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 Outflows||Reinvested Earning Outflows||Dividends & Distributed Branch Profits Outflows|
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 Outflows||of which Manufacturing||of which Information and Communications|
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.
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.
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 Income||All Other Current Account Components||Current Account Balance|
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 Transactions||All Other Financial Account Components||Financial Account Balance|
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 Position||All Other Net IIP Components||Net IIP|
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)|
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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