Direct foreign investment by US firms in Ireland has benefited both countries for decades, says Joseph P Quinlan
Despite the daily diet of prophesying from pundits that the future of the world economy lies with the developing nations (notably China), the Irish-US commercial partnership has only grown stronger not weaker, larger rather than smaller, more connected than unconnected over the past decade.
Ireland, in other words, remains a strategic node in global operations of US firms.
To this point, America's overseas stock of foreign direct investment in Ireland totalled $188bn (€146bn) in 2011, a five-fold increase from 2000. Putting this number into perspective, America's corporate stock in Ireland is well in excess of Germany's ($107bn) and France ($89bn), and light years ahead of China ($54bn) and India ($25bn). It even tops total US investment in South America ($148bn).
True, key metrics of Irish-US commerce have weakened over the past year due to subpar economic growth on both sides of the Atlantic. Irish-US trade flows have softened considerably in 2012, as have bi-lateral foreign direct investment (FDI) flows.
Yet none of the above is surprising. The downswing in trade and investment is cyclical, not structural.
US firms remain attracted and committed to Ireland thanks to the nation's laser-like focus on developing cutting-edge capabilities in such dynamic sectors as nanotechnology, cloud computing, clean energy, life sciences, and related activities. In addition, Ireland's tax regime, robust R&D climate, government support for innovation, and other pro-business policies set the nation apart from many locales in Europe.
In Europe, only the Netherlands and the UK attracted more US FDI in the first half of 2012 than Ireland.
And speaking of Europe, while there is nothing more fashionable today than writing the Continent's obituary, post-crisis Europe, in all likelihood, will emerge stronger not weaker, as well as more integrated, giving US firms even more reasons to stay the course in Ireland.
Notwithstanding an avalanche of negative headlines, Europe, let's not forget, remains the largest economic entity in the world. What started out as a loosely configured market of six nations ( Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands) in the late 1950s is now an economic behemoth of 27 member states, with Europe accounting for over one-quarter of world GDP in 2011 (based on PPP figures).
Europe is not only large, it is wealthy -- notwithstanding the relative decline in wealth in southern Europe over the past few years. It is Europe's size and wealth that sets the region apart from many other parts of the world. Wealth drives consumption, with Europe accounting for roughly 30 per cent of global personal consumption expenditures, a share greater than the US (27.7 per cent) and a share more than double the BRICs combined (just 13.6 per cent). Gaining access to wealthy consumers is among the primary reasons why US companies venture overseas.
In addition, many European economies remain among the most competitive in the world, Ireland included. In the latest 2012 rankings of the IMD World Competitiveness Yearbook, Ireland moved up four spots from the prior year, to 20th, out of a sample size of nearly 60 nations. In the latest survey, Ireland ranked 10th in terms of "business efficiency", up from 18th the year before. And in terms of "government efficiency", Ireland's ranking improved dramatically this year, rising to 20th from 30th in 2011.
Finally, Ireland ranks very high in terms of ease of doing business. Indeed, Ireland ranked 10th in the world among the World Bank's top 25 most business-friendly nations. In Europe, only Denmark (ranked 5th overall), Norway (6th), the United Kingdom (7th), and Iceland (9th) outranked Ireland.
Looking ahead, there is a better-than-fair chance that a transatlantic free trade agreement between the EU and the US could be up for serious discussion after the US presidential elections, with both Republican candidate Mitt Romney and President Obama in theory in favour of such of an agreement. As a bridge to both the US and Europe, Ireland would benefit from a trade agreement that would deepen the commercial ties between both parties.
This requires, however, that Ireland manages its cost base and highly skilled work infrastructure, and nurtures its capabilities in the ever-changing field of technological innovation, life sciences and other value-added activities.
Thus far, and despite being caught in a maelstrom of economic turmoil, Ireland has done an admirable job of differentiating itself from other financially impaired states of Europe's periphery. One key and crucial differentiator is Ireland's successful return to the international capital markets this July, with the National Treasury Management Agency raising over $6bn in funding. Nothing speaks louder to the growing confidence among investors that Ireland is on the right economic track.
This, coupled with Ireland's internal adjustment measures (falling wages, rents, real estate, etc) have not gone unnoticed by US multinationals, whose faith and confidence in Ireland has been backed up by more, not less, capital flowing to the country since the euro crisis began.
US commercial ties with Ireland are set to become stronger, not weaker, in the years ahead.
Joseph Quinlan is a Wall Street-based economist and business strategist