Irish Economy
US study on FDI into Ireland flawed; Ambassador says "incredible"
By Michael Hennigan, Finfacts founder and editor
Mar 6, 2015 - 8:33 AM

Printer-friendly page from Finfacts Ireland Business News - Click for the News Main Page - A service of the Finfacts Ireland Business and Finance Portal

Enda Kenny, taoiseach, speaking with President Obama in the Oval office, March 14, 2014. "There is tremendous investment by US companies in Ireland. There's tremendous investment here in the United States by Irish companies. We're an example of the mutually beneficial trade that can take place across the Atlantic," the president said. However, the Irish investments that he was unwittingly referring to, were mainly by US firms that had become "Irish" for tax avoidance purposes.

The latest American Chamber of Commerce in Ireland annual report on US FDI (foreign direct investment) into Ireland and claimed Irish investment into US is deeply flawed as it presents data significantly distorted by tax avoidance, as fact.

On Thursday Charlie Flanagan, foreign affairs and trade minister, launched the report, 'The Irish-US Economic Relationship 2015,' in Dublin: "This month, I, the taoiseach, tánaiste and five more of my ministerial colleagues will be travelling to the US for St Patrick's Day and every one of us will have trade promotion events as a key part of our programmes," he said. "This Government will continue to work to bring the Irish-US economic relationship to the next level by ensuring the conditions for future growth are in place in Ireland and in promoting Ireland as a great place to do business."

The minister added that 700 US firms currently have 130,000 employees in Ireland (this data likely came from IDA Ireland as the chamber's report is based on US employment data to 2012).

The report says that "in 2013, the last year of complete data, Ireland ranked as the number one destination in the world for US foreign direct investment and "US direct investment stock in Ireland totalled a record $240bn in 2013, a greater investment stake than Germany and France combined ($196bn)."

The blowout figures however are out of sync with the jobs data i.e. the real world — US firms in Germany and France combined have 11 times the employment of US affiliates in Ireland.

In the foreword to the report, Kevin O’Malley, US ambassador to Ireland cites 115,000 jobs in Irish-based US firms and comments on Irish investment in the US: "But this investment is not one way. The report states that Ireland invested a record $26.2bn in the United States for 2013. This is an incredible statistic for a relatively small country. Successful Irish multinationals have led the way for Irish startups who are increasingly looking to the US as a first step in their path towards internationalization."

Ambassador O'Malley has been sold a pup as this data mainly reflect investments by American firms that have become "Irish" for tax purposes. By the end of the current quarter these firms known in the US as tax inversions will have a combined payroll in excess of 600,000.

Last year's report claimed that Irish companies employed 141,500 and the Brookings Institution fell for it. Only about 6 of the 22 listed "Irish" companies on the Nasdaq stock market are in fact Irish.

CRH, the Irish building materials group has about 40,000 employed in its Americas divisions and about 90% of its shares are owned outside Ireland.

As noted above President Obama also cited (White House video) the high Irish investment in the US last March but months later he referred to Ireland as a popular location for tax inversion companies.

Last month the Central Statistics Office reported that Ireland's outward investment at end 2013 was valued at €389bn and inward investment was valued at €287bn — Ireland has only a small number of multinational companies of significance.

According to US Bureau of Economic Analysis data, US non-bank affiliates in Ireland employed 93,000 in 2000 and in 2012 'all foreign affiliates' employed 109,000 as per the chart below despite a six-fold jump in the value of foreign investment.

We noted in 2013 and first reported in 2004 that Ireland became the most profitable location for US affiliates between 1999 and 2002 when corporate tax avoidance accelerated and the annual data includes reinvested earnings (including cash balances technically 'trapped' overseas to avoid a tax liability).

US company profits per Irish employee at $970,000; Tax paid in Ireland at $25,000

In 2012 US companies in Germany with 683,000 employees had sales of $380bn while in Ireland 109,000 managed to have sales of $324,000.

In China with a value of $51bn in FDI stock, 1.6m are employed.

These are some of the wild claims in the report:

  • "First, total US investment to Europe in the first nine months of 2014 fell 19% from the same period a year ago, to $115bn, while US flows to Ireland surged nearly 42%, to roughly $37bn.
  • Second, US investment flows to Ireland have easily surpassed pre-crisis levels; however, US investment to Germany, France, Spain and many other nations remain below pre-crisis levels. While Ireland accounted for 6.4% of total US investment in Europe in 2007, the nation’s share had surged to 17.1% by 2013.
  • Third, US direct investment stock in Ireland totalled a record $240bn in 2013, a greater investment stake than Germany and France combined ($196bn).
  • Fourth, US investment stock in Ireland surged 15.6% in 2013, well above the global growth rate of 6.2%. Ireland now accounts for just over 10% of total US foreign direct investment in the European Union.
  • Fifth, since 2000, the stock of US foreign investment in Ireland has soared by more than six-fold, or from $36bn in 2000 to $240bn in 2013.
  • Sixth, US investment stakes in Ireland are easily in excess of total US investment in South America ($169bn), Africa ($60bn), and the Middle East ($45bn) Seventh, US companies have invested roughly $277bn in Ireland since 1990; the comparable figure for Brazil: $92bn; for Russia: $10bn; for India: $32bn; and China: $51bn.
  • Finally, when US foreign direct investment flows to Ireland are adjusted to account for the role of US holding companies in driving flows of investment globally, the nation’s position as a premier destination for US firms is reinforced. Indeed, in 2013, the last year of complete data, Ireland ranked as the number one destination in the world for US foreign direct investment under this lens."

This report is a very misleading guide to US-Ireland FDI.

Reuters reported in May 2013 that at a conference in Dublin "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.

Despite all these exaggerations, total jobs in foreign-owned exporting companies in Ireland at end 2014 were lower than 2000 — 14 years before and despite a 20% rise in that size of the overall workforce.

US Bureau of Economic Analysis data


© Copyright 2015 by Finfacts.ie