Wednesday, November 13, 2019

US FDI into Ireland and Irish investment in America — facts and myths

Impressive data on inward and outward FDI from Ireland and to Ireland, from the United States Department of Commerce — in the real world it's bullshit! 

Confusion abounds about United States foreign direct investment (FDI) in Ireland and "Irish" FDI in the US — the latter is dominated by American firms. Ireland's inward FDI excites politicians, senior civil servants, public enterprise agencies, professional vested interests coining from it, and gullible journalists, as Ireland appears to be among the leading recipients of US FDI in the world while Ireland is also among the top 10 countries for investment in America!

Reality Check on inward US FDI to Ireland: When total (historical) US FDI (not inflation-adjusted) in Germany in 2018 was $140bn and generated 740,000 jobs compared with $714bn in Luxembourg and 28,000 jobs; $442bn in Ireland and 130,000 jobs, shouldn't this raise scepticism or incredulity?

Reality Check on Irish investment in US: When the Irish Times reported last June that Irish investment in the US was "at all-time high" it cited 2 companies CRH and Kerry Group. CRH, the building materials group has 43,000 employed in the Americas (North & South) and Kerry Group employs 8,000 in the Americas — US data show that there were 263,000 employed in Irish-owned companies in the US in 2016 but again scepticism and incredulity are warranted!

It's even debatable if CRH — founded through the merger of Irish Cement and Roadstone in 1970 — is an Irish company as foreign residents own more than 90% of the shares; while most of the 85,000 staff and activities are overseas.   

Ireland became the most profitable location for US firms in 1999-2002 when reported profits doubled, and facilitation of massive tax avoidance/ evasion has kept Ireland in the big leagues since. 

Irish Times 2015: "Ireland is the number one destination in the world for US foreign direct investment (FDI), according to a new report" 

American Chamber of Commerce in Ireland 2017: "Ireland is the gateway to Europe for many US companies accessing European & International markets. Ireland, which represents just 1% of the European economy, attracted 12.6% of all US FDI investment to Europe in 2016"

Irish Times 2017: Ireland named best country for high-value FDI for sixth year in a row; Country continues to lead the world for value from foreign direct investment"

Irish Independent 2017: "Irish investment from US doubles to $350bn in five years" 

Daniel Mulhall, Ireland's ambassador to the United States, via Department of Foreign Affairs 2018: "According to the US Bureau of Economic Analysis, Ireland’s investment in the US totalled $147.8bn dollars in 2017. This means that Ireland has a stake in the US economy larger than countries many times our size, including Brazil, China and India"

Enterprise Ireland 2019: "Enterprise Ireland, the Irish Government agency for the development of Irish enterprises in world markets, today announced there are over 100,000 people employed in the US by Irish companies in 2018. Of these there were more than 85,000 people employed by 520 Enterprise Ireland supported companies operating across all 50 states at 954 locations.

According to the United States Bureau of Economic Analysis, Ireland is the 9th largest source of Foreign Direct Investment to the United States at $146.2bn."

RTÉ Business 2019: "Ireland is the number one destination in the world for foreign direct investment by US tech companies according to a new analysis.

The study carried out by Wolfgang Digital on behalf of Smart MBS, found $54bn was in invested here in 2017 by American technology businesses — equivalent to the GDP of Croatia and Belarus."

Irish Times 2019: Irish investment in US at ‘all-time high’ -Head of American Chamber of Commerce says ‘massive opportunities’ for Irish firms

All the headlines/statements above are either false or misleading.

In 2018 Ireland's FDI stock of US foreign direct investment was valued at $442bn and was the fourth highest in the world after the Netherlands at $883bn; UK at $758bn and Luxembourg at $714bn. 

US Bureau of Economic Analysis (BEA) data are at historical cost i.e. not inflation-adjusted.

It's said that it's better to be a fool than a knave and in Ireland, we have both.

The Netherlands, Luxembourg and Ireland are the world's leading corporate tax havens for American companies.

The UK has a number of island tax havens in Europe but with 1.5m employees, it has the highest number of people employed in US affiliates after China's 1.7m.

Ireland among the most "profitable" countries in the world

In respect to 2017, the BEA reported that the countries with the highest net incomes in the world were the Netherlands at $259bn (sales $290bn) followed by Ireland at $179bn (sales $369bn); Luxembourg $121bn (sales $82bn) and the UK at $111bn (sales $643bn). 

Employment in the majority-owned US affiliates in the 4 European countries was 264,000; 130,000; 28,000 and 1.5m respectively.

Ireland's profits shifting net income compared with the total income of $172bn for Asia/Australia and Pacific where sales amounted to $1.7tn.

Among foreign-owned companies (US-owned + others) in Ireland in 2017, there were 96,000 full-time permanent employees in Manufacturing plants and 107,000 working in Services. 

In the period 2010-2018, the value of US direct investment in Ireland almost trebled while the number of jobs rose less than a third.  

The European Parliament in a report this year noted the rise in "the last five years of royalties and licensing fee receipts (almost 5% annually) compared with trade in goods and foreign direct investment  (less than 1% annually)" while deploring "the fact that digital businesses pay almost no taxes in some Member States despite their significant digital presence and large revenues in those Member States."

In 2017 the US total investment in Ireland was $446bn, but only $25bn related to Manufacturing (Intel, Big Pharma and medical devices firms). This rose to $40bn in 2018.

In 2017, cash or near cash in holding companies as part of Irish inward FDI was valued at $238bn and fell to $144bn in 2018 after the passing of a corporate tax bill in the United States — there is a fiction that cash is held in Ireland but most of it is in US banks or government Treasuries.    

Finance (ex-deposits) + insurance rose to $83bn from $20bn in 2017 while the value of Information FDI in 2018 was $59bn compared with an insignificant sum some years before — it's a fiction that IP (intellectual property) is "moved" to Ireland as it has been reallocated via accounting entries.

Apple was forced by a new European Commission rule that holding companies cannot avoid publication of accounts and for the first time since 2006, Apple published the 2018 fiscal year accounts for Apple Operations International Limited — one of the firm's key Irish offshore companies, which has been tax resident in Jersey, Channel Islands, since late 2014. The copy of the accounts isn't good but you can see here that retained earnings were valued at $241bn.

Irish offshore shell companies

The BEA includes balances in Irish offshore companies and in September 2018, Apple Operations International Limited, the biggest in terms of known activity, booked sales of $155bn from Europe, Africa, Middle East and across to India.

AOI had retained earnings of $241bn in 2018.

"Irish" FDI in US

The Irish ambassador to the United States and Enterprise Ireland should know that so-called Irish inward investment to the US is dominated by American companies that have become "Irish" for tax purposes while retaining operational control in the US.

The brag that Ireland is the 9th biggest investor in the United States is a lie.

Ambassador Mulhall referred to Irish investment of $147.8bn in 2017. This total rose to $236bn in 2018 and as per the chart at the top of the page, that value rises to $385bn on the basis of the Ultimate Beneficial Owner (UBO) status.

Enterprise Ireland's claim that its Irish indigenous client firms employ 85,000 in the United States is risible — in 2018 Irish indigenous exports to North America were valued at €4bn.

From 2013 the figures have grown from $19bn/$88bn (UBO) to $236bn/$385bn.

The biggest "Irish" company Medtronics (medical devices) closed in New York on Nov 12 2019 with a market capitalisation of $146bn and Allergen (drugs and Botox) closed at $60bn.

CRH closed in New York at $29bn and in London at  £22bn.

The knaves and fools

1) The knaves are government ministers, IDA Ireland — the inward investment agency, Enterprise Ireland — the indigenous firm enterprise agency, the American Chamber of Commerce in Ireland, and the big Dublin law and accounting firms, that brag about the headline data, which gullible media present as fact. They all, of course, know about tax avoidance;

2) Media editors need to do their jobs rather than have their journalists recycling bullshit from vested interests that becomes fake news;

3) Sir Henry Wotton in 1604 while en route to the Republic of Venice to take up the position of English ambassador, wrote in Augsburg, "An ambassador is an honest man sent to lie abroad for the good of his country" (it was originally in Latin: "Legatus est vir bonus peregre missus ad mentiendum rei publicæ causâ," but the translation lost the intended pun!).

Irish ambassadors should not give hostages to fortune.

4) Why not have some truths for a change — the good and the bad — rather than peddling the story of the pot of gold at the end of the rainbow? 

Postscript

In a development related to the analysis of inward US FDI to Ireland, I was blocked on Twitter for fact-checking David McWilliams, an Irish Times columnist who writes mainly on economic issues.

This article, 'Ireland was the big winner from the fall of the Berlin Wall' which was published on Nov 9, 2019, seems to have been the trigger for the action.

I argued that Poland was the biggest gainer from the fall of the Berlin Wall with a GDP per capita rise of 176% in 1990-2018 according to the OECD. Data on an official Irish adjusted rate stripping Gross National Income of some of the major multinational firm distortions is available from 1995 but it hasn't been inflation adjusted. I have added an inflation-adjustment resulting in a composite Irish rate of growth of 110% from 1990 (however, when accounting for a mainly fake Irish record trade surplus in 2018, the realistic rise in growth since 1990 is much lower than the 110% rise: check the first link in Related reports below).

McWilliams wrote in the article, "In 1989, US foreign direct investment into Ireland was $192m; by 2017, that investment – most of it from the US – was $744bn, the highest in the world as a percentage of population or income."

Both cited figures were wrong. 

In 1989, the value of US FDI was $4.4bn according to the US BEA – 30 years after US FDI took off following . Prior to the late 1950s, the biggest American investment was by Henry Ford and he had 7,000 employed at his tractor plant in Cork in 1930. The factory opened in 1919 but tariff hikes in the early 1930s resulted in a big decline in production.

"If you can't take the heat, get out of the kitchen," Harry Truman, president of the United States, in 1949.

Related reports

Ireland's record trade surplus of €107 billion in 2018 — an illusion? — including an analysis of economic performance over a quarter-century. The reality when fantasy exports and profit-shifting by multinationals are accounted for, maybe worse than expected!
US foreign affiliates sell most output outside the United States when 'experts' claim that US affiliates should pay very low taxes outside the United States, they ignore this fact