IDA Ireland is the agency with statutory responsibility for the attraction of foreign direct investment to Ireland, including its regions and areas, apart from the Shannon free zone which is the responsibility of Shannon Development. Overseas companies that are clients of these two development agencies submit investment proposals to the agencies for consideration for state support. Typically, these proposals include fixed assets — capital — labour and technology-research and development components.
The proposals set out indicative targets for achievement of the investment using criteria such as sales, profitability, exports and employment. Each investment proposal is subjected to an economic appraisal by the agencies prior to agreement of support. Once approved by the agencies, achievement of the targets set out in the proposal is subject to overall economic conditions, activity in the sector in which a company operates and sales orders etc. In many cases, depending on the circumstances outlined, investors often meet or exceed their targets. However, in some cases some targets are not met or only met over a longer time frame.
With respect to overseas companies, their overall performance against target has been remarkably strong. That said, in some cases, projected employment growth has not always materialised. There are a number of reasons for this. These include a downturn in global economic conditions; reduced customer demand; sector specific conditions; restructuring of industry or parent company; over estimation of jobs to flow from investment; inability to find suitably qualified staff and difficulties in attracting staff due to full employment conditions etc.
The development agencies and their client companies continually monitor the performance of an investment against agreed targets. In certain circumstances, the agencies can, under the terms of the legal agreement signed between the agencies and the investing company, seek repayment of financial support when targets are not met. The economic environment in 2004 has changed significantly since many clients submitted investment proposals in the latter half of the 90s. At that time the world economy, particularly in the high tech sectors was experiencing very strong growth. Consequently, the proposals approved by the agencies reflected high projected growth in sales, profitability and jobs. In 2000-01, there was a sharp downturn in the world economy resulting in substantially reduced orders, high levels of inventories and in many cases losses. To compensate for the fall in sales companies were forced to dramatically reduce their production capacity resulting in high lay-offs throughout the world.
Although the world economies have continued to recover since then, employment has not reached pre 2000 levels. In many cases companies want to avoid having to repeat the experience of having to make substantial lay-offs, and therefore, their employment levels have not expanded as quickly as originally anticipated. In addition, many companies are outsourcing manufacturing and services to lower cost locations notably India and China. Companies sometimes make decisions not to locate in a particular country even after it has visited that country.
The typical profile of projects setting up in Ireland has changed from manufacturing to mainly service and support functions. Under pressure from a changing economic environment, companies which had planned to set up manufacturing operations in Ireland with relatively high job numbers are now implementing different projects with higher value added functions but with lower job numbers. This is the type of investment that IDA Ireland is now primarily targeting and which is most suited to our modern economy.