US investment’s role in regional development in Ireland

Regional strategies could see Cork, Galway, Limerick, Waterford enjoy further growth in Cyber and FinTech, say Deloitte experts 

Ireland has attracted inward investment to regional locations with regional employment in specific multinational companies reaching nearly 145,000 people, say Deloitte's tax partners. 

Karen Frawley and Caroline O’Driscoll, tax partners with Deloitte Ireland, outline the value of FDI to Irish business

Caroline O'Driscoll and Karen Frawley, tax partners with Deloitte Ireland.

As Ireland and the rest of the world cautiously look to what many hope will be the end of the Covid-19 pandemic, the role of US investment will continue to have significant importance for the Irish economy. In addition, US investment is likely to play an increasingly important role in continued regional development.

Recent figures show a strong rebound in global foreign direct investment (FDI) in 2021, with inflows into the EU expected to increase by 8%. Against a backdrop of strong Irish performance in 2020 and FDI flows during that time of $75bn (driven by sizeable transactions, financial flows and corporate restructurings), Ireland now appears well placed to drive significant development from continued inward investment.

 Figures from the Bureau of Economic Analysis for 2020 would support this, showing a direct investment in Ireland of $390m in 2021 (10.6% of total EU investment made), comparing favourably to $158m in 2010 (7.8% of total EU investment made).

Impact of inward investment

The impact of such increased investment can be felt at a local level and particularly within the regional economy.

Recent data would suggest that Ireland has successfully attracted inward investment to regional locations with regional employment in specific multinational companies reaching nearly 145,000 people.

The continued impact of inward investment in the regional economy also goes beyond direct headcount figures, as IDA Ireland figures would suggest that as many as eight jobs are created in the economy for every ten created through inward investment and IDA client companies.

Expenditure in the Irish economy is further driven by such inward investment, giving rise to an estimated €10.1bn in annual expenditure on Irish materials and services and €7.4bn of capital investment on new buildings, machinery and equipment.

Recent Government figures show significant growth in regions in 2021, with 133 of 249 investments won going to regional locations an overall increase in employment levels across all regions (with South West regions experiencing an uplift of 2.8%). In terms of the strategy going forward for regional areas, the work is not yet done.

Last year marked the first year of IDA Ireland’s strategy for recovery and sustainable growth to 2024. The strategy focusses on targeting 800 new inward investments as opportunities for sustainable growth, with half of these to be geared towards the regional economy. 

Regional centres such as Cork, Galway, Limerick and Waterford have experienced significant wins in the pharmaceutical, life sciences and technology sectors in recent years; focus should be given to ensuring that the ambitious policy set out under Project Ireland 2040 to achieve balanced economic growth and enhance regional connectivity and competitiveness is brought to fruition. As we move out of the pandemic, there is a significant opportunity for regional hubs to become global centres of excellence in rapidly expanding industries such as Cyber and FinTech.

Building for success

Against this backdrop of ambitious targeted growth, and increased focus on regional development, there is still much to be done in order to build a foundation for future success.

Corporate tax regime

Ireland has been a major beneficiary of globalisation and one of the principal drivers of that has been our corporate tax regime and the focus on providing taxpayers with clarity and certainty. While there are many reasons other than tax for Ireland’s success, we cannot ignore the reality that the 15% minimum tax will to some degree level the playing field with other competitor countries. Accordingly, other areas of the tax system and economy must be adequately served to ensure that Ireland remains a competitive location in which to invest and grow businesses from the perspective of inward investment and regional development.

Increased focus on income tax rates

Talent attraction and retention will undoubtedly play a significant role not only in increasing inward investment from abroad but in encouraging members of our own diaspora to return to Ireland; an increased focus on the rates of income tax, relief such as the Special assignee relief programme and the foreign earnings deduction (FED) will become more important and are likely to receive more attention on foot of the recently closed Commission on tTxation public consultation.

Remote working — a shift in mindset

For many, the pandemic has changed how — and where — we live and work. The proliferation in remote working also represents a shift in mindset away from urban centres to more regional hubs and allows for greater worker mobility. In particular, evidence would suggest a “reshuffling” in demand and increased focus on regional areas.

Continued investment in road networks, flight connections and housing will be vital to cement any continued future success.

In addition, connectivity and rural broadband improvement is a vital piece of the regional development puzzle.

Success stories such as the Ludgate Hub in West Cork help close the digital divide between rural and urban and support greater flexible working.

Ireland has benefited significantly from US inward investment — but we are now at a pivot point where our world of working is re-defined, where talent and investment is mobile, where there is real choice. We are not competing among ourselves, we are competing with regional hubs all over the globe.

Now is the time to ensure that our regions have the infrastructure and capacity to compete on the world stage.

Deloitte Ireland Tax Services