Inwards and upwards
20 June 2011 | By Joanne Harris
Ireland’s domestic woes have not seen foreign investors become disenchanted with the country. Joanne Harris reports on law firms’ handling of a glut of FDI-related mandates
Foreign direct investment (FDI) into Ireland has always been important to the country’s economy, but arguably never more so than right now.
As the new Irish government, elected in February, gets to grips with the jurisdiction’s internal economic problems, it is also working out how to keep Ireland competitive and attractive to outside investment.
The government has already pledged to maintain Ireland’s low 12.5 per cent corporate tax rate. Irish lawyers think this will be key to encouraging investors to keep coming to Ireland.
“Companies come here because they can find the educated workforce they want. They come here for the tax rate and they come here as the gateway to Europe. That’s been a consistent message for the last while,” notes David Carthy, a corporate partner at William Fry.
The bulk of foreign investment into Ireland still comes from the US. The latest figures from the Irish Development Agency (IDA) show that more than 600 US companies invest in Ireland, employing 100,000 people - a significant number given Ireland’s population of 4.5 million and 70 per cent of total inward investment employment.
According to the IDA, US investment in Ireland amounts to $165bn (£101.38bn). The figure is actually higher than the combined US investment into the major emerging markets of Brazil, Russia, India and China.
Importantly for the companies coming to Ireland, the return on capital is high. The IDA says US companies returned 20.5 per cent on their investments in Ireland.
Matheson Ormsby Prentice (MOP) surveyed recently 250 Irish-American businesspeople to gauge current opinion on Ireland as a venue for investment. The reaction was fairly positive. A majority (58 per cent) said they would rate Ireland ’well’ as a place to do business. Just 12 per cent said they would rate Ireland ’poorly’, with the remaining responses neutral.
The country’s tax regime was top of the list of positive attributes picked out by respondents (see table, page 26), but businesspeople were concerned about Ireland’s domestic financial instability and also the wider instability of the eurozone.
Respondents also ranked Ireland highly against other regions in a number of areas, including its physical infrastructure, regulatory environment, ease of doing business and the ease of attracting staff.
The bigger picture
MOP partner John Ryan, who is shortly relocating to New York to head the firm’s US offices, says Ireland’s domestic problems have tended to overshadow its ongoing success in attracting FDI.
“Were it not for the problem of the banks, life wouldn’t be so bad,” Ryan claims. “We think Ireland might have lost a certain amount of transient FDI given the uncertainty, but it’s relatively minor.”
Emer Gilvarry, managing partner at Mason Hayes & Curran, believes the continued strength of Ireland as an investment target has caught some locals unawares.
“Because of what we’ve been through, the Celtic Tiger going from a roar to a silence, we ourselves have been somewhat surprised by the level of interest in FDI,” says Gilvarry. “I think we were taken by surprise because we didn’t have confidence in ourselves.”
Gilvarry and others think the new government is so far doing a good job at working with the IDA to promote Ireland’s competitiveness. They believe the recent visits of the US president Barack Obama and Queen Elizabeth have also helped in that they propelled Ireland back into
the international consciousness and ’normalised’ the country.
All Dell and good
Lawyers point to a variety of projects as examples of the way investment is continuing. IT giant Dell announced recently that it had chosen Ireland as the location for its cloud computing research centre, which will employ 150 people in Limerick and Dublin.
Carthy says the move is significant, as Dell had previously slashed 1,900 jobs when it moved its manufacturing base from Limerick to Poland in 2009.
“Dell was a bellwether when things were on the decline,” says Carthy, adding that the company’s decision could be a sign that business is definitely on the way back up.
Innovative businesses such as Dell have been drawn to Ireland for some time. IDA statistics show that nine of the top 10 global pharmaceutical and biotechnology companies, 15 out of the top 20 medical technology companies, eight of the top US information and communication technology companies and eight leading internet start-ups have based themselves in Ireland.
Financial services companies are also thick on the ground, particularly in Ireland’s International Financial Services Centre (IFSC), based in Dublin.
“We’ve got the whole range of online,” says Arthur Cox managing partner Pádraig Ó Ríordáin. “There’s a real critical mass around that area at the moment.”
Ó Ríordáin says that as well as new companies opening, existing businesses are expanding or improving their presence in the country.
“There’s a continuing upgrading of investment in Ireland. You see that in a very real way around Dublin and other cities. The restaurants are quite full - it doesn’t have the hallmarks of a bust economy,” he reports.
Many of the major players in social media – including Google, Facebook and LinkedIn - have presences in Ireland. Domestic lawyers are confident that Ireland could ride out the waves caused by the bursting of a bubble in this area.
Ireland is exposed to worldwide failures of industry sectors, as demonstrated in parts of the country’s financial services sector following the collapse of Lehman Brothers, but lawyers say this is part and parcel of being an international economy.
They believe that when one sector collapses, another will replace it, bringing new jobs and opportunities.
The investment mix
FDI is not limited to social media. Other areas where law firms report significant activity include pharmaceuticals, biotechnology, healthcare and the omnipresent financial services market.
What has certainly changed since the days when the Celtic Tiger was roaring is that these investment projects are smaller.
“The days of having an announcement of 500 jobs being created, that’s not the dynamic anymore,” concedes Maples and Calder’s head of tax Andrew Quinn. “Some of these projects can start quite small and can build up substance over time.”
Inward investment into Ireland also includes the use of the country’s company and fund structures by non-Irish companies.
McCann FitzGerald chairman John Cronin describes a “very nice piece of work for the Coca-Cola Company” as an example of such activity. Alongside Herbert Smith McCann advised on a complex reinsurance deal whereby an Irish-authorised entity was used to reinsure the group’s annuity products.
“It’s a tricky piece of work and a good piece of work,” Cronin emphasises. “We’ve acted for Coca-Cola for a number of years, but this is quite different.”
He says the transaction is evidence of a strong interest by insurance and reinsurance companies in the Irish market at present and is also good for the country’s standing generally.
“There are quite a lot of companies looking to buy more in the financial services, insurance and non-core banking areas,” agrees Eversheds O’Donnell Sweeney managing partner Alan Murphy.
“In a world where Ireland has had a bit of a battering of its corporate standing, the visibility of such a piece of work is good for Ireland and it’s encouraging to see that quality coming to Ireland,” Cronin says.
Lawyers believe that investors in the future could come from a wider range of jurisdictions. China in particular is identified as a potential source of capital.
“In recent times we’ve had questions from Asia, companies coming from China, Japan and India,” reports Gilvarry at Mason Hayes. “They’re replicating the model of locating their headquarters in Dublin.”
Firms such as Maples and Walkers, both relative newcomers to the Irish market, feel that they have an advantage in attracting instructions from these potential client bases as they have access to their firms’ international networks.
Quinn says the reasons for Chinese companies to come to Ireland are not that different from the reasons why US companies choose the jurisdiction.
“The tax fundamentals are the very same for Chinese companies as they are for US companies,” explains Quinn. “China’s a relatively high-tax economy, so it makes sense for a Chinese company to look at setting up a business outside China.”
“We feel that, because we have a global footprint,” comments Walkers head of tax Anthony Smyth, “we’re a lot closer to potential clients and those looking to use Ireland.”
His colleague, head of capital markets Garry Ferguson, says the opinion of Walkers’ Dublin team has been coloured by its relatively recent recruitment from Ireland’s domestic firms.
“What’s been very interesting for us is, having spent a lot of time seeing jurisdictions like Cayman and the BVI as competitor jurisdictions, realising that they’re not competitor jurisdictions,” Ferguson notes. “Oftentimes you get both in one structure. Our understanding of how people decide on what jurisdictions to use has become deeper.”
Willing and able
Law firms believe they have sufficient capacity to deal with the increase in FDI work, particularly from a knowledge-base level, although some say they have been adding junior lawyers to cope with the work in this area.
But the legal market itself seems unlikely to undergo much more change in the near future. UK firm Kennedys recently completed a formal merger with its Irish alliance partner O’Hare O’Connor Walshe. James Staines, managing partner of what is now Kennedys in Ireland, says even for the litigation-focused firm cross-border work has been increasing.
“We just felt that there was a better opportunity to build up that work through Kennedys,” Staines says, pointing to the firm’s network of international offices.
The merger is important for Kennedys, although in practice it will have little effect on the wider Irish legal market.
Meanwhile, City firm Simmons & Simmons has stalled its attempts to enter Dublin, with a Simmons spokesperson telling The Lawyer that the firm will ”continue to keep the establishment of a Dublin office under review and to monitor the current level of client interest in the jurisdiction”.
Although FDI work, coupled with ongoing instructions on Ireland’s financial services and property sector restructuring, is keeping law firms busy, nobody is complacent. The efforts being made by the new government to keep the jurisdiction competitive are matched by lawyers’ efforts - and this will have to continue for the foreseeable future.