Foreign investment: Ireland’s secret financial formula is not so secret

Roger Partridge
NZ Herald
6 July, 2023

Seeking Ireland’s secrets

Few countries feel so similar as New Zealand and the Republic of Ireland.

We are both island nations with much larger neighbours. Each of us has a population of about 5 million. We were both colonised by Britain. Consequently, English is our shared language, with only a per cent or two speaking the country’s first language natively. We lead the world in pasture farming.

And this year, we seem destined to meet in the knockout stage of the rugby world cup in France.

But, until the early 1990s, Ireland and New Zealand shared another less attractive characteristic. Both countries languished in the bottom half of the OECD’s GDP-per-capita league table.

Then something remarkable happened. The Emerald Isle leapt forward, leaving the land of the long white cloud in its wake. Ireland now sits just below the US, at sixth in GDP-per-capita, while New Zealand languishes at 20th, just ahead of South Korea.

To find out firsthand the secrets to Irish success, last week, three dozen Kiwi business leaders joined the New Zealand Initiative’s delegation to Ireland. We spent the week meeting and interrogating Irish politicians, business leaders, government officials, and representatives from NGOs and the media.

What was most remarkable about our visit was the consistency of what we were told and the enthusiasm with which it was embraced. No matter who we spoke to, two things stood out.

FDI allure

First, Ireland’s strategy of relentlessly pursuing foreign direct investment and the expertise of overseas firms to turbo-charge its economy is not just universally – and enthusiastically – embraced. It has become part of the nation’s own narrative.

Offshore investors cite Ireland’s business-friendly environment, education system, quality of life and company tax regime as the top drivers of Ireland’s attractiveness to foreign investors.

But there is nothing passive about Ireland’s approach to attracting FDI. Whereas New Zealand’s Overseas Investment Act treats investment by foreigners as a privilege to be earned, the Irish treat FDI as a prize to be won.

Instead of an Overseas Investment Office policing foreign investment, Ireland’s Investment Development Agency actively encourages it. The IDA has offices in 20 overseas countries and employs 250 staff providing an end-to-end concierge service for foreign investors from around the world.

Ireland has become home to all top ten global pharmaceutical companies, nine of the top ten global software companies, and 15 of the top 20 global medical technology companies. And over 250 global financial institutions have operations in Ireland. This is a significant achievement for a small island nation.

Ireland has effectively created clusters of FDI in sectors such as technology, pharmaceuticals, medical devices, and financial services. Dublin, in particular, has become a leading tech hub, hosting offices of giants like Google, Facebook, and LinkedIn. Meanwhile, Cork and Galway have become significant for pharmaceuticals and medical devices.

With this surge in FDI have come high-quality, highly productive jobs. The process has also stimulated growth in peripheral sectors such as construction, retail, and hospitality. The outcome has been a decrease in unemployment rates, an increase in average wages, and tax surpluses large enough to make even the most taciturn Minister of Finance smile.

Of course, Ireland benefits from being an English-speaking entry point to the European Single Market for foreign investors. But, until Brexit, so too was Britain. Consequently, Ireland’s success cannot be fobbed off as a consequence of geopolitical luck. The Irish FDI strategy has been deliberately pursued – and it has paid off.

Just what this FDI influx means for the Irish economy requires a bit of unpicking. Because Ireland’s low corporate tax rate – currently just 12.5% – has attracted so many head offices, not all of the revenues booked by multinationals in Ireland are the product of the Irish economy. Consequently, raw GDP-per-capita numbers paint a somewhat exaggerated picture. Instead, Ireland’s Gross National Income or GNI is a more accurate measure for comparing the Irish economy with the economies of other nations.

On this measure, Irish per capita incomes are 68% higher than those of us poor Kiwis. In more or less a single generation, this is some leap forward.

Educational excellence

The second matter that stood out was a persistent narrative about pursuing educational excellence. This was a welcome relief from our Ministry of Education’s constant calls to “decolonise” our curriculum and attempts to dumb it down.

In Ireland, the focus is steely-eyed on STEM subjects. And the goal of educational excellence is explicitly – and repeatedly – connected with Ireland’s FDI success story.

The Irish Ministry of Education was understandably proud that Ireland consistently ranks highly in international comparisons for the quality of its education system. This has resulted in a well-educated workforce, particularly in areas like technology, pharmaceuticals, and finance that align with the sectors Ireland targets for FDI.

This educated, skilled workforce means foreign companies can set up in Ireland knowing they will have access to a talent pool that can drive innovation and productivity in their businesses.

The presence of these foreign companies further strengthens Ireland's education system. The high-quality jobs they bring to Ireland incentivise more students to pursue higher education, knowing that there will be good job opportunities waiting for them at the end.

The resulting economic growth from FDI can then be reinvested into the education system, enabling further improvements and advancements, and making Ireland even more attractive to foreign investors.

In this way, Ireland's education system and its success in attracting FDI feed into each other, creating a "virtuous cycle" of improvement and investment that benefits both the Irish economy and its people.

Irish takeaways

From a Kiwi perspective, Ireland’s success in attracting FDI is as remarkable as the consensus in favour of it. Given New Zealand’s hostile attitude towards foreigners wanting to invest here, it is little wonder our stock of FDI is a small fraction of Ireland’s.

The abiding takeaway is that New Zealand needs a new narrative about FDI – and a new, more permissive foreign investment regime. Too often we imagine FDI takes something from us, rather than focussing on the benefits foreign capital can bring.

While we may not sit on Europe’s doorstep, nor have a rock-bottom corporate tax rate, we have many of Ireland’s attractions. An English-speaking workforce – and a (mostly) well-educated one. A comparatively business-friendly environment. And a quality of life that is the envy of the world.

The New Zealand Initiative has long recommended abolishing the Overseas Investment Act and replacing it with a regime simply protecting New Zealand’s national security interests. Doing so would bring us into line with Ireland – and most of the rest of the developed world. And it would give us a chance to benefit from one of the secrets to Ireland’s success.

At the same time, we must revive our ailing education system. Ireland’s relentless pursuit of academic excellence stands in stark contrast with a New Zealand education system that seems apologetic about striving for any level of attainment, let alone an excellent one.

The New Zealand Initiative’s Save Our Schools report, launched earlier this year in partnership with the New Zealand Herald, draws on a decades-worth of research to outline the solutions for New Zealand’s current education crisis.

Ireland’s secrets are not rocket science. But if we adopt them, they will put a rocket under the New Zealand economy, and under Kiwi prosperity.

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