Richard Curran: 'We can never take our foreign investment wins for granted'
Foreign direct investment into Ireland is roaring ahead. The headline figures from the latest EY European Attractiveness Survey show just what a great run Ireland in on.
The country attracted 205 FDI investments in 2018 which was a staggering 52pc increase on the previous year. Employment in IDA-backed companies is at record levels and unemployment has fallen in the country to around 5pc.
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What could possibly go wrong? Unfortunately there are lots of risks out there which could begin to undermine that clearly very strong position.
It is really only when you look closely at the figures, not just for Ireland but for FDI into Europe in general, that you identify potential problems.
We have benefited significantly from the Brexit debacle when it comes to FDI. The UK and Germany together account for one-third of all FDI into Europe. Germany reported fewer investments last year as did the UK.
For the British it was a drop in the number of new manufacturing projects that caused the biggest problem. Brexit is potentially most disruptive for manufacturers who are thinking about expanding there. New manufacturing investments were down 35pc in the UK. New HQs located in the UK halved from 98 to 48 and R&D projects were down 17pc.
Germany on the other hand is becoming a victim of its own success. Capacity constraints, costs and labour shortages are seen as the main factors causing blips for the eurozone's biggest economy when it comes to FDI.
Ireland is not a centre for attracting manufacturing projects per se, but it has benefited strongly from financial services investment which is diverting out of London to Dublin or is coming to the IFSC instead of the British capital.
But before we go congratulating ourselves too much, the research shows how digital or tech projects accounted for much of the gain.
Ireland was fourth in Europe when it came to attracting digital investments. In 2009 we landed 21 new projects but last year we hit 75. The UK saw a 4pc decline in digital projects in 2018 and its overall market share of all European digital projects fell from 27pc to 24pc.
Despite Brexit, despite the uncertainty, the UK still attracted nearly one quarter of all digital FDI investments into the EU last year. Ireland recorded a massive 97pc rise. Britain's Brexit is Ireland's opportunity here but tough questions remain about the possible impact that changes to corporation tax might have in the future.
Equally, when it comes to FDI, the EY survey measures numbers of projects which don't tell us about the value of those projects to the economy or the quality of jobs they bring.
Yet, surveys showing the value of FDI into Ireland don't really give a full picture either because so many billions of it comes from registering IP here which may not lead to much new economic activity or jobs.
The UK's Brexit pain may be Ireland's gain when it comes to Asian investment too. We are seeing a greater interest in FDI from China in particular. The EY research shows the largest shift in FDI project flow to the UK was from China last year.
British projects from China were down from 74 to 26. This wasn't necessarily a Europe-wide problem because investments from China to France fell by just eight from 39 to 31. Germany landed 66 projects, down from 75.
UK projects from Japan were down from 55 to 42 while new project numbers to Germany and France from there were much more solid.
Despite Ireland's very solid FDI performance, we are still seen as relatively small players when it comes to overall FDI into Europe. For example, EY asked respondents to name their top three locations for FDI in Europe. Germany came first at 69pc. France was second at 49pc and the UK was third at 46pc. Ireland hit 6pc, behind Spain, Italy and Switzerland.
IDA Ireland has done a great job marketing our advantages, especially in the US. But it has to have the right product to sell.
There are core elements that make one country more competitive or attractive than another. To some extent, scale gives momentum so the bigger you are, the greater the skills pool and the scale you enjoy when it comes to infrastructure and track record.
This helps bigger economies like Germany and the UK and that is part of the reason why they hoover up so many projects. But Ireland is punching well above its weight and has done for many years, especially when it comes to US multinationals.
We know they came for the tax benefits. We know they came for the English-speaking benefits and the much touted "highly educated skilled workforce".
Yet, serious questions have to be asked about our competitive edge into the future. The housing crisis and the cost of living are real competitive factors that are not going in the right direction.
Dublin's creaking infrastructure is another. The city area is growing at such a fast pace. This puts pressure on everything from schools and crèche places to traffic jams.
But perhaps one of the biggest competitive factors to grab less publicity is third-level education. Without proper investment in our universities and colleges we will see a real drop-off in the future when it comes to attracting FDI.
The figures around third-level investment speak for themselves. According to the government-backed Cassells Report into funding third level, the sector needs additional investment of €600m a year until 2021, rising to €1bn from 2030.
These were the estimates produced three years ago when the report was first compiled. It provided different options on how to fund third-level education into the future but nothing has been done about it. It has been kicked so far into the long grass it may never be found.
At the time, the report's authors concluded that the existing funding model was not sustainable. Between 2008 and 2015, funding to third-level institutions fell by 14pc. A public funding decline of 38pc was partially offset by increasing student contributions. So-called 'free' third-level education ceased to exist years ago as universities rely increasingly on student levies.
In the future, universities will have to rely much more on non-EU students paying sizeable fees as a revenue stream unless the funding model changes.
While it is healthy and helpful to increase the international student mix in our universities, without a commensurate investment in capacity, staffing and other resources, it will create greater competition for limited places.
Bragging about having more people in third level than ever before is meaningless unless the quality of the graduates can be measured.
Ireland's third-level institutes now receive less funding from the State than they do from other sources. What harm, you might argue, but this situation has evolved without any real strategic or policy discussion about whether this is the best outcome.
The Government has announced sizeable capital investment increases for third level as part of its Project 2040 plan. Spending is increasing but that is about trying to catch up after a decade of underinvestment. The funding model has not been addressed at all.
FDI has become the goose that lays the golden eggs for the Irish economy when it comes to tax revenues, jobs and economic growth.
The goose will need to be watched.