Cantillon: Foreign investment figures are far from direct

At first glance the statistics on foreign direct investment released yesterday by the Central Statistics Office appeared to be very much at odds with those released on Thursday by the American Chamber of Commerce in Ireland.

The latter body stated that last year Ireland was the fourth largest recipient of foreign direct investment in the world.

It got $22.8 billion (€16.8 billion), almost as much as all of developing Asia, and at a time when the amount of US FDI into the EU as a whole declined by 17.5 per cent.

The CSO report, on the other hand, showed direct investment flow into Ireland from the US last year of just €1.4 billion, well below the €20.8 billion that came from Europe.

However the likely reason for the difference between the two reports was quickly spotted. The chamber’s report identified investment into Ireland by US companies, whereas the CSO data identifies investment as coming from the country in which the entity making the investment is located. So if a US company invests in Ireland by way of a Dutch subsidiary, that appears in the CSO figures as an investment from the Netherlands, not the US.

This explains why, in the CSO figures, the biggest country investing into Ireland in 2012 was Luxembourg.

It also means that the CSO figures show exactly how Ireland has become embedded in a global flow of multinational capital, with the billions flowing into and out of Ireland painting a map in which such places as Luxembourg, the Netherlands, Bermuda and offshore centres generally, can loom larger than the US, Germany and Japan.

Investment flow from Bermuda, for example, switched from a disinvestment of €8 billion in 2011, to an investment of almost €3 billion in 2012.

A huge proportion of the money on the move is categorised as re-invested earnings, and some have speculated as to whether much of this should not be described as cash on deposit which US multinationals are seeking to protect from the IRS. Multinational investment in Ireland comprises a huge component of the economy’s productive activity. But is is not quite as big as the massive FDI figures might make it appear.