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Foreign Direct Investment

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Direct Investment Income Outflows Decreased by €8.2bn in Q4 2020

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
Q4 20204.06222.362

Direct investment income outflows (earned on investments in Ireland by investors located abroad) were €22.4bn in the fourth quarter of 2020, a decrease of €8.2bn compared with the third quarter of 2020. This decrease is due to the large increase in income outflows that occurred in the previous quarter which was brought about by singularly strong income outflow growth for several large multinationals. This can be seen when comparing the fourth quarter of 2020 with the previous year where there is an increase of €0.1bn in income outflows. Direct investment income inflows, which represent income earned abroad by investors located in Ireland, were €4.1bn in the fourth quarter of 2020, this figure rounds to the same value as seen in the third period of 2020.

Income on Debt OutflowsReinvested Earning OutflowsDividends & Distributed Branch Profits Outflows
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
Q4 20202.20516.8663.291

The composition of direct investment income outflows is presented in Figure 4.2. Income outflows on reinvested earnings were €16.9bn in the fourth quarter of 2020, with dividends & distributed branch profits outflows at €3.3bn and income on debt outflows at €2.2bn. The aforementioned strong growth in income in the third quarter of 2020 was predominantly seen in reinvested earnings. The figure for reinvested earnings in the fourth quarter has therefore decreased by €8.8bn when compared to the third quarter of 2020. When compared to the same quarter in 2019 however, reinvested earnings have increased by €1.6bn. Income on debt outflows have decreased by €0.2bn and dividends and distributed branch profits outflows have increased by €0.8bn.

Direct Investment Income Outflowsof which Manufacturingof which Information and Communications
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
Q4 202022.36214.1735.172

Figure 4.3 illustrates a breakdown of direct investment income outflows between two sectors, manufacturing and information and communications. Of the €22.4bn in direct investment income outflows for the fourth quarter of 2020, €14.2bn can be attributed to the manufacturing sector and €5.2bn to the information and communications sector. Income in the fourth quarter of 2020 has decreased for both sectors when compared to the strong growth of the previous quarter but has increased when compared to the previous year. For example, the manufacturing sector income outflows have decreased by €4.9bn compared to last quarter but have increased €1.7bn compared to the same period in 2019 and the information and communications sector has decreased by €3bn from last quarter but increased €1.3bn from the same period in 2019. 

AbroadIn Ireland
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
Q4 2020-13.895-19.869

Foreign direct investment (FDI) transactions abroad and in Ireland are shown in Figure 4.4. Direct investment into Ireland decreased by €19.9bn in the fourth quarter of 2020. Direct investment abroad decreased by €13.9bn in the quarter. The decrease in both direct investment into Ireland and abroad was impacted significantly by corporate restructuring.

AbroadIn Ireland
Q3 2018881.549831.389
Q4 2018845.336915.849
Q1 2019896.385966.725
Q2 2019863.272950.712
Q3 2019940.4321004.385
Q4 2019966.6411025.789
Q1 2020933.9511038.284
Q2 2020908.6041096.582
Q3 2020895.0641008.055
Q4 2020983.4261100.218

The stock of FDI assets held abroad increased from €895.1bn in Q3 2020 to €983.4bn in Q4 2020, while the stock of FDI assets held in Ireland increased from €1,008.1bn in Q3 2020 to €1,100.2bn in Q4 2020. FDI assets held in Ireland by foreign investors increased by €92.2bn, this increase was due to the inclusion of existing foreign owned Irish entities in the balance of payments data as well as the aforementioned corporate restructuring alluded to in the previous paragraph. FDI assets held abroad by Irish investors increased by €88.4bn, this increase was also impacted by the corporate re-structuring as well as increases in assets held by the Redomiciled PLCs. 

Net Direct Investment IncomeAll Other Current Account ComponentsCurrent Account Balance
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
Q4 2020-18.325.4137.113

The impact of foreign direct investment income on the current account balance is shown in Figure 4.6. In Q4 2020 net direct investment income (FDI income inflows less FDI income outflows) was -€18.3bn while the net of all other current account components (trade in merchandise, services and other income) stood at €25.4bn. The resultant balance was a current account surplus of €7.1bn.

Net Direct Investment TransactionsAll Other Financial Account ComponentsFinancial Account Balance
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
Q4 20205.9746.72612.7

The impact of direct investment transactions on the financial account balance is shown in Figure 4.7. In Q4 2020 there was net flows of €6bn in foreign direct investment transactions while the net contribution from other financial account components (portfolio investment, other investment and reserve assets) was €6.7bn. This contributed to a financial account surplus of €12.7bn.

Net Direct Investment PositionAll Other Net IIP ComponentsNet IIP
Q3 201850.16-548.46-498.298
Q4 2018-70.513-520.273-590.787
Q1 2019-70.34-502.33-572.671
Q2 2019-87.44-515.66-603.1
Q3 2019-63.953-544.811-608.764
Q4 2019-59.148-559.635-618.782
Q1 2020-104.333-534.819-639.152
Q2 2020-187.978-445.748-633.726
Q3 2020-112.991-489.09-602.081
Q4 2020-116.792-498.186-614.978

The net stock of foreign direct investment assets in the net international investment position (IIP) is shown in Figure 4.8. In Q4 2020 there was a net direct investment position of -€116.8bn. Other net IIP components (portfolio investment, other investment and reserve assets) accounted for -€498.2bn. The overall net IIP balance is -€615bn.

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)
Q3 2018881.549831.3892.714199664454279.4853311746968
Q4 2018845.336915.8492.53792574786838.6880042452413
Q1 2019896.385966.7252.605354557241149.03445873719358
Q2 2019863.272950.7122.309052471873148.97597558768005
Q3 2019940.4321004.3852.314334300197399.43850503622548
Q4 2019966.6411025.7892.202179423924329.1384279932496
Q1 2020933.9511038.2842.240335346835079.0096501327271
Q2 2020908.6041096.5822.100538465080078.7480881916701
Q3 2020895.0641008.0551.959379443630018.87712911574328
Q4 2020983.4261100.2181.903327583278969.66633765022742

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 Q4 2020 the annual rate of return on FDI investment in Ireland was 9.7% compared to 1.9% on FDI investment abroad. This is the third consecutive quarter of decline for the annual rate of return on investment abroad.

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