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Foreign Direct Investment

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Direct Investment Income Outflows Increased by €9.5bn in Q3 2020

Q2 20186.10218.574
Q3 20186.61621.085
Q4 20184.09820.213
Q1 20195.20822.87
Q2 20194.77622.605
Q3 20195.89724.045
Q4 20194.82922.265
Q1 20206.15423.505
Q2 20202.73821.015
Q3 20204.08230.56

Direct investment income outflows (earned on investments in Ireland by investors located abroad) were €30.6bn in the third quarter of 2020, an increase of €9.5bn compared with the second quarter of 2020. This increase was caused by large income outflows in the manufacturing and information and communications sectors; in both sectors, several large multinationals reported strong income outflow growth this quarter. Direct investment income inflows, which represent income earned abroad by investors located in Ireland, were €4.1bn in the third quarter of 2020, up €1.3bn compared to the second period of 2020. This increase in FDI inflows is primarily due to the redomiciled PLCs.

Income on Debt OutflowsReinvested Earning OutflowsDividends & Distributed Branch Profits Outflows
Q2 20182.13813.2683.169
Q3 20182.30914.064.715
Q4 20182.54313.4974.173
Q1 20192.16610.16210.543
Q2 20192.25718.7661.582
Q3 20192.53418.6642.847
Q4 20192.50315.2534.509
Q1 20202.269.84411.401
Q2 20202.42117.0491.545
Q3 20202.41925.6282.514

The composition of direct investment income outflows is presented in Figure 4.2. Income outflows on reinvested earnings were €25.6bn in the third quarter of 2020, with dividends & distributed branch profits outflows at €2.5bn and income on debt outflows at €2.4bn. Income outflows on reinvested earnings have increased by €8.6bn from the second quarter of 2020 while dividends & distributed branch profits outflows have increased by €0.97bn.

Direct Investment Income Outflowsof which Manufacturingof which Information and Communications
Q2 201818.57410.672.717
Q3 201821.08512.6093.43
Q4 201820.21311.5553.265
Q1 201922.8714.4693.628
Q2 201922.60510.0646.168
Q3 201924.04514.852.885
Q4 201922.26512.513.853
Q1 202023.50514.9254.313
Q2 202021.01513.3834.355
Q3 202030.5619.048.152

Figure 4.3 illustrates a breakdown of direct investment income outflows between two sectors, manufacturing and information and communications. Of the €30.6bn in direct investment income outflows for the third quarter of 2020, €19bn can be attributed to the manufacturing sector and €8.2bn to the information and communications sector. The level of manufacturing direct investment income outflows has increased by €5.7bn from the second quarter of 2020. The information and communications sector direct investment income outflows are up slightly by €3.8bn from the second quarter of 2020.

AbroadIn Ireland
Q2 2018-34.574-46.009
Q3 20185.681-9.525
Q4 201838.8260.425
Q1 20198.1312.01
Q2 2019-60.549-4.229
Q3 201927.79633.194
Q4 20199.76441.473
Q1 2020-10.6264.076
Q2 2020-2.9264.428
Q3 2020-15.874-19.372

Foreign direct investment (FDI) transactions abroad and in Ireland are shown in Figure 4.4. Direct investment into Ireland decreased by €19.4bn in the third quarter of 2020. Direct investment abroad decreased by €15.9bn in the quarter. The decrease in direct investment into Ireland was impacted by a number of large loan repayments back to parent enterprises. The reduction in FDI transactions abroad was largely caused by sales of equity.

AbroadIn Ireland
Q2 2018831.627858.473
Q3 2018881.549831.389
Q4 2018845.336915.849
Q1 2019896.385966.725
Q2 2019863.272950.712
Q3 2019940.4321004.38
Q4 2019966.6411025.79
Q1 2020933.9511038.28
Q2 2020908.6041096.58
Q3 2020895.0641008.06

The stock of FDI assets held abroad decreased from €908.6bn in Q2 2020 to €895.1bn in Q3 2020, while the stock of FDI assets held in Ireland decreased from €1,096.6bn in Q2 2020 to €1,008.1bn in Q3 2020. The negative direct investment transactions (highlighted in Figure 4.4) contributed to these decreases, particularly in the case of FDI assets held abroad. For FDI assets held in Ireland by foreign investors, negative revaluations contributed to the €88.5bn decrease in addition to the aforementioned reductions in loans to foreign parents, as well as a reclassification of certain FDI assets to portfolio assets.

Net Direct Investment IncomeAll Other Current Account ComponentsCurrent Account Balance
Q2 2018-12.47223.26810.795
Q3 2018-14.46925.48511.016
Q4 2018-16.1152.758-13.357
Q1 2019-17.66226.8159.153
Q2 2019-17.829-14.773-32.602
Q3 2019-18.14829.75711.609
Q4 2019-17.436-11.129-28.564
Q1 2020-17.3512.794-14.557
Q2 2020-18.27729.93911.663
Q3 2020-26.47839.18312.705

The impact of foreign direct investment income on the current account balance is shown in Figure 4.6. In Q3 2020 net direct investment income (FDI income inflows less FDI income outflows) was -€26.5bn while the net of all other current account components (trade in merchandise, services and other income) stood at €39.2bn. The resultant balance was a current account surplus of €12.7bn.

Net Direct Investment TransactionsAll Other Financial Account ComponentsFinancial Account Balance
Q2 201811.4353.74815.181
Q3 201815.206-7.0368.17
Q4 2018-21.605-36.308-57.913
Q1 20196.1215.17111.291
Q2 2019-56.32-0.434-56.754
Q3 2019-5.39810.1934.795
Q4 2019-31.7096.068-25.641
Q1 2020-14.702-9.436-24.138
Q2 2020-67.34865.32-2.027
Q3 20203.498-0.4563.041

The impact of direct investment transactions on the financial account balance is shown in Figure 4.7. In Q3 2020 there was net flows of €3.5bn in foreign direct investment transactions while the net contribution from other financial account components (portfolio investment, other investment and reserve assets) was -€0.5bn. This contributed to a financial account surplus of €3.0bn.

Net Direct Investment PositionAll Other Net IIP ComponentsNet IIP
Q2 2018-26.846-489.081-515.928
Q3 201850.16-548.46-498.298
Q4 2018-70.513-520.272-590.787
Q1 2019-70.34-502.333-572.671
Q2 2019-87.44-515.663-603.1
Q3 2019-63.948-544.801-608.764
Q4 2019-59.149-559.644-618.782
Q1 2020-104.329-534.829-639.152
Q2 2020-187.976-445.75-633.726
Q3 2020-112.996-489.09-602.081

The net stock of foreign direct investment assets in the net international investment position (IIP) is shown in Figure 4.8. In Q3 2020 there was a net direct investment position of -€113bn. The €75bn increase in the net direct investment position from last quarter is mostly due to the decrease in FDI positions held by foreign investors in Irish resident firms highlighted in Figure 4.5. Other net IIP components (portfolio investment, other investment and reserve assets) accounted for -€489.1bn. The overall net IIP balance is -€602.1bn.

Direct Investment Position Abroad (left axis)Direct Investment Position In Ireland (left axis)Return on FDI Abroad (right axis)Return on FDI in Ireland (right axis)
Q2 2018831.627858.4732.741493482053858.74424705261552
Q3 2018881.549831.3892.714199664454279.4853311746968
Q4 2018845.336915.8492.53792574786838.6880042452413
Q1 2019896.385966.7252.456979980700268.55900074995474
Q2 2019863.272950.7122.397622070448259.12715943419248
Q3 2019940.4321004.382.124449189308748.93416834265915
Q4 2019966.6411025.792.14247067939398.94773784107858
Q1 2020933.9511038.282.318751197867988.90125977578302
Q2 2020908.6041096.582.159136433473778.28302540626311
Q3 2020895.0641008.061.989019779591189.65666726186933

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 Q3 2020 the annual rate of return on FDI investment in Ireland was 9.7% compared to 1.98% on FDI investment abroad. This large increase to returns on investment in Ireland pertains to the aforementioned €9.5bn increase in income outflows and the corresponding decline in positions noted in Figure 4.5.

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