IRELAND: An Investment Perspective
...e lowest during 2002-2003 following the post 9-11 global economic slowdown. The largest increase in employment has been in the construction sector, with smaller increase in percentages in financial services, wholesale and retail trade and health. Ireland also registered the lowest unemployment rate amongst the European Member states, with 4.3% in 2004 compared to a high of 15.6% back in 1993. Furthermore Ireland jobless rate under 25 years of age was 8% compared to the eurozone’s average of 17.3%. Irish Labor regulations are less restrictive than other EU member states. The gender-balanced workforce is comprised of a high degree of flexibility, mobility and education. The increased rate of employment reflects a steady growth of the wages which is 4% greater than the average wage in the 15 EU member states. The minimum wage has increased to € 7 in 2005 from € 5.2 in 2000, which is tax exempted. Irish constitution permits associations and unions. The law also affirms the rights of employers not to recognize unions and permits them to deal with employees individually. Currently approximately 33% of the workforces in the private sector are unionized compared to 95% in the public sector. However approximately 80% of foreign company’s workforce do not belong to unions Taxation Ireland offers one of the most beneficial corporate tax environments in the world. The government favored a low taxation policy to encourage Foreign Direct Investments (FDI) into Ireland, consequently opposing European Commission moves to restrict tax competition. Until the end of December 2003, manufacturing and service industries were subjected to a tax of only 10%, who still enjoy these benefits to date. As of January 2003, all new companies would enjoy a corporate tax rate of only 12.5% in comparison to 20%-60% throughout rest of Europe. This taxation would be applied to trading profits, in all sectors including manufacturing and international services. This income tax policy was implemented to re-distribute wealth from the richer to the poorer segments of the society. Most of the government revenues are received on consumer goods, with a Value Added Tax (VAT) of 21% and high excise duty on items such as tobacco, petrol and alcohol. The average annual Irish inflation rate is currently 2.2%, which is slightly above the eurozone average of 2%, however the Irish inflation rate was its highest at 5.6% in 2000 and fell to 4.7% in 2002, at least two or three times the eurozone average. Studies now show that Ireland has been ranked as one of the most expensive country in EU after Finland. The interest rate of Ireland is regulated by the European Central Board (ECB); Single Euroland Interest Rate; and is currently 2%, which is very favourable for its fast growing economy. Ireland’s major imports have been electrical components, computers and peripherals, drugs and pharmaceuticals, and livestock feed, whilst their major exports include alcoholic beverages, chemicals, electronic data processing equipments, electrical machine4ry, textiles, clothing, glassware and largely software. Nearly 50% of Ireland’s merchandise imports come from the US and UK, showing their strong trade links from these countries. Public Spending The Irish government will provide more public services and better Infrastructure in 2005. The 2005 Budget accounts to a gross voted spending of almost €45 billion. This is over €3.7 billion more than in 2004. This increase reflects the sustainable growth in resources. In 2002, for the first time a deficit of 0.8% of 2002 GDP was seen in the Ireland’s Budget. The Irish deficit is currently 2% of 2003 GDP even though it generated high merchandise trade balances of more than US$ 30 billion since 2000. Foreign Direct Investments (FDI) The Irish government over the past decade has been actively promoting FDIs, which was the consequence of the economic growth during the ‘Celtic Tiger’ period. It was also ranked seventh by the United Nations Conference for Trade and Development (UNCTAD), World Investment Report; amongst FDI recipients, with an inflow of € 23.3 billion in 2003, which is approximately 0.8% of the nominal GDP. It is also the fourth most important destination for the US manufacturers investing overseas according to a study by Deloitte. (Appendix B: EU25 FDI flows: 2003 results by main partner) The Industrial Development Agency of Ireland (IDA); one of four state organizations promoting investments by foreign countries; negotiated 70 new business projects with new and existing clients , which accounts to over € 5 billion for the period 2003-2005. Furthermore IDA supported 36 R&D investment projects involving a total investment exceeding € 140 million, with 70% US firms notably, IBM, HP, and Bell Labs, with an expected Return on Investment (ROI) in Ireland of 24%, according to the US Department of Commerce. Irelands flagship FDI project in 2004 was the Intel Fab 24 Plant, which will produce the company’s’ next generation of microchips. Legal System The Irish legal system is based on common law, legislation and the constitution. Its judicial system is transparent and upholds the sanctity of contacts as well as laws affecting foreign investment Protection of Property Rights Intellectual Property Rights was brought about when the president signed the legislation and became a member of the WTO, the World Intellectual Property Organization in 2001. This legislation gave Ireland one of the most comprehensive systems of IPR protection in Europe, by improving enforcements and imposing penalties on both the civil and criminal sides, which helped reduce the high level of software and video piracy. However piracy continues to be a problem with the seizure by police of counterfeit DVD’s and CD’s in 2003.It is widely believed that the Irish Republican Army (IRA) is involved in the manufacture and sale of DVD’s and CD’s on both side of the border with an estimated 41% of the Pc software industry pirated. Corruption Irish is ranked the 17th least corrupted country by TI Corruption Perceptions Index 2004 and is not a serious problem for foreign investors in Ireland. The law makes it illegal for Irish Public Servants to accept bribery. Ireland further established itself by signing the UN Convention on corruption in 2003. The only highlight of corruption was in 2004, when the government ordered an investigation into allegations of corruption of a former cabinet minister of a no-bid public- relation contract. CULTURE The Majority of the Irish inhabitants are a mixture of Celtic and English, and English is the language used by the Irish population; however there is a strong culture to restore and retain the Irish Language, Gaelic. The Irish are considered to be of more individualistic nature and work very loosely within groups whilst exercising ones individual rights. Wealth and power are not priorities and very much de-emphasized on while equality and opportunities for everyone is more stressed upon. Their workplace is gender balanced and they are less concerned on uncertainty. They are seen to be more risk inclined and ready for change. Ireland has one of the highest rates of literacy levels with approximately 98%-99% for those above the age of fifteen. (Appendix C: Hofstede Cultural Index). Religion plays a huge part in the Irish Psyche, with the official religion being Catholicism, 92%, whilst 2% of the population belongs to Protestant Church of Ireland, Muslims, Jehovah’s Witnesses and Jews. The Irish constitution guarantees the free profession of religion. Over the past decade, the Catholic Church has had a hold on the governing of the country for many years. The church has been supported by the state and has had a major say in how the country was run. The Catholic Church controlled the major institutions in this country - most of the schools are denominationally controlled and it runs, most of the major hospitals, where the position of the Catholic Church on such issues as contraception, sterilization and of course abortion is allowed to dictate how patients are treated. Regional Environment Regional Partners Ireland is part of numerous international organizations, which include the United Nations, the International Bank for Reconstruction and Development (World Bank), the International Monetary Fund (IMF), the World Trade Organization (WTO) and the Organization for Economic Corporation and Development (OECD). The Republic of Ireland joined the European Economic Community (EEC) on the 1st January 1973, which created a common market that abolished tariffs between member states. Ireland was also an active member in the evolution of the now European Union (EU). The EU was the foundation of Political and Economic stability in Europe. Ireland’s EU membership gives Irish exporters full access to the European Single Market, which has contributed to its economic success. Being part of the European Monetary Union (EMU) underlined the dramatic improvement in the country’s economy and public finances in 1999 and thus has the Euro as its currency. Many firms have based their European Headquarters in Ireland which has lead to increase in Irish-European ties. The EU now accounts for the bulk of Irish trade, with its neighbor, the United Kingdom being the largest trading partner. Ireland’s main exports to Europe are beef, computers and software whilst their major imports are cars, machinery trucks, steel, oil and consumer goods. Ireland’s most beneficial economic bonus from the EU is the agricultural subsidies from the Common Agricultural Policy (CAP) and large amounts of EU investments in Irish roads and infrastructure. However this is no longer the case since the acceptance of the 10 new Eastern European nations in 2004 and thus now gives more than it receives which further increased its European ties. Bilateral Agreements Ireland has bilateral tax treaties with a number of countries. (Appendix D: List of Countries). These agreements were put in place to promote trade and investments between Ireland and its partner countries which otherwise may be discouraged by double taxation. US Ties Ireland enjoys close links with the United States as trade between them was over US$33 billion in 2003. US FDI in Ireland has been particularly important to the growth and modernization of the Irish industry. To date major US investments include multi-billion dollar investments by Dell, Intel, IBM and Abbott Laboratories. Many US firms find Ireland favorable for manufacturing for the EU market. Ireland offers good long-term growth for US companies under an innovation financial incentive program. Conclusion The Republic of Ireland is a well developed nation offering investors a politically stable environment with a fast growing economy. Ireland’s attractiveness as a location for any investment is proven by the fact that over thousand overseas companies are currently operating in Ireland. Ireland offers a highly skilled labor force with an English speaking base able to service a world market. Further its corporate tax benefits and costs are not the only attractiveness but also the ability to use knowledge quickly and creatively, its innovation and its flexibility. Its ability to adapt and readiness to change is an unique feature of Ireland to respond to the fast changing demands of the world market. Irish general election, 2002 Fianna Fáil Fine Gael Green Party Labour Party Progressive Democrats Sinn Féin Socialist Party Others Total 1997 77 ** 54 2 21 4 * 1 1 6 166 46% 33% 1% 13% 2% 1% 1% 4% 2002 81** 31 6 21 8* 5 1 13 166 49% 19% 4% 13% 5% 3% 1% 8% Results Party Leader Seats Loss/Gain Dáil Seats (%) Fianna Fáil Bertie Ahern 81 +3 48.8 Fine Gael Michael Noonan 31 -23 18.7 Labour Ruairí Quinn 20 +0 12.0 Progressive Democrats Mary Harney 8 +4 4.8 Independents - 14 +7 8.4 Green Party Trevor Sargent 6 +4 3.6 Sinn Féin Caoimhghín Ó Caoláin 5 +4 3.0 Socialist Party Joe Higgins 1 +0 0.6 SOURCE: http://open-encyclopedia.com/Irish_general_election%2C_2002 EU25 FDI flows 2003 results by main partner (in million euros) Outward flows to: Inward flows from: Extra- EU25 of which: Intra-EU25 Extra- EU25 of which: Intra- EU25 USA Japan Canada USA Japan Canada EU25* 118055 49320 -234 4 326 185 175 77183 18007 3 234 7 972 198208 EU15* 122 113 49 261 -234 4 329 178 404 75 343 17 157 2 937 7 919 188 989 Belgium ** 7 195 2 662 440 2 037 27 080 -229 537 -40 -77 26 465 Czech Rep 14 12 0 -1 192 1 129 180 224 14 1 160 Denmark ** 102 103 -66 -30 925 1 068 661 23 -9 1 244 Germany 7 304 4 830 1 092 -191 -5 036 2 076 4 951 638 -188 9 323 Estonia 23 2 0 -1 108 128 15 0 9 664 Greece ** 389 20 0 2 -348 -159 -48 0 -2 745 Spain ** 7 318 1 776 12 59 13 391 6 337 3 856 -3 811 16 368 France 13 218 6 258 200 1 093 37 533 11 416 3 489 -437 4 580 30 211 Ireland 427 -617 : 1 2 712 5 222 -4034 197 169 18 601 Italy 2 031 606 63 32 6 051 1 273 720 138 17 13 276 Cyprus 85 3 0 1 258 353 ...