US-Irish business: Great signals for future inward investment

The IDA has had a commendably busy start to 2021. With just one month of the year gone by, we have already seen the publication of the agency’s strategy for 2021-2024, an important paper co-authored with the OECD analysing Ireland’s FDI performance, and eight announcements of investment projects that will create over 700 jobs.

It was an unfortunate coincidence that saw the strategy for 2021-2024 published on 6 January 2021. Events in Washington D.C. that day understandably led the news coverage; that same week saw the imposition of the lockdown response to the third wave of Covid-19, as well as the first days of trading under the new EU-UK Trade and Cooperation Agreement (TCA).

It felt like a momentous week, with each of these three issues – the US political transition, the pandemic, and the reshaping of European geopolitics and trade – having profound consequences in both the days and the years ahead. Of at least equal significance, though, to the fortunes of the Irish state in the coming years will be the delivery of the refreshed FDI strategy.

The OECD report provides a succinct articulation of why this is so. Ireland is one of the most open economies in the world. The Irish operations of multinational enterprises are deeply embedded in global value chains. FDI was central to Ireland’s recovery from the great recession that followed the financial crisis, and FDI provided crucial support to the economy during the Covid-19 pandemic. It’s reasonable to assume, therefore, that our economic health in the coming years will depend on how we fare in attracting and retaining overseas investment.

Our latest economic forecast points to an optimistic recovery for the Republic of Ireland, which could end up being the world’s fastest-growing economy in 2022. That depends on Q4 data due in March, but with growth of 8.1% in the year to Q3, income tax receipts down just 1% on the year, and corporation tax receipts up 9%, this suggests a high level of insulation from Covid-19 impacts. A central factor contributing to this stability is the strength of overseas investment in Ireland, particularly across sectors like ICT, life sciences and agri-food, sectors that experienced massive growth in spite of, or as a result of, the pandemic experience.

What has brought success in the past will not necessarily result in future success. As the OECD report points out, Ireland’s FDI base is manufacturing, information and communications, and the finance and insurance sectors. This concentration creates pools of expertise and reputational advantage; however, it also creates a concentration risk related to policy changes in partner countries. Hence, the OECD strongly recommends – and the new IDA strategy strongly endorses – a continued focus on diversification of both sectors and origins of investment.

For example, around two-thirds of FDI into Ireland originates in the United States (a far higher proportion than the European average). This source of investment will of course continue to be significant in the coming years. But the recent political transition in the US has highlighted the enduring appeal of a “make and buy American” agenda. The changing tax landscape is a factor to consider as well. 

Encouragingly, the Department of Finance has also been busy in the early weeks of the year and has published its own corporate tax roadmap highlighting the country’s heads-up engagement with the multilateral global tax agenda. Recent years have seen a dramatic increase in inward investment from China and India and that needs to continue.

From a sectoral perspective, the IDA’s focus on diversification is evident in the long list of areas highlighted in the strategy document: cloud, AI, 5G, big data, disruptive service platforms, advanced manufacturing, cell and gene therapy, connected health, industrial automation, and renewable energy. 

What is striking about this list is firstly the breadth of ambition, and secondly that many of these sectors build upon areas of existing strength and credibility for Ireland. For instance, the well-known presence of the world’s leading biopharmaceutical companies in Ireland makes it sensible to focus on opportunities in the new wave of personalised medicine that uses patients’ own cellular and genetic material to craft therapies.

The IDA strategy document is called “Driving Recovery and Sustainable Growth”, a subtly punning title about the need for a growth strategy that can hold its own while also acknowledging the massive climate agenda that will be the overarching global challenge in coming years. Indeed, sustainability is embedded throughout the entire strategy, as well as being one of its five pillars alongside Growth, Transformation, Regions and Impact. 

The goals align to what we believe ourselves to be true, that the sustainability agenda can create and enhance long term value. The move to decarbonisation and greening the economy could prove to be a boon of new investment and new jobs, as investors and technologists alike seek out strongly aligned economies to develop solutions and advance their own sustainability ambitions.

The Regions agenda, interestingly, is also strongly reflected in the announcements so far this year, with those located in Cork, Galway, Limerick, Athlone, Dublin and (perhaps most intriguingly) a fully virtual project (with roles being based anywhere in the country). Remote working is here to stay.

This is an exciting moment in the Irish FDI story. The track record and creativity of the Irish proposition to global investors puts us in a strong position for the hard work that lies ahead.

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