Overseas investment in Ireland halves in 2004

29 Jun 2005

Foreign direct investment (FDI) in Ireland in 2004 fell by almost half to US$14.1bn, down from €26.9bn, according to the latest figures available from the OECD. IDA Ireland however, whose annual results are due out later today, has disputed the findings, claiming they are not an accurate reflection of business performance in the Irish economy last year.

According to the new OECD report, during a year where FDI outflows from the US hit a record US$252bn, FDI into Ireland fell by a whopping US$12.8bn.

Western Europe as a whole failed to capitalise on a general resurgence of US overseas investment, losing out to powerful gains by non-OECD countries in Asia and Eastern Europe.

Terming Europe’s performance as “sluggish”, the OECD report said inward FDI into Germany and France, the two largest economies of the European continent, fell sharply in 2004. In France inward investment almost halved, falling from US$43bn to US$24bn. In the case of Germany, foreign investors actually withdrew about US$39bn from the country, reversing the inflow of US$27bn recorded in 2003.

Inward FDI figures include transactions, which can involve both inflows and withdrawals, between foreign-invested enterprises and their foreign mother companies. The downturn in 2004 largely reflected repayments to recipients outside Europe of inter-company loans and other transaction between related enterprises.

Despite the general European inward investment slump, Ireland’s nearest neighbour the UK received FDI worth US$78bn, up a staggering US$58.1bn on the US$20.4bn recorded in 2003. One reason put forward by the OECD for the UK’s ability to buck the European trend was that unlike the rest of Continental Europe, a significant pick-up in mergers and acquisitions affected inward and outward flows of FDI.

Questioned on Ireland’s performance in the OECD results, an IDA spokesperson said that the OECD’s results don’t tally with the IDA’s own figures

She said: “Our business only forms part of the inflows set out by the OECD and the inflows to Ireland claimed by the OECD is only an estimate. They appear to have taken a figure in isolation and to use that as an assessment. What it is, including financial flows in response to interest rate payments and other factors, is not really a true reflection of FDI coming into Ireland.”

IDA Ireland’s annual results for 2004/5 are due to be unveiled later today.

Across the OECD area as a whole, FDI inflows continued on a downward trend, falling to US$407bn in 2004 from US$459bn in 2003. Outflows, on the other hand, rose from US$593bn in 2003 to US$668bn in 2004.

China continued to receive a large share of the direct investment in developing countries with inward FDI rising to a record US$55bn in 2004 from US$47bn in 2003.

India is making steady progress in establishing itself as an attractive destination for FDI, with inward investment reaching US$4.3bn in 2003 and rising to US$5.3bn in 2004.

By John Kennedy