Overseas Investment

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Overseas Investment

The unprecedented expansion of the Irish economy during the 1990s was due in large measure to the country's success in attracting inward investment. The thirteen hundred overseas companies located in Ireland and assisted by the Investment and Development Agency of Ireland (IDA Ireland), the state investment and development agency, are the main contributors to economic growth. They employ 150,000 people, equivalent to more than half the workforce in manufacturing; they export 90 percent of their output and account for over 80 percent of Ireland's manufactured exports; they contribute one-third of the gross domestic product (GDP); and they spend E15 billion annually in Ireland on salaries, components, materials, and services.

Overseas companies have been the dominant factor in the opening up of new export markets. Ireland is no longer over dependent on the United Kingdom, which in 1970 took 75 percent of Irish exports. In the year 2000 the proportion was down to 22 percent, with the rest of the European Union taking 40 percent and the United States, 17 percent. Free access to the 370 million people of the European market has been critical to this transformation. Foreign direct investment (FDI), especially from the United States, has helped to develop the Irish economy in other, less quantifiable ways. Major corporations, leaders in their industry sectors, have brought world-class standards of manufacturing, marketing, management, and research and development. They have created a market within Ireland for subsuppliers and have stimulated native enterprise.

The United States is by far the most important source of new investment from abroad; it provided 60

FDI into NI		FDI into British Isles
	No.	%	No.	%	Total
(1) Figures are for those projects that IDB can offer support (i.e., manufacturing and internationally traded service sector projects)
(2) Does not include any intra-U.K. investment
source: IDB Northern Ireland.
1999	7	7.3	141	95.3	148
2000	15	4.5	134	89.9	149
Total	22	5.8	275	92.6	297

percent to 70 percent of the new investment projects and 80 percent of the foreign capital investment in the ten years between 1990 and 2000. The 524 U.S. affiliates in Ireland employ 86,000 workers, and account for three-quarters of the E43 billion in export sales of overseas-owned companies. Substantial investment has also come from the United Kingdom (179 subsidiaries), Germany (166), the Asia/Pacific region (54), and from other European countries (291). These foreign-owned companies dominate the high-tech sectors: information and communications technologies (ICT); pharmaceuticals and healthcare; internationally traded services, including software, teleservices, e-business, and financial services. Dublin's new International Financial Services Centre (IFSC), a public/private partnership venture on the north bank of the Liffey, dwarfs Gandon's superb neoclassical Custom House building. The IFSC has four hundred of the world's leading banks and finance houses, providing specialist services to international clients.

Market Share

Consistent comparative statistics on FDI are notoriously difficult to obtain. FDI includes new investment in all sectors as well as mergers and acquisitions. IDA Ireland's remit covers only manufacturing and international services; it does not include tourism, retail sales, property, or oil and gas, for example, and it counts mergers and acquisitions only when there is associated incremental investment or employment in Ireland. However, it is clear from independent reviews that Ireland wins a disproportionately large share of all available new investment in Europe. It attracts close to a quarter of all new U.S. manufacturing projects (excluding mergers and acquisitions, and expansions of existing facilities) that locate in Europe, although it accounts for a mere 1 percent of European Union population and GDP. In 1997 it was the fifth largest recipient of all U.S. investment abroad; typically, Ireland's share of U.S. FDI is about 8 percent, up from less than 3 percent in the 1980s. The World Investment Report 2001, published by the United Nations Conference on Trade and Development (UNCTAD), shows FDI flows into Ireland rising from $2.7 billion in 1997 to $16.3 billion in 2000; the figures for the United Kingdom were $33.2 billion and $130.4 billion respectively; and the United States had inward FDI of $281 billion in 2000. Per capita, therefore, Ireland wins twice as much investment as the United Kingdom and more than four times the U.S. level. The value of total FDI stock in Ireland rose tenfold during the 1990s to $60 billion, while U.K. FDI stock barely doubled over the same period.

Ireland's emergence as a highly successful location for inward investment, and as one of the world's most open economies, really began in the 1960s, although many of the sagacious policy decisions that prepared the way for the "tiger economy" date from the 1950s. The 1950s were a period of transition, from the protectionist self-sufficiency of the Irish Free State (1922–1949), to an economy actively promoting free trade and foreign direct investment. The Control of Manufactures Act (1932) mandated that Irish-based companies must be majority Irish owned, reflecting the economic zeitgeist of the period between the world wars. By the time that the last controls on foreign ownership of Irish businesses were removed in 1958, the Industrial Development Authority (IDA), established in 1949 as a relatively minor investment-promotion agency, had been given new powers to seek inward investors by offering capital grants and tax breaks as incentives. The most compelling incentive was export sales relief (ESR), introduced in 1956: It gave full tax relief on profits from exports of manufactured products. ESR was terminated for new investors in 1981 and replaced by a 10 percent rate of corporation tax for all manufacturers, and for services companies trading internationally.

Since 1970, when it became responsible for all aspects of planning, promoting, and negotiating industrial investment, IDA has concentrated on sectors appropriate to Ireland's attributes and in which Ireland could offer investors a competitive advantage. The agency has been successful in identifying emerging new sectors, often ahead of its competitors—call centers, shared services, and specialist financial services are examples from the 1990s. Most of the current inward investment is targeted at high-growth, high-productivity sectors.

IDA negotiates more than one hundred new investments each year; about half come from existing investors. The agency works with foreign subsidiaries in Ireland helping them to upgrade the value and quality of their activities (by adding marketing and research and development to a basic production unit, for example) in order to make them more secure in times of economic crisis. Inevitably, given the volatility of the high-technology sector, Ireland has had its share of plant closures; the attrition rate is in line with international trends. While the policy of encouraging inward investment has the support of all sections of the community, the critical impact of U.S. investment leaves Ireland vulnerable to downturns in the American economy.

With Ireland in effect enjoying full employment, IDA will shift its emphasis away from single projects, mainly in manufacturing, to establishing "strategic business areas," clusters of technology companies, venture capitalists, corporate and academic research centers, and consultants, on the Silicon Valley model. Over time, more of the incoming investment will be based on innovation and research, involving knowledge-intensive projects needing the high skills and expertise that Ireland is determined to have available.

Northern Ireland

At the time of Ireland's independence in 1922 the six counties of Northern Ireland, which remained part of the United Kingdom, were more industrialized than the agricultural South. Shipbuilding and linen manufacturing were strong sectors (the Titanic was built in Belfast), and through the 1940s and 1950s heavy industry flourished. Exposure to foreign competition brought a decline in manufacturing in the 1960s and 1970s. Between 1973 (when Northern Ireland became part of the European Union) and 1990, employment in manufacturing fell by 36 percent.

As in the republic, measures to encourage industrial investment were first introduced in the 1950s; capital grants date back to 1954. The range of supports for industrial development has grown steadily since 1970. The Industrial Development Board was established in 1982 as an amalgamation of two existing agencies; it had responsibility for encouraging inward and indigenous industrial investment, for promoting exports, and for expanding small industry. At the beginning of 2002 the inward-investment arm of IDB was hived off as a new agency called Invest Northern Ireland (INI).

Northern Ireland has a long tradition of inward investment, but continuing civil unrest since 1970 has significantly curtailed the flow of new projects. In 1990 there were 207 externally owned plants in the province, including 129 from mainland Britain. By 2001 the total had risen to 388 establishments—100 from the rest of the United Kingdom, 95 from the United States, and 59 from the Irish Republic. They employ 55,000 workers, and their export sales are equivalent to almost one-fifth of N.I. GDP. IDB secured thirteen new FDI projects in 2000; the key targets are the knowledge-based sectors of software, telecommunications, network services, and e-business, which account for 69 percent of projects and 79 percent of FDI capital.