Friday, 31 October 2014

Are we asleep?

On Wednesday I was passing through Dublin Airport on my way back to New Zealand, when I saw poster ads promising people up to 150,000 euros as a reward, if they've been responsible for introducing a new foreign company as a direct investor in Ireland. You can see how the scheme works here.

It's a clever idea, and it comes on top of an already impressive track record in attracting foreign direct investment (FDI) into Ireland. The agency involved, IDA Ireland, is widely regarded as one of the best of its kind: as one example, in the 'Achievements' bit of its website, it says that "2013 was a record year for FDI in Ireland as IDA client employment reached its highest ever level at 166,184. FDI alone created 25,000 jobs in 2012 and 2013".

And it is quality investment. As a recent report from an IBM unit says:
For most countries it is not just the number of jobs created that is of interest, but also the type of investment projects and their value to the economy. Comparing countries on what
projects are attracted, and not just the number of jobs, is therefore an increasingly important metric for gauging inward investment performance. To this end, IBM-Plant Location International has developed an FDI value indicator that assigns a value to each investment project, depending on the sector and the type of business activity. This value indicator assesses the added value and knowledge intensity of the jobs created by the investment project. Using this measure, Ireland continues to be the top performer in the world, resulting from the country’s success in attracting research and development (R&D) activities in life sciences and ICT coupled with high-value investment in financial services. 
It's left me wondering whether we are doing anything at all in New Zealand to attract inward FDI, let alone anything comparably slick or substantial or successful. Quite the contrary: I can recall people arguing against the desirability of FDI in the first place (repatriated profits would supposedly weaken the balance of payments) and some crassly populist criticism of the cost of wining and dining potential investors.

While Ireland's got some unique advantages - it's a low tax, business friendly, English speaking base within the EU -  we have our own selling points. But when's the last time you saw any recent government making a serious attempt to capitalise on them? And why aren't we getting our share of the FDI that's creating those high value added and knowledge intensive jobs?


  1. Where is the money for this coming from? Government? And if so why should the government subsidise foreign firm any more than it should subsidise local ones? Getting government out of business seems a better aim.

  2. Hi Paul - thanks for the comment, I was hoping for some reaction! You're broadly right, of course, and there are a lot of distortionary beggar-my-neighbour subsidy wars going on globally to attract FDI. Having a generally business-friendly environment might well be as effective and more efficient at attracting FDI than anything. That said, there are useful handholding and marketing things that governments could do that ours doesn't seem to do any of, and policy eg on things like the corporate tax rate are driven entirely by domestic perspectives and rarely if ever from the perspective of collateral impact on FDI