US presidential elections, zero interest rates, sluggish European growth and turbulent markets: the old Chinese aphorism of “interesting times” may never have been more apposite when it comes to US-Irish relations.
However on June 24th, it just got a bit more interesting when the UK voted to leave the European Union.
Indeed the wider impact of Brexit, as well as its effect on foreign direct investment (FDI), remains to be seen but the investment case for US companies looking to access the European market from Ireland remains – the market has gotten smaller.
Despite the volatile external environment, US companies are still looking to Ireland as a gateway to both Europe and the wider EMEA region.
It’s a startling fact that US companies invest more in Ireland than they do in the economic engines of the emerging nations, with some $116 billion (€102 billion) invested by US companies in Ireland between 2008 and 2014, compared with just $73.8 billion into the Brics (Brazil, Russia, India, China and South Africa).
And the investment shows no sign of slowing down. “We’ve seen no diminution in foreign direct investment (FDI) in the first six months,” says Martin Shanahan, IDA chief executive.
Of note is the number of projects choosing locations outside of Dublin to set up. Most notable perhaps is Apple’s decision to base its new data centre in Athenry, Co Galway, while in one week in June, for example, the IDA announced four projects, and three of these – Surmodics in Ballinasloe, Co Galway, Eurofins in Dungarvan, Co Waterford, and Zeltiq in Galway – were outside of Dublin.
Technology continues to dominate the projects coming to Ireland, followed by pharma and financial services, with KPMG partner Anna Scally pointing to the opportunity that the fintech sector presents.
“With financial stability and a renewed energy in the economy, creating the kind of environment that supports the emergence of entrepreneurship in fintech presents the very real prospect that Ireland will play a leading role on a global scale,” she says.
In the run-up to the Brexit vote, PwC managing partner Feargal O’Rourke says where it impacted was on the UK-Irish front, where he did notice a slowdown on investments between the two countries.
As the UK now prepares to exit the EU, Shanahan notes: “The context may change, but regardless of what that context, is we will continue to market Ireland as a location for FDI.”
Economic stability
Perceptions of Ireland as a location for FDI matter. Back in 2010, when the troika was in town, O’Rourke found himself downplaying what the move meant while visiting stateside. “Their perception was worse than the reality,” he recalls.
Now, however, the US sees Ireland as the poster child of Europe, the one who listened to its stern parents, took the austerity cuts on the chin, and came out the other side, at a time when other so-called “Piigs” are still languishing in recession.
The truth, of course, is that while GDP growth is motoring ahead, at more than an expected 5 per cent for 2016, the economy still has problems. “Now the perception is better than reality,” notes O’Rourke.
Nonetheless, there is still a lot to be positive about.
“The growth in the Irish economy, which is still outstripping the rest of Europe, educated workforce and a very competitive corporate tax rate are just three of the reasons Ireland is seen as the gateway into Europe for many large US businesses,” says Julian Yarr, managing partner of A&L Goodbody.
Challenges
But, as ever, there are challenges on the horizon – wage inflation pressures and office shortages to name just two. External threats are also ever-present, with Yarr citing political instability in Europe and within the euro zone as a threat.
But it’s the rental accommodation crisis that seems to be garnering most newspaper print and it has now reached the ears of the FDI decision-makers.
“It’s one of the first couple of things they talk about,” says O’Rourke, although it may not be an issue for all – launching Google’s new data centre in June, Ireland chief Ronan Harris said that, in his view, the rental issue hadn’t held up investment at all.
Competitive forces also cast a shadow. Irrespective of the UK’s vote to leave the EU, it has positioned itself as a strong location for FDI in recent years, slashing corporate tax rates to 17 per cent by 2020.
And O’Rourke thinks they may go lower yet. “I could see them go to 15 per cent. It’s not inconceivable that they would go to that rate,” he says.
In this respect, recent improvements in Ireland’s global positioning are welcome.
“We’ve seen huge improvements in our global competitiveness rankings,” says Shanahan, pointing to Ireland’s recent move up the rankings in the Institute for Management Development survey, in which it ranked seventh out of 61 countries.
“However it shouldn’t make us complacent,” he adds, noting that competitor countries can be extremely aggressive in improving their own propositions and fighting hard for investments.
An evolving offering
One way Ireland has managed to remain attractive to US companies in how its FDI offering has continued to evolve.
Some 20 years ago US med-tech company Cook Medical first came to Ireland and today employs more than 800 people in Limerick – and is still growing.
“Like many multinationals, Cook came to Ireland because of the availability of talent, the tax regime, and the fact we were competitive and still are. Also, an English speaking country is very important for US multinationals,” says Bill Doherty, executive vice-president, EMEA, at Cook Medical in Limerick.
But as Ireland’s proposition has changed, so too has the range of activities Cook undertakes here.
“One of the most important things that the Irish unit of a multinational needs to do is establish a good track record. If you establish that over a period of years, then the corporate entity is willing to give you more responsibility and broaden your mandate,” notes Doherty, adding that Cook would have looked on Ireland as primarily a manufacturing base with some R&D “principally more the D than the R at that point in time”. Twenty years on, however, Ireland is seen as a place to put global business operations.
“They look very much at the R as well as the D part now,” Doherty notes.
US elections
But if Ireland’s FDI offering has changed, so too may the country’s relationship with the US. In November, the US electorate will vote on a new president and the outcome of that process may cast a shadow on US-Irish relations.
Republican presumptive nominee Donald Trump, for example, has criticised Ireland for “outsmarting” the US by giving multinationals incentives to move jobs overseas. But whatever the outcome, commentators don’t expect all declarations made during the election campaign to come to fruition.
“At the end of the day, there is a system in place and the president is not an emperor or king,” says O’Rourke. “Once you get into power it becomes the art of the possible”, adding that the new president won’t be able to unilaterally introduce some of the things they’ve brought through their campaigns and will have to build coalitions.
Shanahan is also sanguine.
“I think Ireland has a unique relationship with the US,” he says, adding: “I’ve no reason to believe that, given the long history of close cultural ties, that this would change.”
