Will Brexit Boost Foreign Investment?

Will Brexit Boost Foreign Investment?
    Highlights
  • Ireland is well placed to benefit from the impact of Brexit on multinational companies’ relocation plans
  • Many are looking to move operations out of the UK to maintain rights to trade freely
  • Ireland has pitched for the European Medicines Agency to move from London to Dublin

In focus – Brexit: How Ireland attracts multinational companies looking to relocate from the UK.

While it’s likely to have some negative consequences for the Irish economy, Britain’s planned departure from the EU undoubtedly creates significant opportunities for Ireland in terms of attracting investment from foreign businesses.

“It’s only been nine months since the referendum and companies need to get business plans ready,” says Philip O’Sullivan, chief economist at asset manager Investec. “But probably over the next three to six months you’re likely to see the first tangible investments as a direct result of Brexit coming to Ireland.”

There has certainly been a considerable amount of interest expressed by businesses, which are weighing up their options in light of the UK referendum result.

Kieran Donoghue, head of International Financial Services at IDA Ireland, the agency responsible for attracting foreign direct investment (FDI), says that while a leave vote in last year’s referendum was not Ireland’s desired outcome, opportunities are starting to present themselves.

Surge in enquiries

“IDA has received over 80 broad-based, Brexit-related enquires from the banking, insurance, asset management and market infrastructure areas,” he says. “These enquiries have been followed by technical teams visiting Dublin as part of their locational evaluation process.”

At the end of March, for example, news outlets reported that JPMorgan Chase was in talks to buy a Dublin office building with space for around 1,000 staff, although the investment bank said it had not yet made a final decision on moving jobs out of London.

Many financial businesses are looking to shift at least some of their operations out of the UK in order to maintain the right to trade freely within the EU after the Brexit process is complete.

“The international financial services industry will expand in Dublin as a consequence of Brexit and some of the new investments will be significant for the city as a financial centre,” Donoghue says.

Relocation decisions imminent

“Companies are likely to make their decisions by the end of June and to put implementation teams in place in the second half of the year. The majority of staff relocations and local hiring will probably commence some time in 2018.”

There are a number of factors that make Ireland particularly well placed to benefit from the impact of Brexit on multinational companies’ relocation or expansion plans.

Perhaps most important is the fact that Ireland already has an excellent record of attracting FDI, O’Sullivan says. “UN data shows that, typically, Ireland attracts around 8% to 9% of FDI into the EU, which is the fifth highest share,” he explains. “This is pretty impressive when you consider that we have one of the smallest populations within the EU-28.”

“The international financial services industry will expand in Dublin as a consequence of Brexit and some of the new investments will be significant for the city as a financial centre”
 
Kieran Donoghue, head of International Financial Services, IDA Ireland

Donoghue says that 2016 was the best year yet for foreign investment in Ireland, with more than 200 investments, 99 of which were by first-time investors.

O’Sullivan adds: “The country has done a good job of attracting FDI since the late 1950s, when it first opened up to external investment. A lot of hubs and clusters have been established around the country – pharma in the south, medtech in the west, and on the east coast around Dublin you have social media and the likes of Intel, Amazon and IBM.

“Establishing those clusters attracts like-minded companies due to the availability of skilled workers – a fact that is helped by the flexible labour market policies which make Ireland a more attractive destination for setting up in than many other nations in Europe.”

The economic benefits of FDI

“The whole presence of FDI has been tremendously influential,” says Regina Breheny, director general of the Irish Venture Capital Association (IVCA). “It isn’t just jobs on the ground that they provide, there is also an additional impact on the economy.”

O’Sullivan adds: “The rule of thumb is that for every job created by a multinational company in Ireland, there are two spin-off, or indirect, jobs created on the back of that. And as the FDI flows in there is going to be more demand for domestic firms in terms of construction and retailers, for example.”

Could the FDI market be saturated?

Given the fact that the FDI presence is already considerable in Ireland, is there sufficient scope for it to expand?

“There are a number of bottlenecks: the unemployment rate here peaked at 15.2% in 2012 during the crisis and it has fallen to only 6.4% currently,” O’Sullivan says. “So the labour market conditions have tightened considerably: but Ireland’s continued attractiveness for overseas talent should act as a safety valve.”

“UN data shows that, typically, Ireland attracts around 8% to 9% of FDI into the EU, which is the fifth highest share”
 
 Philip O’Sullivan, chief economist, Investec

Lack of housing is another major issue. “We do now have a housing shortage in the major urban centres, particularly around Dublin: house prices and rents are up about 50% from their respective low points, and the lead indicators suggest the shortages are likely to persist.”

Increasing efforts to attract companies

While the UK is not quite as important a trading partner today as it was a few decades ago, sectors such as food, tourism and transport are still particularly dependent on its customers, and likely to be affected by Brexit.

As such, it’s no surprise that the Irish government, largely through the IDA, is ramping up its efforts to attract multinationals. The IDA has recently launched a TV and digital advertising campaign aimed at businesses in the US, while Ireland has pitched for the European Medicines Agency, which is currently based in London. The government also plans to set up an international school in Dublin for the children of multinational executives.

Donoghue adds: “Ireland will be the only English-speaking market within the eurozone; the fact that we have a common law system, access to the European market and indeed the European talent market is hugely important.”

 

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