15/12/19: Under the Hood of Irish National Accounts: 3Q 2019 Data

CSO have released the latest (3Q 2019) data for the National Accounts. The headlines are covered in the release here: https://www.cso.ie/en/releasesandpublications/er/na/quarterlynationalaccountsquarter32019/ and are worth checking. There was a massive q/q increase in GNP (+8.9%) and a strong rise in GDP (+1.7%).

Official value added q/q growth figures were quite impressive too:

• Financial & Insurance Activities value added was +5.7 percent in volume, all of which, judging by the state of the Irish banks came probably from the IFSC and insurance premiums hikes
• Professional, Administrative & Support Services +5.1 percent (this sector is now heavily dominated by the multinationals)
• Public Administration, Education and Health sector lagged with a +1.5 percent 
• Arts & Entertainment +1.8 percent
• Construction grew by much more modest +1.3 percent 
• Industry (ex-Construction) fared worse at +1.1 percent 
• Information & Communication increased by 0.8 percent over the same period
• Meanwhile, more domestic-focused Agriculture recorded a decline of 3.2 percent 
• Distribution, Transport, Hotels & Restaurants posted a decline of 1.0 percent.

On the expenditure side of accounts:

• Personal Consumption Expenditure increased by 0.9 percent q/q
• Government expenditure increased 1.2 percent.

Not exactly the gap we want to see, especially during the expansionary cycle, but public consumption has been running below private consumption in level terms ever since the onset of the recovery.

With this in mind, here is what is not discussed in-depth in the CSO release. CSO reports a measure of economic activity that attempts to strip out some (but not all) of the more egregious effects of the tax optimising multinational enterprises' on our national accounts. The official name for it is 'Modified Domestic Demand', "an indicator of domestic demand that excludes the impact of trade in aircraft by aircraft leasing companies and trade in R&D service imports of intellectual property". Alas, the figures do include intangibles inflows, especially IP on-shoring, income from domiciled intangible assets, and transfer pricing activities. Appreciating CSO's difficulties, it is virtually impossible to make a judgement as to what of these three components is real (in so far as it may be actually physically material to Irish enterprises and MNCs trading from here) and what relates to pure tax optimisation.

With liberty not permitted to CSO, let's take the two categories out of the aggregate modified demand figures.

So, this good news first: Modified Total Domestic Demand is growing and this growth (y/y) is improving since hitting the recovery period low in 3Q 2018. 

Bad news: growth in modified domestic demand remains extremely volatile - a feature of the Irish economy since mid-2014 when the first big splashes of the Leprechaun Economics started manifesting themselves (also see last chart below).

Not great news, again, is that domestic growth is not associated with increases in investment (first chart above, blue line). 

More good news: in levels terms, adjusting for inflation, Ireland's Modified Domestic Demand has been running well-above pre-crisis period peak average levels for quite some time (chart below). Even better news, it appears that much of the recent support for growth in demand has been genuinely domestic.

Next chart shows y/y growth rates in the headline Modified Total Domestic Demand as reported by the CSO (blue line) and the same, less transfer pricing, stocks flows and IP flows (grey line). 

Starting with mid-2014, there is a massive variation in growth rates between the domestic economy growth rates as reported by the CSO and the same, adjusting for MNCs-dominated IP and transfer pricing flows, as well as one-off effects of changes in stocks (inventories). There is also tremendous volatility in the MNCs-led activities overall. Historically, standard deviation in the y/y growth rates in official modified domestic demand is 5.68, and for the period from 3Q 2014 this is running at 5.09. For modified demand ex-transfer pricing, IP and stocks flows, the same numbers are 6.12 and 1.62. 

Overall, growth data for Ireland has been quite misleading in terms of capturing the actual tangible activities on the ground in prior years. But since mid-2014, we have entered an entirely new dimension of accounting shenanigans by the multinationals. Much of this is driven by two factors:

1. Changes in tax optimisation strategies driven by the international reforms to taxation regimes and the resulting push by the Irish authorities to alter the more egregious loopholes of the past by replacing them with new (IP-related and intangible capital-favouring) regime; and
2. Changes in the ays in which MNCs prioritise specific investment inflows into Ireland, namely the drive by the MNCs to artificially or superficially increase tangible footprint in the Irish economy (investment in buildings, facilities and on-shored employment) to provide cover for more tax-driven FDI.

Time will tell if these changes will lead to more or less actual growth in the real economy, but it is notable that the likes of the IMF have recently focused their efforts at detecting tax optimising activities at national levels away from income flows (OECD approach to tax reforms) to FDI stocks and firm-level capital activities. By these (IMF's) metrics, Ireland has now been formally identified as a corporate tax haven. How soon before the OECD notices?..

18/6/19: OECD-led Tax Reforms: A Prescription for a Less Competitive Economy

I have just posted a draft of my paper on the OECD BEPS proposals from May-June 2019 here: Gurdgiev, Constantin, OECD-led Tax Reforms: A Prescription for a Less Competitive Economy (June 18, 2019). Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3406260. 

6/10/17: CA&G on Ireland's Tax, Banking Costs & Recovery

Occasionally, the Irish Comptroller and Auditor General (C&AG) office produces some remarkable, in their honesty, and the extent of their disclosures, reports. Last month gave us one of those moment.

There are three key findings by CA&G worth highlighting.

The first one relates to corporate taxation, and the second one to the net cost of banking crisis resolution. The third one comes on foot of tax optimisation-led economy that Ireland has developed since the 1990s, most recently dubbed the Leprechaun Economics by Paul Krugman that resulted in a dramatic increase in Irish contributions to the EU budget (computed as a share of GDP) just as the Irish authorities were forced to admit that MNCs’ chicanery, not real economic activity, accounted for 1/3 of the Irish economy. All three are linked:

• Irish banking crisis was enabled by the combination of a property bubble that was co-founded by tax optimisation running rampant across Irish economic development model since the 1990s; and by loose money / capital flows within the EU, which was part and parcel of our membership in the euro area. The same membership supported our FDI-focused competitive advantage.
• Irish recovery from the banking crisis was largely down to non-domestic factors, aka - tax optimisation-driven FDI and foreign companies activities, plus the loose money / capital flows within the EU enabled by the ECB.
• In a way, as Ireland paid a hefty price for European imbalances and own tax-driven economic development model in 2007-2012, so it is paying a price today for the same imbalances and the same development model-led recovery.

Let’s take the CA&G report through a summary and some comments.


1) Framing CA&G analysis, we had a recent study by World Bank and PwC that estimated Ireland’s effective rate of corporation tax at 12.4%, just 0.1 per cent below the statutory or headline rate of 12.5%. To put this into perspective, if 12.4% effective rate holds, Ireland is not the lowest tax jurisdiction in the OECD, as 12 OECD economies had an effective rate below 12.4% and 21 had an effective rate of corporation tax above 12.4%. For the record, based on 2015 data, France had the 2nd-highest statutory rate at 38% but the lowest effective rate at just 0.4%. I contrast, the U.S. had the highest statutory tax rate at 39% and the second highest effective rate at 28.1%. There is a lot of fog around Irish effective corporate tax rates, but CA&G The C&AG found that the top 100 in taxable income terms companies had a an average effective corporation tax rate at 9.3%, slightly less than the rate applying to all companies (9.8%).

The CA&G findings show some dramatic variation in the effective tax rates paid by the Ireland-based corporations. CA&G report is based on a set of top 100 companies trading from Ireland. Of these, 79 companies paid an effective corporate tax rate of 10-15 percent, and almost 2/3rds paid a rate of 12% and higher. However, 13 companies faced a tax rate of under 1 percent.

Irish corporate tax system is risk-loaded: per CA&G report, 37% of all corporate tax receipts collected by the Irish Exchequer come from just 10 companies, while top 100 firms supply 70% of total corporate tax receipts. This concentration is coincident with rising reliance of the Exchequer on corporate tax collections, as corporation tax contributions to the State rose 49% in 2015 to reach EUR6.9 billion. The Leprechaun Economics that triggered a massive transfer of foreign assets into Ireland in 2015-2016 has pushed corporate tax receipts to account for 15% of the total tax revenues. Worse, 70% of total corporate tax take in Ireland came from only three sectors: finance, manufacturing and ICT. Manufacturing, of course, includes pharma sector and biopharma, while ICT is dominated by services, like Google, Facebook, Airbnb et al. This reliance on corporate tax revenues is the 6th highest in the OECD, based on 2015 figures. Per CA&G report, “Corporation tax receipts are highly concentrated both in terms of sectors and by number of taxpayers”. In other words, the Leprechaun Economics model is wrought with risks of a sudden stop in Exchequer revenues, should global flows of funds and assets into Ireland reverse (e.g. due to EU disruption, such as policy shift or Brexit/geopolitical triggers, or due to the U.S.-led shock, such as radical changes in the U.S. corporate tax regime).

The above is worrying. Leprechaun Economics model - or as I suggested years ago, the Curse of Tax Optimisation model - for economic development, chosen by Ireland is not sustainable and it is open to severe risks of exogenous shocks. Such shocks can be sudden and deep. And were risks to the MNCs domiciling into Ireland to materialise, the Exchequer can see double digit deficits virtually over night.


2) CA&G report also attempts to compute the net expected cost of the banking crisis to the country. Per report, the expected cost of rescuing the banks stands at around EUR 40 billion as of the end of 2016, while on the long run timing, the cost is expected to be EUR56.4 billion. However, accounting for State assets (banks’ shares), Nama ‘surpluses’ and other receipts, the long term net cost falls just below EUR40 billion. At the end of 2016, per CA&G, the value of the State's share in AIB was EUR11.6bn, which was prior to the 29% stake sale in an IPO of the bank. As history tells us, EUR66.8 billion was used to recapitalise the Irish banks with another EUR14.8 billion paid out in debt servicing costs. The debt servicing bill currently runs at around EUR1 billion on average, and that is likely to rise dramatically once the ECB starts unwinding its QE which effectively subsidises Irish Exchequer.

CA&G report accounted for debt servicing costs in its calculation of the total expected cost of banks bailouts, but it failed to account for the fact that these debt costs are perpetual. Ireland does not retire debt when it retires bonds, but predominantly uses new borrowings to roll over debt. hence, debts incurred from banks recapitalisations are perpetual. CA&G report also fails to a account for the opportunity cost of NPRF funds that were used to refinance Irish banks. NPRF funds generated tangible long term returns that were foregone in the bailout. Any economic - as opposed to accounting - analysis of the true costs of Irish banks bailouts must account for opportunity costs and for perpetual debt finance costs.

As a reminder, the State still owns remaining investments in AIB (71% shareholding), Bank of Ireland (14%) and Permanent TSB (75%) which CA&G estimated to be worth EUR13.6 billion. One way this might go is up: if recovery is sustained into the next 3-5 years, the state shares will see appreciation in value. The other way it might turn a decline: these are sizeable shareholdings and disposing off them in the markets will trigger hefty discounts on market share prices. CA&G expects Nama to generate a surplus of EUR3 billion. This is uncertain, to put it mildly, because Nama might not window any time soon, but morph instead into something else, e.g. ’social housing developer’ or into a general “development finance’ vehicle - watch their jostling for a role in ‘resolving’ the housing crisis. If it does, the surplus will be forced, most likely, into some sort of a development finance structure and, although recorded on paper, will be used to pay continued Nama wages and costs.

In simple terms, the CA&G figure is an accounting underestimate of the true net cost of the bailouts and it is also a gross economic underestimate of the same.


3) As noted above, the third aspect of the CA&G report worth mentioning is the rapid acceleration in Ireland’s overpayment to the EU on foot of the rapid superficial GDP expansion of 2015-2016 period. According to CA&G, Ireland’s contributions to the EU rose to EUR2 billion - up 20% y/y - in 2016. This increase was largely driven by the fake growth in GDP that arises from the multinational companies shifting assets into Ireland for tax purposes. CA&G expects this figure to rise to EUR2.4 billion in 2017.

In simple terms, Ireland is overpaying for the EU membership to the tune of EUR1 billion - an overpayment necessitated by the MNCs-induced superficial expansion of the national accounts. This activity has zero impact on the ground, but it induces a real cost on Irish society. Of course, one can as easily make an argument that our beggar-thy-neighbour tax policies are conditional on us being within the EU, so we are paying extra for the privilege of housing all corporate tax optimisers in Ireland.


All in, the CA&G report is a solid attempt at making sense of the Kafkaesque economics of the Irish State. That it deserves some critical comments should not subtract from its value and the quality of effort.

17/5/16: Village May 2016: Buzz Wrecked

My article for Village magazine highlighting some longer-term risks for the Irish economy: http://villagemagazine.ie/index.php/2016/05/buzz-wrecked/.

Plenty of opportunities to the upside, but risks are material and require careful policy balancing between fiscal prudence, institutional supports for domestically-anchored companies and entrepreneurs, with a concerted effort to move away from the FDI-or-bust policies of the past 30 years.

13/12/15: Irish National Accounts 3Q: Post 6: Exports and MNCs

In the previous 6 posts, I covered:

1. Irish National Accounts 3Q: Sectoral Growth results;
2. Irish year-on-year growth rates in GDP and GNP;
3. Quarterly growth rates in Irish GDP and GNP; 
4. Irish Domestic Demand (Household Consumption, Government Spending and Public and Private Investment)
5. Irish external trade; and
6. Evolution of per-capita metrics and the dynamics of the crisis.

So let’s get down to the last post on the matter of Irish National Accounts for 3Q 2015: the subject of Irish economy’s dependency on MNCs… err… exports that is.

Real Exports as a share of Irish real GDP stood at 120.1% in 3Q 2015, the second highest proportion on record, down from 123.0% in 2Q 2015 which was record-breaking level. Similarly, Nominal Exports as a share of nominal GDP fell from 127.2% in 2Q 2015 (highest on record) to 122.7% (second highest).

This is a remarkable set of numbers, driven predominantly by the activities of MNCs in Irish economy, and a number that is a signifier of all that is wrong with our National Accounts. Unlike countries that serve as a basis for production, Ireland serves as a basis for both some production of goods and services, but also as a platform for large scale tax optimisation. Vast majority of our exports are accounted for by MNCs trading from here, with large share of activity not taking place here, but being booked into Ireland from abroad. This distorts actual levels and value of production, but it also distorts the metrics of this economy’s openness to trade.

As the result on much of the MNCs activities, profits derived in Ireland by MNCs can go four ways:

1. They can be booked into tax havens (in which case they register as outflows from Ireland or Irish imports);
2. They can be booked in Ireland as profits and retained here (in which case they accrue to our National Accounts);
3. They can be registered here and then repatriated abroad (in which case they register as outflows of factor income); and
4. They can be booked into here and then expatriated, but remain on our books, as long as the MNCs is domiciled here (e.g. company created as an Irish entity via inversion).

We have zero ability to tell how much exactly do MNCs derive in profit from activities here and tax optimisation through here. But we do have a number that partially captures (3) above. This is provided by Net Factor Income Outflows to the Rest of the World and here is the chart showing how it evolved over time relative to Exports:

Do note that over 2011 - present period, average net outflow of factor payments abroad has fallen as a share of Exports from 17.5% in the period of 1Q 2002 - 4Q 2010 to 15.1%, the lowest period average on record. In other words, during the last 4 and 3/4 years MNCs operating from Ireland have been expatriating fewer profits abroad than in other periods in history. Question is: what happens to these retained profits over time? Obviously, these MNCs have absolutely no interest in re-investing these profits in Ireland (there is neither the scale for such reinvestment, nor the need). This suggests that either these profits are being parked until such a time as when they can be expatriated for the purpose of funding MNCs investments around the world, or the MNCs overall switched to declaring lower profits as a share of their exports.

Truth is - we do not know what is going on, though we do know that something is afoot.

Overall, however, Irish economic miracle’s dependence on MNCs-driven exports growth is growing, whilst transparency of MNCs operations here (at least as far as the National Accounts go) is declining. Happy FDI days are upon us… as long as the U.S., OECD, EU, and the rest of the host of states and organisations hell-bent on ending the free for all tax optimisation by corporates aren’t looking…

5/9/15: Remittances, Foreign Aid & other Capital Flows

So globally, remittances by migrants are now worth more than double the total flows of foreign aid and more than portfolio flows (financialised investment). In fact, remittances are now second in importance to only FDI.

Source: Economist; H/T: @RonanLyons 

The latter fact is not surprising as remittances already were second largest source of capital inflows for developing countries at the start of the century and even before (see more on this here covering data until 2000). Interestingly, at variance with the above chart, evidence before 2000 suggests that remittances were negatively (though not statistically significantly) correlated with private capital flows. It appears this negative correlation has been substantially reversed in post-2000 period.

Another study looked at the effect of remittances in Sub-Saharan Africa - the world's poorest region overall, where foreign aid is a very important driver of 'official' development. The study (link here) found that "remittances, which are a stable, private transfer, have a direct poverty mitigating effect, and promote financial development. These findings hold even after factoring in the reverse causality between remittances, poverty and financial development." Globally, the same was established based on pre-2000 data (link here).

A 2009 paper ties remittances (positive effect on long-term growth in the receiving economy) to the degree of development of financial services in the economy (a factor that positively reinforces growth effects of remittances) - details of the study here. Which is sort of a good thing, as remittances themselves promote financial services development (see a study covering 1975-2003 period here).

Given Latin America's experience with emigration and brain drain, data on remittances effects in these countries is interesting in itself. More interesting, however, is the following study that looked at links between remittances, poverty reduction, education and health in recipient countries. "The main findings of the study are the following:

1. regardless of the counterfactual used remittances appear to lower poverty levels in most recipient countries; 
2. yet despite this general tendency, the estimated impacts tend to be modest; and 
3. there is significant country heterogeneity in the poverty reduction impact of remittances' flows.

...While remittances tend to have positive effects on education and health, this impact is often restricted to specific groups of the population."

In contrast to the above studies and many others that reference or identify positive growth effects of remittances, a 2009 IMF study found no positive links between remittances and growth (see link here). So, thankfully for us, economists, Economic Ambiguity prevails...

To make things a little better for the case of remittances v growth, another study (like IMF reliant on modern econometric techniques) looked at the causal links between remittances and growth in Latin American countries. The conclusion (see link to the study here) is that "remittances have a positive and significant effect on economic growth in both groups of countries. ...the impact of remittances is more pronounced in the presence of the financial development variable." The latter bit confirms evidence referenced earlier. 

IMF study is also (weakly) contrasted by the 2006 paper (link here) that found that controlling for endogeneity "...remittances exert a weakly positive impact on long-term macroeconomic growth."

One of the common criticisms of official foreign aid is that it fuels corruption and graft. Surprisingly, there is some evidence that remittances too achieve the same impact on key institutions in the recipient country. IMF study (see link here) found that "a higher ratio of remittances to GDP is associated with lower indices of control of corruption, government effectiveness, and rule of law."

In short, there is huge amount of interesting research on remittances... 

24/3/15: There's no number left untouched: Irish GDP, GNP and economy

According to Bloomberg, US companies are stashing some USD2.1 trillion of overseas cash reserves away from the IRS: http://www.bloomberg.com/news/articles/2015-03-04/u-s-companies-are-stashing-2-1-trillion-overseas-to-avoid-taxes?hootPostID=ffda3e167ae0ebabc3da4188e9bd22de

Ireland is named once in the report in a rather obscure case. Despite the fact we have been named on numerous other occasions in much larger cases. But beyond this, let's give a quick wonder.

1) Last year, exports of goods in Ireland leaped EUR89,074 million based on trade accounts with Q1-Q3 accounts showing exports of EUR66,148 million compared to the same period of 2013 at EUR65,381 million - a rise of 1.01% or EUR767 million. Full year rise was EUR2,075 million. So far so good. Now, national accounts also report exports of goods. These show: exports of goods in Q1-Q3 2013 at EUR69,731 million and exports of goods in Q1-Q3 2014 at EUR78,835 million, making y/y increase of EUR9,104 million. Full year 2014 - EUR108.989 billion a rise of EUR15.98 billion y/y. The discrepancy, for only 3 quarters, is EUR8,337 million or a massive 6.1% of GDP over the same period. For the full year it is EUR19.92 billion or 11% of annual GDP. Much of this difference of EUR19.92 billion was down to 'contract manufacturing' - yet another novel way for the MNCs to stash cash for the bash… IMF estimated the share of contract manufacturing to be at around 2/3rds of the annual rise in Q1-Q3 figures. Which suggests that around EUR7.4 billion (once we take account of imports of goods) of Irish GDP rise in 2014 was down to... err... just one tax optimisation scheme. That is EUR7.4 billion of increase out of EUR8.275 billion total economic expansion in the MiracleGrow state of ours.

2) Last month, Services activity index for Ireland posted a massive spike: overall services activity rose 12.59% y/y, the dynamic similar to what happened in Q2-Q3 last year with goods exports (Q1 2014 y/y +8.2%, Q2 2014 y/y +12.9% and Q3 2014 y/y +17.9%). Even more telling is the composition of Services growth by sectors: wholesales & retail trade sector up 8.83% (a third lower than the overall growth rate), transportation and storage - ditto at 8.4%, admin & supportive services +2.91%. Accommodation and food services posted rapid rise of 14.03% and professional, scientific & technical activities rose 13.97%. Meanwhile, tax optimisation-driven information & communication services activity was up 21.15%. What could have happened to generate such an expansion? Anybody's guess. Mine is 3 words: "knowledge development box" - a non-transparent black-box solution for tax optimisation announced as a replacement for the notorious "double-Irish" scheme. So let's suppose that half of the services sectors growth is down to MNCs and will have an effect on our 'exports'. In Q3 2014 these expanded by 13.4% y/y and in Q2 by 10.8% - adding EUR5,560 million to exports. January data on services activity suggests, under the above assumption, roughly the same trend continuing so far, which by year end can lead to a further MNCs-induced distortion of some EUR11 billion to our accounts on foot of Services sectors exports.

Take (1) and (2) together, you have roughly EUR21-22 billion of annual activity in the export areas of services and goods sectors that is likely (in 2015) to be down to MNCs washing profits through Ireland through just two schemes.

Then there are our factor payments abroad - what MNCs ship out of Ireland, in basic terms. As our total exports of goods and services been rising, the MNCs are taking less and less profit out of Ireland. Chart below sums these up. While profitability of MNCs is rising - a worldwide trend - Ireland-based MNCs remittances of profits are falling as percentage of exports. 2008-2012 average for the ratio of net remittances to exports is 18%, which suggests that even absent any uplift in profit margins, some EUR27.5 billion worth of profits should have been repatriated in Q1-Q3 2014 instead of EUR22.16 billion that was repatriated - a difference of EUR5.36 billion over 3 quarters or annualised rate of over EUR7.1 billion. Factoring in seasonality, the annualised rate jumps to closer to EUR8 billion.

On an annualised basis, for full year 2014, exports of goods and services from Ireland rose y EUR23.28 billion year-on-year, while net exports rose EUR3.784 billion. Meanwhile, profits repatriations (net) rose only EUR719 million. Aptly, for each euro of exports in 2013, Ireland's national accounts registered 74.2 cents in net factor payments abroad. In 2014 this figure hit historical low of 69.1 cent.

My guess is, MNCs have washed via Ireland close to EUR30 billion worth of profits or equivalent of 17.1% of 2013 full year GDP and close to 16.5% of 2014 GDP. Guess what was the GDP-GNP gap in 2013? 18.5 percent. And in 2014? 15.4%. Pretty darn close to my estimates.

Let's check this figure against aggregate differences in 2008-2014 GDP and GNP. The cumulated gap between the two measures, in nominal terms, stands at EUR201.3 billion, closer to EUR204 billion once we factor in seasonality in Q4 numbers to the estimate based on Q1-Q3 data. The above estimate of EUR29.97 billion in 'retained' profits implies, over 7 years a cumulated figure of EUR209.8 billion, or a variance of EUR827-1,200 million. Not much of a margin of error. I'll leave it to paid boffins of irish economics to complete estimates beyond Q3 2014, but you get the picture.

And now back to points (1) and (2) above: how much of the Irish growth in manufacturing and services - growth captured by one of the two exports accounts and by the likes of PMI metrics and sectoral activities indices is real and how much of it is an accounting trick? And what about other schemes run by the MNCs? And, finally and crucially, do note that contract manufacturing and knowledge development box types of tax optimisation schemes contribute to both GDP and GNP growth, thus completing the demolition job on Irish National Accounts. There is not a number left in this economy that is worth reading.


Update: we also have this handy graphic from the BusinessInsider (http://uk.businessinsider.com/us-corporate-cash-stashed-overseas-2015-3?r=US) charting the evolution of U.S. MNCs stash of cash offshore:

Ah, those U.S. MNCs err... FDI... mattresses...

16/7/2014: Gross FDI stocks per destination: BRICS

Natixis research published this handy chart summarising stocks of FDI by origin for BRICS countries:

H/T to @FGoria

Note: this is in absolute levels and aggregated over different time horizons, also note that figures date to 2012, while 2013 was a major year for reduced investment activities in the Emerging Markets and saw the beginnings of the onset of capital outflows from Russia. So lots of caveats on the above data.

14/7/2014: As Far As Debtor Nations Go… All That FDI

There are more interesting revelations in the IMF survey of the Euro Area when it comes to Ireland. Let's imagine what we think of the Emerald Isle… no, not Guinness and not music or the Temple Bar… let's think of FDI. 

• It is huge, right? Right. 
• It is a marker of huge source of our success, right? Right-ish. 
• It is making us richer as a nation, right? Err…

Ok, IMF provides a neat table summarising euro area economies as net creditors (the ones for which Net Foreign Assets held in the economy - private and public - are positive, so the world 'owes' them and associated with this, they have a positive, with exception of Malta, current account, averaging over 1999-2013) and debtors (the ones for which Net Foreign Assets are negative and so they owe, net, to the world, with their current account balances being negative on average over long period of time).

So Ireland is FDI-rich - we have lots of foreign assets that we can call upon as ours, right? Hmm… judge by the table:

And now notice two things:

1. Our Net Foreign Assets position is a whooping -105% of GDP, less disastrous than that of only two other countries: hugely indebted Greece and heavily indebted and less open Portugal;
2. Our current account averages at a deficit, of -0.6% of GDP which is benign compared to all other debtor economies, but that said, even at the best performance (maximum) we have generated a current account surplus of just 3.1% of GDP which is… no, not spectacular… it is ranked tenth in the euro area.

Do tell me if this consistent somehow with the evidence that Ireland's external balances are strong indicators of our economy's structural successes, as Irish and Brussels analysts are keen claiming?

But IMF soldiers on. In the following table in the same report it shows us the Average Real Return Difference between Foreign Assets and Liabilities Euro Area Economies. Now, what should we expect from our successes with FDI? That returns to assets inside Ireland should be in excess of returns on Irish assets held abroad. We are, after all, more successful in using investment (FDI) than other countries. What do we get? Exactly the opposite:

Note per above, our real return difference is a whooping 2.8 percentage points - largest after Greece and Slovak Republic. We know what is happening in Greece's case, but what on earth is happening with Slovak Republic case? Why, the same thing that is happening with Ireland: exports of returns via FDI.

So the above simply means we pay more on our liabilities than we get from our assets. In household finances sense... we are going broke...

Is this a problem? Why yes, it is. Here's IMF: "On average, many creditor economies saw negative real return differences between their foreign assets and liabilities, acting as a drag on their net foreign asset positions and also suggesting possible gains from portfolio rebalancing, either by shifting away from foreign towards domestic assets, or by changing the composition of their foreign assets and liabilities, away from euro area debtor economies. At the same time, many debtor economies had large negative real return differences on average, reinforcing their large net foreign liability positions and making adjustment more of an uphill climb."

That said, things are improving - our current account is now in stronger position than in the 2002-2007, but that is largely because of our consumption of imported goods dropping. Still, things are improving...

6/2/2014: Rip-Off Ireland: Alive and Kicking… Courtesy of the State

This is an unedited version of my Sunday Times article from January 26, 2014.


Ninety five years ago, in his book The Economic Consequences of Peace (Chapter VI, pg.235-236), John Maynard Keynes observed that "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."

This week's announcement of price hikes by VHI serves as a timely reminder of the salience of Keynes' analysis.  As are the CSO release of comparative data for the cost of living and income per capita for Ireland and the rest of the EU.

The former shows the extent of the ongoing confiscation of households’ wealth through targeted price increases – a core feature of Irish response to the crisis. The latter highlights the combined effects of inflation and income declines on Irish consumers. In 2012, Ireland was the fifth most expensive state in the European Union in terms of the cost of final consumption by private households. At the same time, Irish per capita pre-tax national income, adjusting for purchasing power differentials, was only 11th in the EU.

Irish recovery from a deep fiscal and financial crisis has been a tale of financial repression. Since 2008, our successive Governments have underwritten the status quo of inefficiencies in public services, as well as the cost of recapitalizing the failed banks using the sweat and blood of Irish consumers and taxpayers. As a by-product of this, the state transferred vast amounts of wealth and income from the Middle Ireland and the less well-off households to state-protected and often state-owned producers of goods and services.


Significant parts of these transfers took form of targeted inflation.

Per CSO data, released earlier this month, average annual consumer inflation in 2013 fell to just 0.5 percent, less than one quarter of the average annual inflation recorded in 2011-2012. However, underlying these figures, there is a growing disparity between price trends in the sectors dominated by the state and the sectors where private enterprises compete directly for consumer demand. Not surprisingly, the highest inflation over 2013 was recorded in state-priced and state-owned sectors, such as Education, where prices rose more than nine times faster than across the whole economy.

Looking at the longer-range data reveals an even greater divergence between the state-controlled and market prices. Since the beginning of 2008 through December 2013, aggregate consumer prices rose by slightly more than 3 percent in cumulative terms. Over the same period of time, state-controlled prices were up 22 percent. These sectors cover goods and services that account for around one third of all household consumption in Ireland. Meanwhile, private sectors prices are up only 0.2 percent.

Take the Housing, Water, Electricity, Gas and Other Fuels category, where cost of services to Irish consumers, on aggregate, fell 3.7 percent between 2007 and 2013. This decline was driven by a 25 percent drop in Mortgage Interest costs and 13 percent decline in Private Rents. Costs also fell across virtually all maintenance and repair services associated with housing. In contrast, Local Authority Rents and state-controlled gas prices rose almost by one fifth over the same period. Cost of electricity was up 26 percent. All state-controlled or regulated prices within this group are on the rise, with majority posting double-digit inflation.  Price inflation in the energy sector is now so far divorced from underlying costs that a single new entry into the market by Energia is expected to drive prices down by some EUR 300 per annum, potentially erasing two thirds of the price hikes introduced over the last two years.

None of the above services, however, come close to the rampant inflation in Health and Education.

Since the onset of the crisis, costs of Hospital Services in Ireland rose more than 36 percent, over three times the rate of inflation for Outpatient Services. The very same policies that purposefully drove up the cost of Hospital Services are also responsible for a whooping 117 percent cumulative rise in Health Insurance costs since 2007. These policies forced health insurance purchasers to cover the shortfalls in funding available to the HSE, despite the fact that their insurance premiums and general taxes already fund state healthcare. As the result, the cost of health insurance rose at more than three and a half times the rate of inflation in home insurance costs and eleven times faster than inflation in motor insurance.

Tertiary education charges are up 60 percent since 2007. Private-sector dominated secondary and vocational education services meanwhile saw costs rise at roughly one third of the rate of inflation registered in our ITs and universities.

Based on CSO-estimated weights of different goods and services in a standardized consumer basket, inflation in controlled sectors is responsible for confiscating, using Keynes’ terms, just over 10 cents out of every euro spent on consumption of goods and services by an average household in Ireland since the beginning of the crisis. CSO and IMF reported producer prices and international exchange rates and inflation comparatives show that majority of these losses had nothing to do with increased costs of raw materials, intermediate goods and capital used in production. Put simply, they represent a crisis levy designed and imposed by the State and its semi-state companies.


Grim as they are, official inflation statistics, however, tell only a part of the story of wealth destruction imposed onto Irish consumers.

The above costs of inflation are compounded by the declines in Irish households’ disposable incomes due to various tax measures since 2008, combined with decreases in earnings and working hours. All in, Irish households’ today have around 12-15 percent lower disposable incomes than prior to the crisis. Factoring in the effects of unemployment and inflation, in terms of real purchasing power, Irish households are now down some 28 cents on the euro since the beginning of the crisis. Only around 2 cents of this decline is due to private sectors’ inflation with the rest taken up by changes to taxes, regulatory and pricing policies, plus by the monopoly power awarded to state-protected sectors.

Real Ireland - our lower-, middle and upper-middle classes - is paying the full price of the banking, fiscal and economic crises. Meanwhile, the State elites - senior public sector and semi-state officials, managers, politicians, state services executives and affiliated professionals - are ripping the benefits in form of jobs security, pensions and quality of life.


The economics of state confiscation of income through inflation and taxation do not end there, however. The real impact of these measures of financial and fiscal repression can only be dealt with in the context of their distribution across various households and demographics.

Normally, in response to price changes, consumers have an option to alter their demand for goods and services. In the case of ordinary consumption goods, this means that we switch away from more expensive alternatives.  Overtime, adjusting for quality of supply, our demand favors lower cost producers and suppliers, who gain market shares at the expense of more expensive, less-efficient ones. Thus, more elastic or more responsive demand helps not only to offset the painful costs of inflation in the short run, but also engenders innovation and competition in the longer term.

For example, during the current crisis, Irish consumers showed strong willingness to opt for discount stores when it comes to shopping for groceries and basic household items. Per latest reports from the retail sector, this Christmas, Tesco’s share of the Irish groceries markets shrunk by 6.2 percent at the expense of Aldi and Lidl which increased their share of the Irish market by double digits. A by-product of this is that the discounters are now offering increasingly more goods tailored to Irish tastes and are widening the breadth of offers in their stores across various segments of consumers. Another upside is that indigenous Irish competitors, such as SuperValu, are gaining the ground in this competition.

In contrast, consumers have little choice in switching away from the state-controlled or monopolised sectors. In 2013, Water Supply and Miscellaneous Services prices were up 64 percent on 2003 levels. More price hikes will come once Irish Water starts issuing charges under the state license to raise prices unabated for the first six years. All without any alternative of a different supplier being available to consumers.

Indirect effects of inflation are also stronger for consumers of goods and services with habitual or long-term demand. Healthcare and education are multi-annual commitments with little room for changing consumer behaviour in response to prices. Patterns of transport demand, linked to choices of location where one lives, are also less responsive to price changes, offering few options for trading out of the adverse effects of inflation. In all of these sectors, consumers have no choice but to pay for price increases. Demographically, younger households, usually heavily indebted via mortgages and struggling financially are the prime targets of this inflation.

Keynes had more to say about the role inflation pays in destroying households’ wealth and income. “… By this method [of inflation, the Governments] not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth."

In the case of Ireland during the current crisis, all of the above rings true, save for one important correction: Irish state-sanctioned inflation confiscates wealth and income by transferring money from productive private savings, investment, and consumption to shore up inefficient and often wasteful state services and semi-state sectors. There is little that is arbitrary in the context of the Rip-off Ireland ca 2014.

Box-out:

"You cannot corral a company to go to a particular part of the country unless it will make sense for their business ‐‐ particularly when the company's alternative location may be Amsterdam, Barcelona or Munich”. With these words the IDA spokesperson this week explained why agency-supported multinationals have been largely staying out of the regions, while flocking into Dublin. IDA made a perfectly valid point. Manufacturing exports, even stripping out patent cliff-hit pharmaceuticals, are barely expanding. Remote back office services – the bread-and-butter of so-called ‘call centres economy’ – are on decline across the advanced economies. This leaves what economists call human capital-intensive sectors – the ones largely dominated by jobs for highly-educated 22-35 year-olds coming choosing Ireland as their career stop-over. Working for Google, Facebook, Twitter and other internationally networked globally-trading multinationals, these employees do not want to live in the suburbs, let alone move to the countryside. They require cultural, social and economic amenities of large cities. Whether we like it or not, the MNCs of the 21st century inhabit the world where human capital defines productivity growth, profitability and value added. Bricks and mortar attractions of an IDA Park somewhere in the middle of nowhere do not. Time to bin Bertie’s Era Spatial Development Plans and to think how to transition our regional economic development model to a new and more sustainable basis.

5/12/2013: Entrepreneurship Culture and Policies in Ireland: Sunday Times, December 1

This is an unedited version of my Sunday Times column from December 1, 2013.


According to Shutterfly CEO and veteran entrepreneur, Jeff Housenbold, “Entrepreneurship is a state of mind”.

While measuring the extent and quality of entrepreneurship in any economy is a tricky task, Ireland is an economy with two conflicting states of mind when it comes to start-ups. On the one hand, we have the official story of an entrepreneurship-rich nation. On the other hand, there is the hard data painting a more complex picture.

The latest Global Entrepreneurship Monitor Report, published earlier this year, ranks Ireland 14th out of 22 EU states surveyed in terms of the opportunities open to the entrepreneurs. We ranked at the bottom of the EU in the share of population with entrepreneurial intentions and 17th in terms of our population perception of entrepreneurship as a viable career option. In contrast, Ireland ranks second highest in the EU in terms of media attention given to the start-ups and in terms of the positive public image of entrepreneurship.

To put it simply, the Monitor data reveals the vast chasm between the media and political cultures promoting Ireland as an entrepreneurship haven, and the realities of running and growing a real start-up venture here.

This chasm was back in the spotlight over the last two weeks.

Last week, the Wall Street Journal published the results of a study that put Ireland in the first place in Europe in terms of venture capital raised in the tech sector over the period from Q1 2003 through Q3 2013. All in, Ireland-based tech start-ups and SMEs raised some USD278.73 per capita on average. This compared to the USD68.39 raised across the European Free Trade Association (EFTA) group of 32 states. Impressive as the number for Ireland was, it still falls short of the US figure of USD660.41 and Israel’s USD1,092.52.

Much of Irish media reported the results as being indicative of Ireland’s high success in entrepreneurship. Alas, the study simply does not support such a conclusion for three reasons. Firstly, the data covers only Venture Capital funding extended to tech sector firms. As the result, it excludes the vast majority of start-ups in the economy that are either operating outside the tech sector, or raising funding through channels other than VCs, or both. Currently, VCs-funded companies in Ireland employ around 9,000 people. This a drop in a bucket, given that there are 84,700 self-employed people with paid employees (just one group of entrepreneurs) in the country. The study also covers deals involving already established firms. Lastly, the study suggests that the banking crisis, resulting in the complete drying up of new lending, could have contributed to increased demand for VC funds.

No one in the mainstream media noticed that less than two months ago, in its submission for Budget 2014, Irish Venture Capital Association (IVCA) said that “the shortage of entrepreneurs [in Ireland] has reached crisis levels”. Per IVCA, in 2011 only “8.5 percent of people in Ireland aspired to be an entrepreneur, down from a high of 12.5 percent in 2005.” The EU average in 2011 was 15.3 percent.

And no one bothered to cross check the results of the Wall Street Journal study with actual data on new enterprise creation in Ireland. According to the latest data from the World Bank, Ireland ranks seventh in the EFTA in the scope of entrepreneurship in overall economy. World Bank groups Ireland alongside with Russia, Romania, Hungary, Slovak Republic and Lithuania in terms of the rates of new enterprise formation.

Another piece of evidence on the gap between realities and perceptions of Irish entrepreneurship came from the CSO. Data released this week showed significant increase in employment across the employees and the self-employed. While the number of employees in Q3 2013 was up 27,300 over the year, the number of self-employed persons increased by 30,100. Traditionally, self-employment is the first step en route to entrepreneurship. The numbers of self-employed with paid employees in Q3 2013 was below that recorded in Q3 2011. This and the sectoral decomposition of the jobs creation suggests that the new employment is not being linked to entrepreneurship.


All of this suggests that we have significant road to travel before Ireland becomes a powerhouse of entrepreneurship. The good news is – there are plenty of reforms that can help us on the way.

Last week, the US-based Kauffman Foundation, the largest research centre in the world for studies of entrepreneurship, published the results of its annual Global Entrepreneurship Week survey. The study reveals the snapshot of the state of play in entrepreneurship and start-ups formation across 113 nations and 2,330 current entrepreneurs. Amongst the handful of nations that did not participate was the entrepreneurial haven of Ireland.
Nonetheless, coupled with other sources of data, the Kauffman study offers us some good insights into the role of policy and regulatory environments in supporting entrepreneurship. Many of these insights overlap with what we observe in Ireland.

One of the keys to creating an environment supportive of entrepreneurship is to incentivise equity-based investment. Instead, we have an environment that favours debt. The problem with over-reliance on debt to finance corporate investment is that it has been shown worldwide to stymie the rate of growth in firms. It also lowers the speed of transition from family ownership to professional management.

Ireland lags behind core competitors in terms of banking sector culture when it comes to funding entrepreneurs. This is a function of two factors: low lending capacity in the system that is currently undergoing deleveraging of bad loans, and the long-term historical legacy of lending against physical collateral. We can do something about both, if we get creative. A gradual improvement in lending capacity by the banks can be achieved by reducing risk profile of SME loans. For example, a co-insurance scheme for viable new and existing loans using Enterprise Ireland funds can work to free some of the better quality business loans for securitisation. Co-insured loans can have an equity conversion component for added security. Such enhancements of better loans can help start the process where the banks lend against market and product potential of the specific SMEs instead of lending against physical collateral.

Another area that is commonly identified as a strong support for entrepreneurship is cost of and access to advisory services, starting with accounting and legal services and extending into technological advice and strategy. Ireland has achieved some improvements in the accounting costs area, but is lagging in terms of legal costs competitiveness. Critically, however, there are too few private advice networks available to would-be entrepreneurs. And there are too many state-run ones, often with limited expertise and excessively costly bureaucracy.

One recent OECD report clearly states that Irish system of innovation and entrepreneurship supports is Byzantine – spanning over 170 budget lines and 11 major agencies relating to scientific innovation alone.

We need a more active system of business development and incubation centres not only for start-ups in strategic sectors, such as ICT, bio, and food, but also in domestically-trading ones. Such centres can co-locate with major MNCs and / or be a part of broader business networks. However, the key point is resourcing them. Consolidating and re-configuring currently operating systems of local enterprise boards, FAS, and numerous other quangos crowding this space can help.

Tax systems need to be reformed to support not only creation of business, but transition into entrepreneurship. Currently, transition to entrepreneurship is only made more onerous by the absurd system of USC and PRSI taxation. To do better we need to increase VAT applicability threshold to EUR80,000-100,000 of earnings for self-employed, and dramatically reduce USC and PRSI on self-employed and sole traders.
The problem of tax disincentives for knowledge and skills-intensive start-ups is solely down to ridiculously high upper marginal tax rate on income. Per IVCA Budget 2014 submission: “The effect of [high marginal tax rates] is that Ireland is becoming a “development ghetto” with high growth start-ups doing development here but building other functions e.g. sales and marketing elsewhere.”

An income tax incentive in the form of applying only the lower marginal tax rate on earnings generated in the first three years of self-employment can rectify this problem. It will also align taxation treatment of corporate entities with that of the sole traders.


Beyond this, employees share ownership taxation needs to be revised. In fact, we can be even more aggressive here by setting a CGT exemption or a reduced rate for all companies that facilitate creation of new enterprises. This will send a strong message to foreign investors that cooperative entrepreneurship with indigenous start-ups is encouraged here. Given that many Ireland-based MNCs are actively developing partnerships involving start-ups around the world, an aggressive tax policy stance in this area can even act as an added incentive for MNCs to invest more in Ireland.
In short, there is plenty of room for improvement and innovation in terms of national policies on entrepreneurship. This should be treated as a major opportunity for Ireland, a chance expand and strengthen our indigenous enterprise formation. If entrepreneurship is really a state of mind, policy and support institutions to foster entrepreneurial culture are a matter of will. Having the former without the latter is simply not enough.

Box-out:

A recent report from the McKinsey Global Institute examined the distribution of economic costs and benefits arising from the set of unprecedented monetary policies in the advanced economies. The study found that from 2007 to 2012, quantitative easing measures deployed in the euro area, the UK, and the US yielded a net benefited of USD1.6 trillion to the Government sector. These benefits were generated through reduced debt-service costs and increased profits remitted from central banks. Even euro area peripheral states’ governments have gained from these measures by facing lower costs of funding their crisis responses and by channeling funds from the banks to the Exchequer via Central Banks. At the same time, larger non-financial corporations gained some USD710 billion due to lower interest rates on debt. The only sector of the economy that was an unambiguous loser in this game of monetary policy chairs were the households. Households in the US, the UK and the euro area lost USD630 billion in net interest income. The costs were mostly concentrated amongst older households that tend to hold more interest-bearing assets. The study excluded the adverse effects on households that arise from increased taxation, reduced public services and benefits, and from higher bank loans margins.

19/10/2012: FDI: It ain't all it is claimed to be...

Quite an interesting little study out of the US worth reading (link here to an earlier version).

Christian Fons-Rosen, Sebnem Kalemli-Ozcan, Bent E. Sørensen, Carolina Villegas-Sanchez, and Vadym Volosovych just published a working paper titled "Where are the Productivity Gains from Foreign Investment? Evidence on Spillovers and Reallocation from Firms, Industries and Countries".

The paper identifies "the effect of foreign direct investment (FDI) on host economies by separating positive productivity (TFP) effects of knowledge spillovers from negative effects of competition."

"Policymakers around the world have welcomed this development and encouraged it given the perceived benefits of FDI such as technology transfer, knowledge spillovers, and better management practices. Several macro-level studies confirm these predictions by documenting a positive correlation between aggregate growth and aggregate FDI flows (see Kose, Prasad, Rogoff, and Wei (2009)). Researchers argue that this positive correlation between FDI and growth is a result of knowledge spillovers from multinationals and their foreign-owned affiliates to domestic firms in the host country."

Unfortunately, as the authors point out, "there is no direct causal evidence at the firm-level supporting this view for a large set of countries. Available evidence lacks external validity and the existing findings vary to a great extent between developed countries and emerging markets depending on the focus of the particular study".

The point raised is that "Any finding of a positive relation between foreign owner- ship and domestic productivity can be an artifact of (a) foreigners investing in productive firms in productive sectors and (b) exit of low productivity domestic firms following foreign investment. Establishing a causal effect of FDI on productivity (directly on foreign owned firms and indirectly via spillovers on domestic firms) is challenging: to identify such an effect, firm and sector specific selection effects must be accounted for, as well as the possibility of dynamic effects through the exit of weak domestic firms."

"The second difficulty in the quest for identification arises from the simultaneity problem. Foreign investment may be correlated over time with higher productivity of affiliates, or higher productivity of domestic firms with whom they interact; however, dynamic patterns might be driven simultaneously by time varying factors other than foreign ownership."

To control for the above, the study uses "a unique new firm/establishment-level data set covering the last decade for a large set of countries (60 countries) with information on economic activity, ownership stake, type, sector, and country of origin of foreign investors."

Top of the line conclusion is that:
"Controlling for foreigners potentially selecting themselves into productive firms and sectors, we show that the positive effect of FDI on the host economy’s aggregate productivity is a myth.
-- Foreigners invest in high productivity firms and sectors, but do not increase productivity of the acquired firms nor enhance the productivity of the average domestic firm.
-- In emerging markets, we find that the productivity of acquired firms increases but the effect is too small to significantly affect the aggregate economy.
-- For domestic firms, a higher level of foreign investment in the same sector of operation leads to strong negative competition effects in both developed and emerging countries.
-- In developed countries, we find evidence of positive spillovers through knowledge transfers only for domestic firms with high initial productivity levels operating within the same broad sector as the multinational investor but in a different sub-sector.
-- Our results confirm the predictions of the new new trade and FDI literature, in that more productive firms select themselves into exporting and FDI activities."

Oops!

More damning:
"Our preliminary results show that foreign owned firms/multinational affiliates are more productive … in developed countries; however, …this effect in developed countries is solely driven by future fundamentals (growth potential); i.e., growing firms becoming foreign-owned."

Double Oops!

Next:
"We find evidence of positive spillovers from foreign activity only when we look at a finer sectoral classification where the domestic firms are not direct competitors of the foreign firms and where domestic firms are at the top of the productivity distribution." Now, let's face it, folks, in MNCs-dominated sectors, Irish firms are not exactly a shining example of being at the top of the productivity distribution (except perhaps in ICT services, but most certainly not in pharma or medical devices or financial services). Which means that by and large we should not expect significant spillovers from the MNCs to Irish firms.


PS: Sadly, the study was not able to incorporate data from Ireland, because - to use polite authors' expression - Ireland belongs to a group of countries with 'Problematic Data Coverage' (aka dodgy data) for Manufacturing firms 2002-2007.

31/8/2012: Net, gross, gloss - FDI in Ireland 2011

So CSO headlines today that Irish Net Direct Investment Position improved to €48 billion at the end of 2011. which is fine, until you read actual numbers. Here is the synopsis from CSO itself (emphasis is mine):

"Irish stocks of direct investment abroad fell by €12bn from an end-2010 position of €254.5bn to €242.5bn at the end of 2011. ...The decline between the end of 2010 and end of 2011 was mainly due to a fall in investment of €26bn in enterprises located in Central American Offshore countries. European based enterprises partially offset this decline."

Hence, Factor 1 - explaining most of the €7.2 billion in net position change is drop in investment schemes used by Irish resident companies to wash-off tax liabilities.

Next: "The level of total foreign direct investment into Ireland also fell between the end of 2010 and the end of 2011. The decrease was €19.2bn [massively in excess of net contraction in outward investment from Ireland] giving an end-2011 position of €194.5bn. The main contributors were decreases of €18bn from US and €10bn from Central America partially offset by increased investment of almost €20bn from European countries."

Hence, Factor 2 - FDI into Ireland has actually dropped, gross, by 9% year on year (please keep in mind, irish Government has cited increased FDI into Ireland as one core 'success' metric).


"Comparing the net end-year positions Ireland’s net FDI increased from €40.8bn at the end of 2010 to €48bn at end-2011."

I know I am supposed to be cheerful about the headline CSO produced, but...