OECD: Multinationals in debt flows

Tens of billions in repayments of debt by multinationals based in Ireland to their parent companies overseas led to disinvestments from Ireland in the first half of the year, according to the OECD.

The figures come from an assessment of foreign direct investment which suggests that the US-China trade war and other global trade tensions have weighed on the growth prospects for the world economy. Foreign direct investment fell 20% in the area represented by the countries of the Organisation for Economic Co-operation and Development.

Nonetheless, the effects of the US corporate tax cuts in 2017 that hit foreign direct investment across the OECD last year appear to be waning, it said.

The OECD assessment shows inflows into the OECD fell 43% “largely driven by reduced flows to the Netherlands, the US, and the United Kingdom and by disinvestments from Belgium and Ireland”.

However, the OECD analysis also shows that the Irish figures do not mean there was any fall in foreign direct investment during the period.

Equity capital and reinvested earnings into Ireland were up, but debt repayments flowed out strongly, meaning that companies were not pulling out of Ireland.

The confidential nature of the figures means it is unclear whether the debt flows mean Irish-based companies of multinationals were repaying debts to their overseas’ owners or were lending money to the parent groups.

The OECD also said foreign direct investment flows to the US from China dropped from a peak of $16bn (€14.4bn) in the second half of 2016 to less than $1.2bn as Chinese companies invested less and sold off some of their direct investments in the US.

“While the immediate impact of the 2017 US tax reform lessened, reinvestment of earnings by US companies remained below half-year levels recorded in the period 2013-2017, perhaps reflecting a ‘new normal’ as US companies have less incentive to hold money at their foreign affiliates,” the OECD said.

It said Japan, the US, and Germany were the largest sources of foreign investment worldwide.