Chairman and CEO Overview

A world class knowledge-driven economy

Ireland has undergone a transformation over the past 10 years bringing new levels of economic wealth, opportunities, achievements and confidence at a national and individual level. These achievements are grounded on a shared national vision of advancement and development and on our ability to constantly innovate and evolve.

Over these years, IDA, in close co-operation with key national partners, has set out to reposition Ireland as an advanced knowledge-driven economy, reflecting global changes in business and the significant evolution in Ireland's capabilities. This involved creating new areas of strength, and positioning Ireland as the destination of choice for knowledge-led activities and sectors. The success of this strategy continued in 2006.

The impact of Foreign Direct Investment (FDI) on Ireland's growth and prosperity

As we enter the next phase of economic development under the recently launched National Development Plan (NDP), it is timely to consider the profound impact Foreign Direct Investment (FDI) has had on Ireland's growth and prosperity.

There are a number of complex, interlinked factors which generate economic activity, national wealth and in turn employment. Foreign Direct Investment, facilitated by the work of IDA Ireland, continues to be an essential element of our national success. This economic success underpins social development and advances in quality of life.

Today there are almost 1,000 foreign-owned companies in Ireland, directly employing more than 135,000 people. These companies make further significant contributions to the Irish economy through the wide range of goods and services purchased in the economy, which in turn support many thousand additional jobs.

The impact of FDI on Ireland is pervasive and goes much deeper than job creation. The positive impact is visible in many key aspects of Irish life.

• Foreign-owned companies are at the cutting edge of demand for high skills, of advanced management training and of business processes which permeate the wider business community.
• These companies are leading contributors to the national research and innovation agenda through substantial capital and intellectual investment in company-owned research facilities and in widespread collaborations with third level institutions and dedicated research institutions.
• Through their successes, they have contributed greatly to the broadening of the economic base in Ireland by linking to and fostering entrepreneurial activities and indigenous start-ups aimed at supporting and selling to the FDI community.
• The on-going scale of financial impact is illustrated clearly in the data which shows that FDI companies spent €5.7bn on payroll costs, €5.7bn on Irish services, €3.4bn on Irish materials, invested €2.6bn in fixed assets and paid €2.8bn in corporation taxes in 2006.
• These companies have helped guide our national developments in education, science, telecommunications and infrastructure which now benefit the wider community on a business, social and personal basis.
• On a less tangible, but possibly more profound basis, FDI, by its presence over the past 40 years, has contributed greatly to our national confidence and place in the world.

Ireland is now in a leadership position in many of the key business segments in which we compete:

Biopharmaceuticals

Ireland has emerged as a leading location in the world in biopharmaceuticals. In 2006, industry leaders like Amgen and Eli Lilly joined Schering Plough, Wyeth, Genzyme and Centocor in making Ireland one of the key locations of choice for development and manufacture of the newest drugs.

Digital Media

We are also the place in Europe for digital media, with Amazon in Cork and Dublin, and Google in Dublin, along with other leaders such as eBay / Paypal and Yahoo – all of which grew in 2006.

Information and Communications Technologies

Our long-standing leadership position in Europe in Information and Communications Technologies (ICT) was reinforced by new investments from Cisco, IBM, Netgear, Sandisk and Trend Micro, amongst others. Today there are 210 foreign-owned companies in the ICT sector in Ireland.

Financial Services

This is one of the areas of greatest new business success. In twenty years, the international financial services sector in Ireland has attracted 250 companies which now employ 24,000 people. The sector continues to thrive and last year saw new investments from Citco (Cork), Northern Trust (Limerick) and Vesta (Dundalk), as well as the continuing growth of Dublin-based businesses.

Medical Technologies

As one of the leading destinations for Medical Technology investment, Ireland has attracted 83 companies in this important business segment. Continued growth in medical technologies in 2006 was evident by announcements from Cordis (Cashel), USCI (Ballinasloe) and Vistakon (Limerick) among others.

Engineering and Manufacturing

Every developed economy must possess a strong core competency in engineering and manufacturing and Ireland continues to foster and develop these key abilities which apply across many sector and business segments. High level manufacturing and engineering is undertaken in Ireland by leading companies such as ABB, Kostal, Cameron, Liebherr, Lufthansa, Intel, Pfizer, GSK, Medtronic, Abbott and many more.

How Ireland has evolved

In parallel with the growth and impact of FDI, Ireland itself has changed profoundly.

We now have a sophisticated, successful economy which is much studied by economic commentators across the globe. We receive frequent delegations from various study groups, including governments, to observe at first hand and learn from our collective experience. This is not surprising, given that an average annual GDP growth rate of 6% has been sustained over the twenty years since 1987, with a similar rate achieved again in 2006.

One of the most powerful measures of our economic evolution is that of employment creation and job opportunities. In 1996 1.3 million people were employed in the Irish economy, with an unemployment rate of 11.9%. By the end of 2006 employment levels had risen to 2.1 million (an increase of over 60%), while unemployment had fallen to 4.3%.

Educational opportunities, access to third level, and life-long learning have all significantly improved. We have enhanced infrastructure, and invested to improve quality of life and recreational facilities. The economic and social burden of emigration has ceased and inward migrants, who now account for 10% of the total population, are enriching us with new skills and talents.

Economic success and social progress have moved together. New opportunities and life choices are available for people that were previously beyond reach. International links have blossomed for individuals as much as for business. Now, and for the future, new aspirations and expectations are powerful driving forces for our national progress – for example, in social cohesion, work and leisure, lifestyle, the physical environment, the quality and accountability of health, education and welfare services, and other quality of life issues.

These very positive trends have changed the basis for Ireland to compete for FDI. The previous advantages of a large labour surplus and low costs have been replaced, in a relatively short time, by high skills, speed, agility and flexibility as defining characteristics of performance. The pace of transformation has inevitably created challenges which will need continuing attention both nationally and regionally; we will revert to these issues later in this review.

There has been an accelerated transformation in what Ireland offers international investors since the year 2000, which was the last year of volume-based growth; now our growth is quality-based. Then we measured job numbers, now we seek job value. In the past we were concerned to add jobs, because employment numbers mattered. Now, while we still add jobs (gaining a net 3,795 jobs in 2006 in IDA supported companies), it is the impact of creating new areas of opportunity and of raising living standards that drives us. As a result, today's jobs tend to be higher quality, more satisfying and better paid.

Transformation of Irish-based multinational investors

The evolution of the Irish economy has been influenced by many factors, particularly the transformation process of Irish-based multinational investors.

The competitive global environment in which these companies operate constantly determines and shapes best operational and business practice. This learning and innovation, combined with Ireland's increasing skills and talents, has prompted companies to transform their operations in Ireland.

Many companies, both large and small, have expanded greatly their original corporate mandate in Ireland. Many may have commenced with a single mandate, manufacturing for example, but have moved now to take on Europe, Middle East and Africa (EMEA) or global corporate responsibilities in areas such as sales and marketing, procurement, R&D and technical and customer support.

While these changes can lead to some transfer of activities out of Ireland and job losses related to the original mandate, the net effect is undoubtedly positive when the role and significance of the Irish operation is enhanced and strengthened within the corporation, thus benefiting the company and Ireland into the future.

The ambition of Irish managers to drive change, and the ability and willingness of workforces to pursue it, are important competitive advantages in the competitive global economy. To illustrate this important process we give some examples of these transformations in our report.

An outstanding year of growth and new investments in 2006

The quality of new investments from global companies into Ireland is of the highest standard, reflecting the remarkable evolution of the business ecosystem in Ireland as international competition and Irish economic conditions have changed.

Investments in the past year, such as those by Amgen in biopharmaceuticals manufacturing and in R&D by world class firms such as Cisco, GlaxoSmithKline, PepsiCo and Georgia Tech, are clear evidence of this evolution.

Some of the highlights of IDA's activities during 2006 include:

• 71 new business projects were negotiated with new and existing clients which involve a total investment of €2.6bn over the coming years.
• Investment in research and development continues to increase. 54 R&D investment projects were supported in 2006 involving a total investment of almost €470m. The corresponding values were €140m in 2004 and €260m in 2005.
• Reflecting IDA's strategy of balanced regional development, 89 new investment projects (including 46 R&D investments) occurred outside Dublin.
• IDA supported companies spent almost €15bn in the Irish economy in 2006 from their annual sales of €77bn and paid over €2.8bn in corporation tax.
• Over 50% of jobs in new IDA supported projects in 2006 have wage and salary levels in excess of €40,000 per annum.
• Employment in IDA supported companies increased by 3,795 in 2006, bringing total employment to 135,487.

Regional Development

Central to IDA's activities is its commitment to achieving the best possible regional balance in investments. In 2006 almost 60% of new greenfield projects, and 6 out of every 7 R&D investments (or 85%), took place outside Dublin, with a wide geographical spread of high quality investments.

The challenge of achieving a good regional spread of investments increases as the higher value parts of the business value chains are targeted for Ireland. The need for a critical mass of suitably qualified talent, supporting infrastructure and sophisticated business services tend to draw investors towards cities and regions of scale.

For most investments for which IDA competes, the competition is from city regions with a population base of over a million people. In Ireland, only Dublin has a population of this size. For this reason, every location in Ireland has to think and act regionally, rather than locally, if it wishes to succeed. The National Spatial Strategy sets out the framework for development in this way and needs to be embraced actively and followed by all economic and social parties.

Reflecting the previous and new National Development Plan (NDP), IDA has raised significantly the potential for regions to prosper by implementing a national programme of investment in the vital infrastructure of business park development and the provision of sites for major projects. IDA property plays a key role in regional development and is increasingly viewed as a critical strategic differentiator by potential investors.

IDA has been instrumental in the development of high quality flagship technology parks in the respective Gateway and Hub locations ensuring full integration into the surrounding business and economic environment. In 2006 major construction work was undertaken in Oranmore, Co. Galway and Dundalk, Co. Louth on utility-intensive sites. IDA also obtained planning permission for a very significant integrated circuit development at Grange Castle, Clondalkin, Co Dublin, which is now being marketed globally.

The new NDP with a total planned expenditure of almost €184bn will allow Ireland to close the infrastructure gap and enable each region, and Ireland in general, to enhance further our attractiveness for FDI.

Research and Innovation

Ireland is now a global competitor for Research and Innovation investment from multinational companies and leading research institutions. We are seeing the results of a concerted effort in Government policy to build a substantial foundation of world class science and technology in our academic institutions and, in particular, the encouragement of strong business and academic collaborations.

This is enabling the build-up of meaningful research and development capabilities of Irish-based business, a step that is fundamental to Ireland's future competitiveness and sustainable growth. In Section 2 (page 11) of this report we outline how this innovation culture is dynamically evolving and yielding world class results.

The Future

Ireland has reinvented its attractions for inward investment, since the peak of the 'Celtic Tiger' years in 2000. We have done that by recognising continual changes in global conditions and in our own circumstances. We have moved with agility to enhance our national capabilities, innovation, creativity and connected national ecosystem. This we must continue to do.

The successes of any one year are always the product of sustained effort over an extended period by many players. National and local government, industry bodies and representatives, educational bodies, and infrastructure, utility and service providers play a key role in creating the conditions for winning business. Most of all, however, it is the employees and managers of existing multinational companies in Ireland who are the vital beacons of success for future investors.

The performance of IDA over the past seven years mirrors the ambitions and strong national economic performance of that National Development Plan period. The new NDP provides for strong investment in infrastructure, and knowledge-driven activities. A number of aspects are particularly critical for success in FDI:

• investment in transport infrastructure, such as roads, airports and public transport,
• providing competitive and robust energy supplies,
• encouraging our students to study science, engineering and business,
• enabling a fully connected and innovative research environment.

If we fail to provide essential infrastructure quickly, Dublin may falter and regions fail. There has been good progress in recent years in building road and other transport links, but the pace of our continuing development and the extent of global competition demand the urgent delivery of Transport 21, the Government's ambitious and necessary transport plan. Similarly, the enhancement of energy and telecommunications capacity and networks are fundamental to our future progress.

We must pay close attention to national competitiveness and all the factors which feed in to it. Ireland is a small open economy operating in a highly competitive global environment and our competitive position is vitally important at all levels of the market hierarchy in which we compete. Costs matter at every level of activity. Salary and wage increases have to be justified by the value created and sustained by productivity gains. Infrastructure and service costs have to be competitive with the best in the world. Failure to stay ahead in these aspects would increase the risk that other countries will win at Ireland's expense.

There continues to be huge changes in the world economy and in Ireland's relative position in it. China and India are now more fully integrated into global markets and, with the rest of Asia and Central and Eastern Europe, they provide strong competition for many activities. Our relative costs now are higher than before. We have responded nationally to these changes by positioning ourselves as the location for more advanced activities, with more qualified and better paying jobs. This is why the proposed investments, structures and policies set out in the new National Development Plan and National Spatial Strategy are so important.

Global corporations can organise their business in physical or virtual form and select the most effective location for each element of their business process. In doing so they seek three essential ingredients:

• The right people and skills.
• A supportive ecosystem and infrastructure.
• A positive and forward looking attitude.

These are vital features on which we must remain focused and seek to improve constantly. These attributes also form the core of the international marketing campaign launched by IDA in May 2006.

Global competition, and the future needs of our existing and new investors, requires a collaborative, national team effort in which all key stakeholders actively contribute and assume their respective responsibilities to deliver on our shared national vision. We commit IDA to continue to play our central role in driving and encouraging the evolution of high quality FDI.

The very strong investment achievements of 2006, combined with the on-going shared national efforts to continue the transformation of Ireland into an ever more advanced knowledge economy, gives us great confidence in our ability to win exciting new investment projects in 2007 and beyond. We have a good pipeline of potential investments and we are optimistic of winning quality new investments from new and existing clients for locations across Ireland.

Each year the staff of IDA achieve outstanding results, against great competition and many challenges, through their dedication and hard work. The Board wishes to thank each and very one of them for their contribution in 2006 and for their on-going commitment.

 

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