Blog Article 10 Sep 2018
Martin Shanahan, CEO, IDA Ireland 

Martin Shanahan, CEO, IDA Ireland 

Think for a moment what might have happened if Ireland had chosen a different industrial policy in 1958. That instead of opening up to the world, attracting foreign direct investment (FDI) and placing strategic bets on international trade, we continued with the status quo. We know from history what the counter-factual looks like: Ireland was a country that was inward looking, protectionist, and poor.

I ask the question because some recent commentary suggests we are over-reliant on FDI companies; that multinationals’ presence creates additional pressure on residential property prices, that corporation tax receipts from FDI may not last, or that transitory FDI investments skew our industrial policy to the detriment of indigenous business.

I would argue this analysis is based on misunderstanding FDI’s true place in the Irish economy. Attracting foreign direct investment is one of three pillars in Ireland’s industrial policy, along with supporting indigenous companies to grow and trade internationally, and investing in innovation and R&D. All three are interlinked.

More than six decades of attracting multinationals to Ireland has taught us that the success of external investors and indigenous business are intrinsically connected. In 2016, multinationals spent €17.9 billion in the Irish economy on payroll and on Irish-sourced materials and services. From Donegal to Cork and Waterford to Galway, many families’ incomes and livelihoods depend directly on multinationals. Indirectly, the presence of multinationals benefits thousands of jobs in the domestic economy as those multinationals’ employees spend their disposable income locally. We should also note FDI companies’ contribution to a remarkable improvement in employment figures. Just six years ago, unemployment was 16 per cent; as of July this year, that figure has fallen to 5.1 per cent.

By themselves, multinationals contribute 66 per cent of national exports. Yet, there is strong evidence to show that their presence in Ireland also strengthens our home-grown companies. For example, many construction firms built semiconductor fabrication plants, clean rooms, and data centres in Ireland for FDI projects. They then translated this experience to the global stage to win business.

Countering the perception that FDI companies are transitory, in fact, some multinationals have operations in Ireland for more than 60 years, one-third have had a presence here for more than 20 years and almost 60 per cent for more than 10 years. We understand and accept the risk that some will inevitably go. We regularly evaluate the types of companies we attract into Ireland, and we closely track trends shaping their industries to pre-empt developments.

We must be keenly aware of technology’s impact on the future of work. For example, the trend of artificial intelligence is both a risk, because of its potential to disrupt many jobs, but also an opportunity for Ireland. Today, many third-level institutes across Ireland are developing courses that will produce graduates with skills to work in this field. This investment in innovation and education is another key element of Ireland’s interlinked industrial policy.




Some commentators bemoan multinationals’ presence as a catalyst for rising residential property prices. However, the origins of this problem are complex, rooted in rising demographic trends, and a lack of investment in the years after 2008. Separate to any economic considerations, this is a pressing societal issue that concerns us all. We expect the policy response and planned infrastructure spending will address these constraints.

As Ireland’s only international city of scale, Dublin naturally attracts a high level of FDI activity, but the perceived risk that investment is overly concentrated around the capital is misplaced. In fact, half of multinationals’ €5 billion annual capital expenditure, and 58 per cent of employment, is outside Dublin. To put the jobs figure into fuller context, multinationals account directly for 10.2 per cent of total employment in Ireland.

Even as FDI in Ireland outperforms expectations, we cannot blithely assume this will continue. The last global downturn was less than a decade ago; the current economic climate is changeable at best. It is true that FDI activity accounts for a tax surplus now, but we must treat this as a windfall for the State; exceptional, not expected, and not one we should always count upon.

FDI is not a tap that we can turn on and off when it suits us. The global race for FDI is more competitive than ever; Ireland must maintain its fitness and we cannot achieve this by standing still. Unless we continue to support companies in expanding their mandates in Ireland, and to attract new investment, we will lose out on the next wave, and the wave after that.

Many factors threaten our continued growth, from potential erosion of our competitiveness to rising nationalistic and protectionist tendencies across the world. Together with Ireland’s positive demographic trends, job creation will continue to be an issue.

Ireland is too small to influence wider global developments. What we can do is influence our domestic policies which support competitiveness, including education and infrastructure investments that prepare us for many possible eventualities.

It is right that we consider our industrial policy’s fitness for future needs – but it is important that we do so in a clear-eyed way. Evaluating Ireland’s current and future industrial path calls for facts, not emotion; for sound judgement, not gut response; and long-term thinking rather than short-term reaction.

 

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