JOINT COMMITTEE ON JOBS, SOCIAL PROTECTION AND EDUCATION díospóireacht -
Thursday, 29 Sep 2011

Report on US Foreign Direct Investment in Ireland: Discussion

Vice Chairman

I welcome the following from the American Chamber of Commerce Ireland: Mr. Gerard P. Kilcommins, president; Ms Joanne Richardson, CEO; Mr. Brian Harrison, research and communications executive; and Mr. Brian Cotter, commercial and public affairs director. I also welcome Mr. Joseph P. Quinlan, author of an American Chamber of Commerce report on US foreign direct investment into Ireland.

Members are reminded of a long-standing parliamentary practice to the effect that Members should not comment on, criticise or make charges against a person outside the House, or any official by name in such a way as to make him or her identifiable. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence to this committee. If you are directed by the committee to cease giving evidence in relation to a particular matter and you continue to so do, you are entitled thereafter only to a qualified privilege in respect of your evidence. You are directed that only evidence connected with the subject matter of these proceedings is to be given and you are asked to respect the parliamentary practice to the effect that, where possible, you should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

I ask Mr. Quinlan to outline the findings of his report.

Mr. Joseph Quinlan

I thank the committee for the opportunity to be here. I will speak briefly about the relationship between Ireland and the United States. There are nearly 200 nations spread throughout the world in which US companies can make direct foreign investment. When one digs into the numbers it is interesting to discover the depth of the relationship between the United States and Ireland. The US exports to Ireland at approximately $35 billion are not very big and might give the impression there is not much trade or commerce between the two parties. However, foreign direct investment and foreign affiliate sales tell a different and powerful story which underscores the relationship that I call "built to last". With concerns over the global economy, considerable turmoil in Europe, major problems in the United States, the rise of China and so forth, there are many question marks over what US companies will do next in Ireland. I am bullish or optimistic when it comes to the relationship between US multinationals and Ireland.

What does this mean economically? There is $190 billion dollars of invested stock in Ireland from the United States. What has that really done? It has helped to promote economic growth, create jobs, create income and turn Ireland into an exporting powerhouse in the sense that we are not talking about low-end high-volume software, footwear or tennis racquets out of China. We are talking about very sophisticated exports in the areas of life sciences, chemicals, pharmaceuticals, information technology, software and so forth. I believe it is a great story, which is not really told well in the United States. People in the US are not being told what US companies are doing here, the benefits for those companies and the benefit for Ireland. There are tremendous benefits for US companies from their operations in Ireland in that the more US affiliates in Ireland are successful, the more US multinationals are successful as are their workers and shareholders back home, and the politicians in their constituencies. It is very important in that sense. There is considerable upside in this relationship which is unequivocally mutual.

Speaking of mutual, it is not just the investment of the United States in Ireland, but there has also been a great surge of investment by Ireland in the United States, which is very powerful and prevalent in Wall Street in construction, utilities and food products. Irish companies are spreading their presence in the United States, which further integrates and makes for even stronger transatlantic ties between the United States and Ireland.

My last comment will really talk to the post-crisis world because there are many question marks over what will happen next. We still have the eurozone crisis that we have to deal with. Ireland is front and centre in the sense that it is part of the bailout programmes of financial assistance in the past year or so. There are tremendous questions about the eurozone and what happens next in the European Union. I would separate the two. I work on Wall Street and deal with many clients, with the media and so forth. There are eurozone problems, which are unequivocally significant problems, but then there is the European Union. At the end of the day both the eurozone and the European Union will be very strong entities by which to help to lead the global economy.

It has perhaps been forgotten that the European Union accounts for approximately 22% of global GDP and 25% of global consumption. It is a huge exporter and importer and a wealthy market. What in particular brings US companies to Ireland are the wealth of the EU, the skilled labour force in Ireland and the very pro-business friendly conditions in which companies operate here.

I do not see EU disintegration, or any problems there in the medium to long term, doing anything to undermine the very strong relationship between the United States and Ireland. If anything, I am optimistic and hopeful that what will come out of the eurozone will be a far more integrated European body which will be far more intact and ready for the next storm. When it comes to the underlying investment outlook, what is very impressive about Ireland is the quality of the companies coming here. They are best in class. These include Google, Intel and IBM, which are global leaders which need the leverage and capabilities of Ireland to make them successful.

Conversely, when we speak about the rise of China, which is a threat, I also see an opportunity. To be successful in these emerging markets, US companies must leverage every resource available to them in order to compete, and Ireland is squarely in the mix. I am optimistic about the road ahead and I do not see any type of pullback from US investment in general, in particular from Ireland. The numbers for the first half of this year were quite robust, which is not surprising. When one considers the three years from 2008 to 2010, which were the crisis years, the underlying relationship and investment and trade ties between the United States and Ireland became stronger and not weaker. This speaks volumes.

I thank the committee for this opportunity and I look forward to any questions.

Deputy Brendan Smith

I welcome the delegation. It is heartening to hear a very upbeat assessment by the author of the important report on foreign direct investment in Ireland. With regard to Irish investment in the United States, I believe Mr. Quinlan may have mentioned in a broadcast recently the number of people employed in Ireland by US companies. What is the comparable number employed in the United States by Irish companies?

Mr. Joseph Quinlan

We received the 2009 figures from the Bureau of Economic Analysis, BEA, and the figure is 116,000. However, this number includes banks and non-banks. The number cited by the BEA for US affiliates in Ireland is for non-banks only. The BEA has a phenomenal capacity to confuse people, myself included, so it is not apples and oranges. My estimate for the number of US workers employed by Irish affiliates is approximately 120,000. We have seen a big increase and it could be due to financial sector employment. However, we must also remember the United States is the most attractive market in the world for foreign direct investment and the Irish are now involved in this phenomenon.

Deputy Brendan Smith

We are very proud of Glanbia and the Kerry Group, which are major international companies and substantial employers in the United States. What percentage of overall employment by Irish firms in the US is in food and traditional manufacturing as opposed to financial services?

Mr. Joseph Quinlan

As a percentage of the 116,000?

Deputy Brendan Smith

Approximately.

Mr. Joseph Quinlan

Off the top of my head I would state approximately 10% to 15% or 15% to 20% but I would have to examine the numbers. Services on Wall Street are a major component, as are construction and utilities.

Deputy Seán Crowe

I welcome the delegation. We are told the big attraction of Ireland is our tax base. How important is this compared with other factors? I have heard from companies of factors such as the language, the environment, being safe and being a good place to rear children. How important are factors such as these?

With regard to pharmaceutical companies coming to Ireland, many people cannot understand how the big companies can manufacture drugs here while the cost of buying these drugs over the counter is as high as it is. Many people suggest that as part of the package when such companies came to the country an arrangement should have been made on this. Is such an arrangement made in other countries? It seems to be a logical way forward. People cannot understand how a company produces a product for 1 cent but the market price is $1 or €1. It seems to have been a weakness in the past and something that should be examined. People cannot understand why a pharmaceutical product is a fraction of the cost it is here in Spain, France or Italy, even though it is made in Ireland.

Commissioner Barroso spoke about the bank bailout and money being invested, and a tax on business per se. What effect would this have on possible investment? Part of President Obama’s programme was to get US companies to relocate back to the United States. Are companies committed to staying in Ireland?

Mr. Joseph Quinlan

Mr. Kilcommins will answer the question on pricing. Unequivocally, there is more to Ireland than low corporate taxes. Taxes are very important to multinationals but they also seek a skilled labour force, transparency and intellectual property rights protection, and this is a clear differentiator between Ireland and China, for example. Ireland has nothing to worry about in this particular space. Multinationals consider a bundle of endowments, opportunities and determinants, including EU access, a skilled labour force, speaking English and intellectual property rights. The ease of doing business is another area in which Ireland is well ahead of the large emerging markets of which we hear. Taxes are important but there is more to it than this.

With regard to President Barroso's comments, I am against such a tax. Given the state of the earnings recovery, any determination by government fiat of how a company deploys its own capital is not good for the real economy. I am not in favour of it.

With regard to President Obama enticing companies home, he could do it on a short-term basis and some of the more than $1 trillion sitting offshore could be brought home, but I do not get any sense that US multinationals will be deglobalised. US companies operating in Europe and Ireland have been investing overseas for more than 100 years and this will not change under one Administration.

Ms Joanne Richardson

Another point on tax is that global foreign direct investment is predicted to grow by 30% in the coming 12 months and by another 11% in 2013. Given the base of companies and investment we have, this represents significant opportunities for Ireland. Clarity and certainty over Ireland's corporate tax rate is absolutely a factor when these global companies make decisions on where to place their investments.

Mr. Gerard P. Kilcommins

The question on pricing is interesting. Should a company manufacturing in a certain country give a discount to that country for the product being sold there? Such an act could destabilise the entire worldwide health economic system. I operate in the medical technology industry and many of the top medical technology companies are based in Ireland. In terms of medical technology Ireland would be on a par with most countries in Europe, and the pricing of medical technology products would be cheaper here than in places such as Japan. The issue of disparity in pricing in medical technology products across Europe does not exist in my experience.

Deputy Seán Crowe

The real question is if the companies were ever asked about this. The information I am getting indicates the question was not asked, despite it being a logical way forward with regard to products. If we consider the rest of Europe we are getting a rough deal despite products being made in Ireland.

Mr. Gerald P. Kilcommins

That is not my experience in the medical technology space, although I cannot speak for others. We can consider what US multinational contribute to the economy. They have a significant role to play in the recovery of the economy and they contribute €6 billion in total taxes and €16 billion in direct spending for the economy. That does not include indirect spending from spin-off companies. We have certainly made a big contribution and will have an important role to play over the next few years as we get out of this.

Deputy Tom Fleming

There appears to be a growing trend of American firms relocating from Ireland to other parts of the world. The companies involved are well established, bringing much benefit to the Irish economy, although they have also accumulated substantial grant aid in locating here. What is the opinion of the witnesses in this regard? It has been indicated that the view that cheap labour motivates US firms to invest overseas runs contrary to popular wisdom, although it is certainly a motive and a factor with many successful firms pulling up sticks and opting to leave Ireland. There is also outsourcing work in India and China. The message must go out that we should stop such relocations. I am glad to hear that our existing rates of corporate tax are seen as favourable to the American investor.

Mr. Joseph Quinlan

The emerging markets now account for 50% of GDP and are growing at 6%, 7% and 8% per annum. Any successful US - or Irish - company looking to be successful in the long term must be in these emerging markets. Typically, it starts with initial trade and later investment. There is no doubt that US companies are eyeing these emerging markets but they are doing so sceptically, carefully and cautiously. As long as the EU remains at least a fifth the size of the world GDP with over 500 million people, growing at 2% to 3% per year, US companies will always be here. This is a big chunk of the global economy. American companies entering and becoming successful in India, Poland, Turkey, the Middle East and so forth will leverage Ireland in that capacity through exports, etc.

What motivates companies to invest overseas is the wealth of the consumer base and skilled labour; US companies do not chase cheap labour because there is plenty of it around. There is much cheap labour in Pennsylvania and firms do not have to go to China for it. The Deputy is correct about the trend but he should not think that US companies will abandon this significant platform in Ireland, which is next to one of the largest economies in the world.

Ms Joanne Richardson

To add to Mr. Quinlan's comments, we can consider the investment coming to the country over a short time. In 2010 over 11,000 new jobs were announced, with 75% of those coming from US companies. There is no sector in the country that has announced 11,000 new jobs. In this year to date there has been €17.7 billion of investment, which is up 49% for the first six months of this year. These are the investment flows to Ireland.

Encouragingly, approximately 65% of new investments over the past 18 months have come from the existing base of companies here. This reiterates the retention of the companies. The other 35% came from new companies setting up. There was a regional spread and we have always seen movements since the beginning of investment five decades ago. There was a Covidien announcement today but in the same week we saw Electronic Arts, Pfizer and Twitter announce new jobs. Unfortunately, there will be shifts but our numbers indicate that positive shifts outweigh any jobs leaving the country.

Mr. Gerald P. Kilcommins

Companies move products around all the time and in my own company we have moved basic manufacturing to low-cost locations, replacing it with high-end, advanced, technology-intensive manufacturing. That is a case of companies transforming themselves, which validates the point we hear about Ireland moving up the value chain and becoming a knowledge-intensive economy. When companies move out basic manufacturing and bring in advanced manufacturing the point is manifest. Unfortunately, the negatives seem to outweigh positives but the trends show that the positives outweigh the negatives.

Mr. Joseph Quinlan

In China, India and Brazil there is some hostility to foreign direct investment and there is much protectionism. It is now harder to go to China and Brazil. Russia is not even part of the World Trade Organisation. Wages in India are rising 25% to 30%. In Ireland there is a welcoming investment backdrop and the welcome mat is out; it has a AAA rating, as I call it, among multinationals. This is the difference. Emerging markets in many cases do not want investment and would prefer to create their own local champions. That will not be successful in all cases.

Vice Chairman

There are three Deputies indicating and I will take their questions together.

Deputy Anthony Lawlor

The delegation is welcome. I listened to the interview this morning on "Morning Ireland" and it is a pity the message was not being put across on NBC or other American broadcasters because it would have sold Ireland. The rhetoric from America, particularly from some of the American individuals seeking electoral nominations for the Republican Party, has not been very helpful. I know there has been some discussion but do the witnesses have any thoughts on this point?

Currently a number of high-end multinational companies are finding it difficult to fill vacancies. The problem is that there are not enough quality graduates coming out of our colleges. As a consequence we find people coming in from outside Ireland, perhaps from the EU, to take up those employment opportunities. As policymakers, what can we do for five or six years? What kind of graduate will be required? We are advocating the teaching of science and maths and it is a bit late to be starting with secondary schools; the teaching of these subjects is instrumental in primary schools, and the students will emerge in ten or 12 years. What is the vision of the witnesses for ten or 15 years? That is when those kids will emerge from education. I would rather have a child learning maths than Irish, as maths will help generate a job for that student.

Vice Chairman

We will have a presentation from the Department of Education and Skills but the Deputy has ensured a spot on the news tonight.

Deputy Michael Conaghan

I welcome the delegation. The presence of US companies in the Irish economy has brought a very welcome and strong dynamic into the country. Hundreds of families are dependent for their livelihoods on that. That should be pointed out. We know political sentiment in America is changing about what some refer to as the export of jobs from America. How does the witness evaluate or gauge that? Is it just political rhetoric in the current pre-election campaigning period or is there a more deep seated origin for it? Is it likely to become a political game-changer, to use an American phrase?

Vice Chairman

Finally, I call on Deputy Tóibín.

Deputy Peadar Tóibín

I apologise for being late. I had to attend a pre-arranged meeting. One of the issues that will arise in the future is energy costs. Some companies are citing it as more important than corporation tax issues. How does Ireland and its competitor countries for foreign direct investment compare with the United States in terms of energy costs? Another issue is the concept of the consolidated corporation tax that is being discussed in Europe. How would that affect our State's competitiveness? Third, a data protection investigation is taking place into Facebook at present. Many social media companies are based in this country. How could that affect the attractiveness of Ireland for social media firms in the United States who hold information belonging to participants?

With regard to Deputy Lawlor's comments, what has been the witnesses' experience of working with the infrastructure in Ireland vis-à-vis identifying skills shortages and how they can be resolved? There are a number of organisations in the State whose job is to identify potential skills shortages in the future. Do the witnesses think that interaction has been satisfactory or could improvements be made in the system?

Mr. Joseph Quinlan

On the question of Irish investment in the United States, to be honest I do not think the Irish American appreciates how much foreign direct investment in the United States helps to create jobs, skills, taxes and so forth. The most robust part of the United States economy is the south east. That is principally due to the fact that there are many foreign transplants there, such as automobile manufacturing, from Europe, Asia and so forth. We have a thriving manufacturing base. We make a lot of stuff and export a lot of stuff. It is not in the common narrative of the United States. The US, to be blunt, is having a Sputnik moment at present. We cannot do anything right and everybody is beating us up saying we cannot grow again. We will get over that, but in the meantime the facts and the figures tell a totally different story.

The story of Ireland's presence in the US is an untold story that needs to get out among the public. There is also the story of how much foreign direct investment there is in our economy. The United States, not China, is the largest recipient of foreign direct investment in the world. In the first decade of this century for every $1 China received in foreign direct investment, America got $3. It helps drive our growth.

On the question about anti-export sentiment or anti-globalisation sentiment, in corporate America, and particularly the companies operating in Ireland, there is none of that. It is the opposite. There is a mood in America that we will grow at a slower rate and that we must deleverage and pay our bills. The housing market is three or four years away from correcting itself. It is a slow growth market which means that corporations must be overseas leveraging any and every asset they can to grow in this bigger global economic pie. There is an election coming up and an unemployment rate of 9% so there will be debates and sentiment opposing big business offshoring operations, but we have been there before. It will not change the minds of US corporations.

Mr. Gerald P. Kilcommins

Deputy Lawlor asked a good question about education. Companies talk about globalisation. Certainly, 120,000 jobs in Irish companies in the US are important, but one cannot talk global and not act global. Pulling everything back home is not acting global. Companies like to be close to their big customer bases. We are in Europe, which has a 500 million person customer base.

The question about education is very appropriate. We have seen that for some skills, such as particular types of engineering, ICT, software and some technical skills, our member companies in the past year have found it harder, although not impossible, to fill some positions. It is taking them longer to do so. The Deputy asked where we will be in ten or 15 years. One of the downsides of the boom years - I hate the term "Celtic tiger" - is that children tended to move away from science and technology subjects. Unquestionably, we are suffering for that now. What has happened in the last couple of years has caused people to sit up and take notice. They are wondering what they must do so they will be able to get a job. When I was coming to the end of my second level education the country was also in a recession and the question in my mind was what I could do that would get me a job. In fact, the recent trend is that more second level students are turning to science and technology subjects. That is a good trend. We will not see the output tomorrow but in four to six years.

Our track record in mathematics is not good, as was borne out in the recent leaving certificate results. There is a concern in that regard. I do not have the answer on what we must do with our education system. Somebody asked me yesterday if more money should be spent on it. The answer is "No". We must look at what we are spending already and assess whether it is fit for purpose, efficient, whether we are getting quality and if there is quality in the system. In addition, at present our education system is more like a memory test - how much can one store and download on the day, week or fortnight of the examination. We must get away from that and develop students' thinking, cognitive, problem solving and creativity skills. We need to get there fast because time is not on our side.

Ms Joanne Richardson

Deputy Lawlor mentioned foreign nationals coming to this country. That has been a phenomenon over the last number of years, and a positive one for multinationals. Where they could not fill the jobs locally there has been very highly skilled labour coming here, particularly from the accession countries in Europe, and helping to fill those jobs. The American Chamber of Commerce Ireland conducted its annual jobs activation survey at the beginning of July. The good news on that day was that there were approximately 2,000 jobs open for applicants. The warning sign was that approximately 35% of those jobs were taking longer than three or four months to fill, which indicates that there was a problem with skills. There is another positive indicator, and I always like to finish on a positive note. At the end of June a survey was conducted of the chief executive officers of the existing multinational base. Over 72% of those multinationals said they would either maintain or grow their investments in Ireland over the next couple of years. That certainly sums up the positive mood of multinationals in this country, albeit that there are some issues around skills.

Deputy Peadar Tóibín

Could the witnesses deal with the questions on energy, consolidated corporation tax and data protection?

Mr. Gerald P. Kilcommins

The word we are getting from our CEO fora is that energy costs is a concern. As for what we do about that, some people say that major industrial sites or facilities should generate their own power and come off the energy grid. I do not know if that is the solution, but rising energy costs are increasing our cost base here so it is a concern.

Deputy Peadar Tóibín

How do we compare with the United States and with competitor countries who are vying with us for foreign direct investment?

Mr. Joseph Quinlan

It is hard to say. When one goes to China or India the state has so much money it subsidises energy costs. One really does not know what the true cost is. In fact, that is one reason there is over-consumption. I mentioned in the report that the emerging markets are now setting energy prices. They are net energy takers, so there has been a role reversal. My opinion is that on a secular long-term basis, be it in Ireland or the United States, we are facing energy prices at much higher levels than we thought just ten years ago, whether it is the cost of oil or food stocks. There is a secular long-term trend upwards because we are bringing in new consumers. They are driving more vehicles, living in air conditioned apartments and working in air conditioned offices. In the United States the energy costs have bumped up a little. We have plenty of coal so the utilities have not been tremendously expensive. However, for the west in general, the US and Europe, our energy, food and staple costs will rise, not decrease. Hence, we will have increased productivity and it will be carried out in an environmentally friendly and smart way. There are opportunities there but that is probably for the future.

Deputy Peadar Tóibín

There was also my question on having a consolidated corporation tax.

Ms Joanne Richardson

The position of the American chamber is that this would be the introduction of tax harmonisation by the back door. That is our firm position on that. I said before the Deputy arrived that one of the key factors is to have certainty and clarity in our tax system. An unfortunate consequence of the ongoing discussion on having a common consolidated corporate tax base, CCCTB, which will continue during the next months and years, is that it feeds the greyness and uncertainty about investing in Europe. That is a big negative about it. Corporations in the United States understand the position here, they listen to the Government's position and know about the discussions on this concept taking place in Europe. If a business person in the United States is deciding to invest €500 million or a few €100 million here, in Europe, Asia or Singapore, when there is uncertainty or greyness in the mix that is a factor. From Europe's point of view, when Ireland wins an investment, Europe wins investment. Generally, we are not competing for that investment within Europe; we are competing with Singapore, Switzerland or with what is happening in the United States. The big danger or red flag around the discussions on having a CCCTB is the uncertainty it is creating and will continue to create for future investment decisions.

Mr. Gerald P. Kilcommins

As I understand it, the intent of having a CCCTB was to reduce the cost of compliance operating across the EU. I read some research recently that suggested that rather than reducing it, it will increase compliance costs by 13%. That would defeat the objective. There is some way yet to go in this respect.

Deputy Peadar Tóibín

I was interested in one of the witnesses's description of the BRIC economies, those of Brazil, Russian, India and China. We have talked in recent months about how the emerging Chinese middle class is a potential gold mine for our domestic exports. I understand that only 6% of our exports go to the BRIC economies. Will Mr. Quinlan expand on his opinion that these economies might be more closed than we had imagined?

Mr. Joseph Quinlan

That is unequivocal, in the sense that China, in particular, welcomed foreign direct investment early on and such investment helped drive its exports and growth. China is focused on creating indigenous national champions across various sectors, be it the pharmaceutical, automobile or technology sector. It favours its cash state-owned enterprises or semi-state owned enterprises at the expense of US and European companies. The European chamber has been very vocal about the unlevel playing field in China. The Chinese do not care now. In the past they needed foreign direct investment but now they are confident they can go down the clean energy route by themselves. I think they are wrong about that but that is a big issue.

India has never been comfortable welcoming foreign direct investment . There has been some outsourcing in terms of financial services but there is not a great deal of manufacturing industry in India, with perhaps the exception of pharmaceuticals. Brazil has become much more protectionist. It has just imposed, I believe, a 50% tariff on foreign made automobiles. It has been active protecting its currency from appreciating too much as that would undermine its competitiveness. As I said, Russia is a one trick pony. It is not even part of the WTO, which tells us that it believes its playing field is the one it has and that is it. Admittedly, there are investment opportunities in these markets. Companies must have a presence there. Irish companies need to be in these markets and to have a presence in them but that is not an easy as it was previously.

Vice Chairman

I thank the witnesses for their positive contributions, for coming here today and outlining the importance of the USA to this country in economic terms, as the report demonstrates. We are all enjoying the robust Republican debates late night on Fox News. They keep me entertained if nothing else. The strong trading links between both countries are very positive at this point in time and augur well for the future rebuilding of the Irish economy. I thank the witnesses for their contributions.

Ms Joanne Richardson

I thank the Chairman and members.