing in education, there’s great technical talent here. We’re here and growing because of the access to the technical talent,” says Amazon Web Services country manager Mike Beary. “Ireland is seen as a great place to do business – it’s part of the EU, it’s connected to a lot of other economies, it has a really strong and stable sense of the rule of law. All of those things are really important when you are making long-term business investment decisions.”

But these developments have both highlighted in different ways the weaknesses in the Irish system. In Apple’s case, it was the planning process, something that is now being dealt with by proposed new legislation that will put a time limit on planning applications and cut the amount of time under which people can take judicial reviews of decisions. The planned legislation will also limit who can take judicial reviews.

Greater clarity

Amazon’s Beary welcomed the legislation that would bring a greater level of clarity around judicial reviews and appeals

“We’re very clear that we can predict when we have customer demand for capacity in our data centres, and we work backwards from the demand in terms of figuring out when to build and how much to build,” he says. “Being able to predict the broad timeline of how long it takes to go through the planning process is really important in terms of how we think of meeting our commitments to our customers.”

While the news from Amazon was more positive, there were questions raised about where the 1,000 people it expects to recruit would live. While the new investments and jobs are welcome, driving down the country’s unemployment rate, they also put pressure on an under-supplied residential property market. While we may not have realised the highs of San Francisco – there has yet to be a reported incident of someone renting a tent in a garden, but it can’t be far off – property prices and rents, particularly around the capital city, have rocketed in recent years.

Those tasked with growing Ireland’s foreign investment have not ignored the risks; IDA Ireland has identified the residential housing issue as a threat to businesses, among other things.

On the FDI front, the agency is diversifying, with plans to explore further links with Asia Pacific and Europe. Ireland in the mid to late ’90s tended to attract software developers, financial services, for example. But the game has shifted. Cloud, crypto, medtech are all growing areas, and IDA Ireland’s targets have realigned accordingly.

IDA chief Martin Shanahan points out that IDA Ireland isn’t just chasing the big targets. Its emerging business unit has been laying groundwork with companies that could be the next big thing, bringing them to Ireland when they are small in the hopes that one of them may turn out to be the next billion-dollar company. That’s an area it has spent time and energy into developing, he says, and it has yielded fruit.

But many of those firms are US-based, and overall, the US still accounts for a large portion of IDA client companies. In 2017, IDA Ireland had 764 client companies of US origin, supporting more than 152,000 employees. To put it in context, employment in foreign-owned companies as a whole reached more than 210,000 – a target the IDA has hit two years ahead of its plan.

High-profile investment

Among the high-profile investment deals announced in 2017 was Microsoft, which pledged to add 800 jobs at its Dublin operations, and Indeed. com, with 500 jobs to be created at the recruitment website’s Dublin office over two years.

In its most recent annual report, IDA Ireland warned there is an increasingly competitive environment for foreign direct investment, and Ireland is now vying for dollars with countries large and small.

That competition may ramp up further, thanks to changes to the US tax system that makes it more attractive for companies to invest in the US.

Shanahan says it is still too early to gauge the impact that the change in US taxation systems may have on investment by US firms in Ireland.

But with Brexit looming on the horizon, there is the potential for Ireland to sweep up additional investment there. Among those who have already committed to opening an Irish operation is S&P Global Ratings, which is set to locate its European hub here.

The deal hit the headlines at the end of last year, with few specifics. There will be an Irish-based team post-Brexit, but how big it will be and how it will expand in the coming years have yet to be seen.

Personal taxation

Lorraine Griffin, head of tax with Deloitte, says one route to ensure that Ireland keeps attracting investment dollars is to make sure the country is competitive. A particular area that needs to be looked at is personal taxation, she says, making it more attractive for workers to locate in Ireland.

And while Ireland’s appeal may not be just about tax rates, keeping that rate stable is an important factor for companies that like certainty in their path ahead. While the post-Brexit UK may be able to lower its tax rate to attract investment, there are also proposals from opposition party Labour to increase the rate. That may cause a ripple of nerves among potential investors there – and paint Ireland in a more favourable light.

“Ireland is stable, and I’ve seen nothing to suggest Ireland has come under any pressure to move the corporation tax rate,” Griffin says.

For all the concentration on tax, US companies have been clear: what keeps them coming back to Ireland, and investing here, is talent. More specifically, the talent they can find inside the country, and the ease with which they can bring others into the country should they fail to find the skills they require in locally available talent pools.

But there may be another thing: data. PwC Ireland managing partner Feargal O’Rourke says one thing that is likely to impact US business in Ireland is data and the regulations governing it.

“It will anchor a lot of countries more in Ireland if they have to keep their data here,” he says.

With the UK’s future involvement in the EU post-Brexit still unclear, companies cannot afford to adopt a wait-and-see approach in areas such as data protection and the location of data. Recent changes to regulations mean fines are more significant for breaches of the European rules.

It’s the opposite of the approach the US tax changes has sparked among companies. The US tax changes have had a limited effect on investment so far, says O’Rourke, but he notes a slight pause, a slowdown in US companies investing here, as companies take more time over decisions.

He remains upbeat, however. “It’s still very positive because we have built up a great track record over a decade or more,” he says. “There is a lot of uncertainty at the moment. But it’s not fatal and it won’t be.”

Top five US firms in Ireland

Apple Ireland: 6,000 employees; €119.2 billion turnover

Medtronic-Covidien: 88,520 employees; €26.6 billion turnover

Google: 7,000 employees; €26.3 billion turnover

Microsoft: 2,000 employees; €18.5 billion turnover

Facebook: 2,500 employees; €12.6 billion turnover