Direct investment income outflows (earned on investments in Ireland by investors located abroad) were €36.8bn in the first quarter of 2021, an increase of €14.4bn compared with the fourth quarter of 2020. This increase was brought about by singularly strong income outflow growth for several large multinationals. Direct investment income inflows, which represent income earned abroad by investors located in Ireland, were €10.2bn in the first quarter of 2021. This marked an increase of €6.1bn from the previous quarter.

The composition of direct investment income outflows is presented in Figure 4.2. Income outflows on reinvested earnings were €3.4bn in the first quarter of 2021, with dividends & distributed branch profits outflows at €30.7bn and income on debt outflows at €2.7bn. The aforementioned strong growth in income in the first quarter of 2021 was predominantly seen in dividends. The figure for reinvested earnings in the first quarter of 2021 decreased by €13.4bn when compared to the fourth quarter of 2020 while dividends increased by €27.4bn. A similar drop in reinvested earnings and a simultaneous increase in dividends occurred in the first quarter of 2020, however, not on the same scale. This increase in dividends was caused by a small number of large multinationals.

Figure 4.3 illustrates a breakdown of direct investment income outflows between two sectors, manufacturing and information and communications. Of the €36.8bn in direct investment income outflows for the first quarter of 2021, €25.4bn can be attributed to the manufacturing sector and €8.2bn to the information and communications sector. Income in the first quarter of 2021 has increased for both sectors when compared to the previous quarter. The overall growth in income from the previous quarter, and the previous year, can be explained by growth in the manufacturing sector’s income.

Foreign direct investment (FDI) transactions abroad and in Ireland are shown in Figure 4.4. Direct investment into Ireland decreased by €18.3bn in the first quarter of 2021. Direct investment abroad increased by €15.4bn in the quarter. The changes in both direct investment into Ireland and abroad was impacted by corporate restructuring.

The stock of FDI assets held abroad increased from €983.4bn in Q4 2020 to €1,078.2bn in Q1 2021, while the stock of FDI assets held in Ireland increased from €1,100.2bn in Q4 2020 to €1,149.4bn in Q1 2021. FDI assets held in Ireland by foreign investors increased by €49.1bn. FDI assets held abroad by Irish investors increased by €94.8bn, this was due to a broad increase in holdings abroad for a range of multinationals as well as increases in assets held by the Redomiciled PLCs. 

The impact of foreign direct investment income on the current account balance is shown in Figure 4.6. In Q1 2021 net direct investment income (FDI income inflows less FDI income outflows) was -€26.6bn while the net of all other current account components (trade in merchandise, services and other income) stood at €45bn. The resultant balance was a current account surplus of €18.4bn.

The impact of direct investment transactions on the financial account balance is shown in Figure 4.7. In Q1 2021 there was net flows of €33.7bn in foreign direct investment transactions while the net contribution from other financial account components (portfolio investment, other investment and reserve assets) was -€11.2bn. This contributed to a financial account surplus of €22.5bn.

The net stock of foreign direct investment assets in the net international investment position (IIP) is shown in Figure 4.8. In Q1 2021 there was a net direct investment position of -€71.2bn. This net position is significantly reduced following the increases to Irish FDI assets held abroad. Other net IIP components (portfolio investment, other investment and reserve assets) accounted for -€540.3bn. The overall net IIP balance is -€611.4bn.

The rate of return on FDI investment in Ireland and abroad alongside the stock of FDI assets held in Ireland and abroad is presented in Figure 4.9. The rate of return is calculated by FDI income divided by FDI positions. The return on investments in Ireland is significantly higher than the return on investments made abroad. In Q1 2021 the annual rate of return on FDI investment in Ireland was 9.6% compared to 2% on FDI investment abroad. 

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