Irish Economy
Ireland's confusing FDI data in age of spin
By Michael Hennigan, Finfacts founder and editor
May 27, 2013 - 6:14 AM

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Richard Bruton, enterprise minister, and John Herlihy, Google Ireland chief, Dublin, September 2012.

Ireland endorses two sets of FDI (foreign direct investment) data, which is confusing but then the government department of Richard Bruton, enterprise minister, says there are two values for total exports in 2012 with neither of them meriting the tag 'official' - - this is the product of a system that is addicted to spin.

In the aftermath of the revelations by a US Senate panel of Apple's tax haven activities in Ireland and its use of stateless / ghost Irish companies, one of which pays taxes in Ireland, the role of FDI has received a lot of attention.

Over the past decade, international bodies led by the OECD have tried to bring standardisation to FDI statistics as issues such as the treatment of intra-company loans and sourcing from multinational cash pools, resulted in double-counting and a lot of confusion.

Following the recommendations of the OECD, IMF, ECB and EUROSTAT, direct investment flows are recorded on a ‘directional basis’ rather than what was the more usual assets/liabilities basis. This change is explained well in a Banque de France paper [pdf].

There are still a lot of opportunities for confusion as illustrated by the revelation that Apple keeps most of its 'overseas' cash hoard of $102bn in New York banks.

Besides, 'inward flows' may suggest little about new investments as they may relate mainly to retained or reinvested earnings in a country or book balances of cash held to avoid US taxes

We reported last month that the number of FDI (foreign direct investment) projects into and out of Europe declined in 2012, mirroring global trends. A total of 3,891 projects into Europe were recorded, representing a 20.82% decrease in comparison with 2011. In 2012, the top 10 countries accounted for 72.19% of FDI projects into Europe. FDI projects into Ireland (new to Ireland and new projects by existing foreign-owned firms in Ireland) amounted to 147 and represents a decline of 21%. Spain and Poland were the only top countries to experience a growth in FDI.

Data on the values are not available for 2012 and in respect of 2011, Ireland's Central Statistics Office reported [pdf]  that net 'flows' of direct investment into Ireland in 2011 were €8bn - - down from a €32bn inflow in 2010. Reinvested earnings amounting to €23bn and other capital of €22bn were partially offset by equity withdrawals of €36bn.

The stock of foreign investment in Ireland was €194bn and Irish stocks of direct investment abroad fell by €12bn from an end-2010 position of €254.5bn to €242.5bn at the end of 2011. However, the latter is polluted by the impact of large foreign companies that have their headquarters in Ireland.

UNCTAD, the UN trade and development agency, in its 'World Investment Report 2012' [pdf] has Ireland's 2011 inflows at $13.1bn.

The ranking of economies in UNCTAD’s FDI Attraction Index, which measures countries’ success in attracting FDI over a rolling three-year period, has Ireland in 5th position given the existing large volume of FDI while  in a survey of multinational companies, Ireland doesn't appear in the top 20 favourite destinations for 2012-2014.

Reuters reported last week that at a conference in Dublin on Friday the head of Ireland's largest bank gave small business leaders the "15-second elevator pitch" he gives to US executives when he is in New York or Boston.

"I've mentioned to US investors that US companies have more capital invested in Ireland than they do in Brazil, Russia, India and China put together," said Richie Boucher, chief executive of Bank of Ireland.

"We have had a record year of FDI (foreign direct investment) in 2012" - - in a count of projects, fDi Intelligence, a unit of The Financial Times, says not so -- see 2012 data above.

Wilbur Ross, the billionaire US investor who has invested in Bank of Ireland must be impressed with this data.

Why wouldn't he be?

The Reuters report says that the numbers are eye-catching. [About $30bn of net FDI flowed in to Ireland from the United States in 2011, the last year data is available. That is double the level at the peak of Ireland's boom and the equivalent of €6,670 for every man, woman and child in the country.

And yet in the real economy, the number of jobs in foreign-owned firms fell by 9%, according to state enterprise board Forfas. Total employment fell even more - - 15%.

What the FDI figures help illustrate is how large international companies and funds use Ireland as a base to route their profits and investments to cut their tax bills.]

The $30bn figure has received attention in Ireland as it comes from an annual American Chamber of Commerce in Ireland report that in the past has been launched by Minister Richard Bruton and endorsed by IDA Ireland, the inward investment agency.

Bruton said at a launch on October 04, 2012: "The excellent report published today by the American Chamber shows that our performance continues to improve, with a 9% increase in US investment here in 2011."

"Caveat emptor" (Let the buyer beware) should be the watchwords for statements by Irish ministers. “Doveryai, no proveryai” (Trust but verify) became President Ronald Reagan’s watchwords for the relationship with Mikhail Gorbachev, Soviet Union president, in the 1980s.

The origin of the $30bn figure is a US Bureau of Economic Analysis survey [pdf] of majority-owned non-financial affiliates of US corporations.

The survey report says:

Reinvested earnings - - the difference between US parent companies’ shares in their foreign affiliates’ current-period earnings and the distributions to the parents from the affiliates’ current and cumulative retained earnings - - increased 12% to $326.0bn, reaching the highest level since the statistics began in 1950. Reinvested earnings accounted for 82% of the financial flows and for nearly 90% of the increase in the outward position.

The position in Ireland increased $30.7bn; more than half of the increase was attributable to holding companies, mainly due to reinvested earnings."

The reinvested earnings include cash that is technically 'trapped' to avoid repatriation and paying the full US corporate tax rate of 35%.

This cash may be within a host country or in the United States.

The data should not be used as an indicator of new investment in Ireland.

Taoiseach Enda Kenny speaks from Google's HQ, Barrow St, Dublin on FDI - - - he says foreign multinationals employ at least 250,000 people in Ireland - - this is not correct. The number in full-time employment is less than 150,000:

The idiot/ eejit's guide to distorted Irish national economic data


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