Institutional Sector Accounts Non-Financial and Financial 2023

In recent years, Ireland's gross domestic product (GDP) has been driven by foreign-owned non-financial corporations (sector S.11a), as illustrated in Figure 2.1. In 2023, 58% of Ireland's GDP was value added by this small cohort of foreign-owned companies (down from 63% in 2022). GDP therefore provides much information about foreign-controlled corporations active in Ireland, but this obscures the trends in domestically-controlled activity. To provide better insights into the Irish economy, this publication shows non-financial corporations in three subsectors: foreign-owned (S.11a) domestic (S.11b)  and redomiciled PLCs (S.11c) sub-sectors.

As can be seen from Figure 2.1, large foreign-controlled multinationals reduced their value added in Ireland in 2023 and this brought down GDP. Figure 2.2 breaks down the main direct contributions of foreign-owned corporations (S.11a) to GDP into four elements (they also contribute indirectly through purchase of goods and services from domestic corporations).

The largest part of their GDP impact is net profit, and this element suffered the biggest decrease in 2023: it went from €171bn to 128bn, a 25% decrease. Net profit is also the element that has the least impact on the domestic economy: it flows out to the rest of the world as dividends and reinvested earnings. For this reason Gross National Income (GNI, B.5G), which is after these outflows have been accounted for, is a better measure of domestic income.

The next largest element is consumption of fixed capital (CFC) or depreciation, which is included in both Ireland's GDP (B.1G) and GNI. This grew from €98bn to €103bn but because the owners of the capital which is being consumed are not in Ireland this too has limited impact on the domestic economy.

The taxes and wages are smaller relative to the overall GDP impact but large in national terms (€19 billion and €42 billion respectively in 2023). These have the biggest impact on the domestic economy of the four elements of foreign-controlled NFCs GVA, since they are all transferred to government and households and are available for domestic consumption and investment. These continued to grow in 2023, even as the net profit recorded here declined. These two items together rose by €5bn (9%), even as GVA for the sector fell by 9%.

Compensation of Employees Paid by Non-Financial Corporations

In our data bank tables, gross value added at basic prices is broken down by institutional sector, economic activity (A21 sections of NACE Rev.2) and by component (compensation of employees and gross operating surplus at basic prices. Basic price gross operating surplus is after the addition of taxes (D.29) and the subtraction of subsidies (D.39).) This allows for analysis within each sector and sub-sector. For example, Figure 2.3 shows the compensation of employees paid by non-financial corporations by economic activity in 2023. As we might expect, most of the wages in Manufacturing and ICT come from foreign-owned corporations, but they also pay a approximately half in Administrative and Support Services and a significant minority in the wholesale and retail trade sector (€6bn out of €15bn total). On the other hand, in sectors such as Construction and Accommodation & Food Services, relatively little of the wage bill is paid by foreign-owned corporations.

Profit Share

Both the gross profit (B.2g) and the wages (D.1) increased for domestically-owned corporations in 2023. The bar graph (left axis) in Figure 2.4 below illustrates the values of profits earned and wages paid in the sector. The line graphs (right axis) show the profit share, that is, the share of total GVA that is profit. The profit share of domestic-corporations rose during the pandemic, after several years of decline. It remained below the Euro-area aggregate in 2023 at 36% compared to 41%. These are similar levels to the previous year.

For Foreign-owned NFCs in Ireland (S.11a) the profit share is extraordinarily high, around 87% in recent years, reflecting the profit recorded in Ireland that arises from these companies' global operations. By separating out these firms, we can see that domestic corporations are within European norms. (Profit in Figure 2.4 is shown at factor cost (as in table ISA03) not basic prices (as in table ISA05), that is, not adjusted for taxes and subsidies on production).  

Capital investment is an important indicator of likely economic growth since it is the acquisition of assets to be used in production in this and future years. The investment rate is calculated as the ratio of gross fixed capital formation (P51G) to gross value added (B1G). As we noted above, foreign-owned corporations have been bringing large capital investments to Ireland in recent years and this has driven up capital investment sharply. An investment rate for the NFC sector (S.11) as a whole reached 70% in 2019: this reflects the movement of Intellectual Property by multinationals within their group, and distorts any estimates for Irish NFCs. When we remove these corporations, the remaining domestically-owned corporations have been developing their fixed assets at a slower steadier rate. Figure 2.5 below illustrates this investment rate for domestic corporations. In 2023, they invested $11bn in new assets for use in production over several years. This represents an investment rate of 13%, a slight decline from 14% in 2022. The EU-27 rate has been consistently higher and was 22% in 2023. 

Return on equity is a measure of profitability of corporations in relation to the capital invested in them. A higher return on equity indicates the owners are getting a better return on their investment. For this indicator, 'profit' is gross entrepreneurial income (B.4G) less tax on income and wealth (D.5). This is divided by the balance sheet value of equity and investment fund shares (AF.5).

For non-financial corporations, the value for the Euro Area is around 20% in recent years (for Germany it averages over 50%). For Domestic NFCs (S.11b) In Ireland it is much lower: 9% in 2023, down from 10% in 2022. The lower return is due to both lower income and a rise in the value of equity. These trends are shown in Figure 2.6 below.