FDI urged to refocus on developing world

Ireland is "squarely in the crosshairs of competitors" in terms of its ability to attract foreign direct investment despite being the world’s 14th most connected country.

That is the view of the McKinsey Global Institute which recommends that Ireland refocuses its FDI policy to attract a greater share of multinationals from the developing world and curb its dependance on the country’s 12.5% corporation tax to attract investment.

The institute advises placing greater emphasis on developing the core areas of education, skills, infrastructure and quality of life which have the dual effect of encouraging companies to set up here, and increasing productivity.

“The big opportunity in the coming decade lies in attracting the regional head offices and operations of rising multinationals from the developing world,” the report reads.

“McKinsey projects that by 2025, companies from emerging economies will account for more than 45% of Fortune Global companies, up from just 5% in 2000.”

The report urges Ireland to make it as easy as possible for these “rising giants” and next-generation entrepreneurs to start and grow their businesses here.

Another warning, that indigenous companies are failing to scale-up sufficiently and competing globally, is contained in the report.

SME owners’ misconceptions regarding the difficulty of expanding into foreign markets means these businesses, in particular, have a large untapped export potential that could be harnessed.

Ireland’s strength in the information, communications and technology sphere is lauded as “a considerable advantage” but could be quickly eroded by neighbouring regions investing substantially in developing infrastructure, the report claims.

“Today the global economy is more digital and interconnected than ever before,” said McKinsey Institute partner, Conor Jones. “Countries are exchanging fast-moving, high-value flows of people, goods, services, capital and data, and they’re increasing at an exponential rate.

“By rethinking its global strategy, Ireland can take advantage of this global phenomenon in a way that creates greater economic stability and lasting benefits at home.”

In 2012, global flows of goods, services and finance totalled €19 trillion, or 36% of global GDP, and could potentially triple in value by 2025. Between 1990 and 2007, Ireland increased its share of this market twice as fast as the global average, as flows in and out of the country combined grew from €47bn to €1trn.

McKinsey added that Ireland must repair the reputational damages caused by the recession and build its profile as a country of disciplined compliance and professional prudence, especially with regard to data protection standards which the report says will become increasingly important in the coming years.