The announcement last week that a major U.S. multinational is to create over 1,000 jobs in Galway once again brought to the fore the importance of U.S. investment in Ireland.
Dexcom, headquartered in San Diego and which manufactures and distributes equipment for diabetes management, is set to establish a major European hub in Athenry, Co Galway.
Dexcom selects Ireland for its first European manufacturing site in Athenry, Galway. This project represents a €300 million investment over five years with potential to bring up to 1,000 high-skilled jobs to the region. Read more https://t.co/vk82eFPI5X#MedTech #InvestInIreland pic.twitter.com/jenbHca9Ug— IDA Ireland (@IDAIRELAND) May 5, 2023
American companies have long been major investors in Ireland, accounting for a significant proportion of foreign direct investment (FDI) in the country. The economic benefits of this investment are clear, with increased tax revenue and job creation being among the most significant.
However, there are also a range of non-financial benefits that have emerged as a result of this relationship, including strengthened ties nationally but also major benefits to local communities. But a continuing pipeline of investments cannot be relied on, and its vital that as a country we do not rest on our laurels.
In fact, there are more than 950 US companies in Ireland employing over 376,000 people both directly and indirectly. According to the American Chamber of Commerce in Ireland (AmCham), this equates to an annual spend of more than €31 billion in the Irish economy. While the relationship between the United States and Ireland in terms of investment is a two-way street as Irish companies are also investing in the US, the significance of the bang for the buck is much greater this side of the pond.
In financial terms, the importance of US companies can be seen in our corporation tax receipts which continue to outstrip expectations. For the first time ever in 2022 corporation tax outperformed VAT (sales tax). End-of-year figures showed VAT at €18.6 billion while corporation tax hit a whopping €22.6 billion. By comparison, income tax receipts last year amounted to €30.7 billion.
This continued strength of corporation tax is due in no small measure to the presence in Ireland of some of the top US companies such as Apple, Microsoft, Google, and Johnson & Johnson. It’s also due to pretty smart tax loopholes, capital allowances, and tax treaties that successive Irish governments have promoted.
However, a number of these tax incentives and structures have been phased out or restricted in recent years due to increased international scrutiny and pressure. So much so that the Irish Revenue Commissioners have said that going forward there will be a decline in corporation tax of up to 10 percent in the short term.
What attracts companies to Ireland in the first place? The secret to Ireland's success is not just one factor, but rather a multitude of reasons.
For starters, US multinationals have a preference for economies that are growing, and Ireland certainly fits that bill. In fact, over the years 2021-2022, Ireland has emerged as one of the fastest-growing economies worldwide.
Along with that, Ireland's young, English-speaking, and highly educated workforce is also a major attraction. Add in the fact that there's a long history of political stability and a very competitive tax regime which helps to maximise the bottom line.
Another important reason is that, notwithstanding the size of its domestic market, the European Union, for which Ireland is a key access hub, is far larger than China's entire output and on par with the size of the US economy.
The clustering of companies has also been an important factor in attracting FDI. Clustering refers to the phenomenon of companies within a particular sector locating in close proximity to each other, creating a concentration of expertise, resources, and infrastructure.
In Ireland, clusters have formed around key sectors such as ICT, pharmaceuticals, and financial services and have been supported by government policies, such as the establishment of business parks and science and technology parks, which provide infrastructure and support services for companies in these sectors.
The benefits of this approach are obvious, including a skilled workforce, shared knowledge and expertise, and access to suppliers and customers within the same sector. Additionally, the presence of a cluster can enhance a region's reputation and visibility, making it more attractive to potential investors.
But as AmCham points out in its US-Ireland Business Report 2023, investment is as much about where people want to live as what the bottom line for the company is. In that respect, Galway is a good case in point with a strong reputation for work-life balance. As a city, it is known for its high quality of life, vibrant cultural scene, excellent restaurants, and stunning west of Ireland landscapes.
Access to education and transport links are important to US executives and their families moving to Ireland, and Galway also ticks the boxes with several prestigious educational institutions such as the National University of Ireland, Galway, and the Galway-Mayo Institute of Technology and Shannon Airport within an hour’s drive.
What, then, could go wrong? Well, quite a lot actually.
Among the top complaints that would-be investors have about Ireland, it’s no surprise that top of the list is the cost of accommodation. Both short-term and long-term accommodation is at a premium and with the refugee crisis badly hitting supply it is not going to get any better anytime soon.
The shortage of affordable housing, particularly in Dublin, has been a significant issue in recent years and has contributed to higher wages and other costs. The cost of energy is also a major concern and we now have the third highest electricity prices in Europe.
On non-financial issues, there are ongoing criticisms about our planning system and the interminable length of time it can take. Investors are not seeking certainty of outcome, but rather certainty of timelines so that they can plan ahead.
While the future of US investment in Ireland may be uncertain due to increased international scrutiny and pressure on tax incentives and structures, the country's unique attributes and strong relationship with the US give it a solid foundation to weather any challenges that may arise. To ensure continued investment in Ireland, the government must address the concerns of potential investors while maintaining the elements that make Ireland an attractive destination for foreign direct investment.
*This column first appeared in the May 10 edition of the weekly Irish Voice newspaper, sister publication to IrishCentral. Michael O'Dowd is brothers with Niall O'Dowd, founder of the Irish Voice and IrishCentral.