Large Foreign-Owned Multi-National Enterprises
Non-financial corporations in Ireland are dominated by a small number of foreign-owned multi-national corporations (MNEs). While the profit of these companies adds very significantly to GDP, this profit flows out to their owners, so their net effect on the economy is much smaller than their GDP effect. These 50 largest foreign MNEs (out of approximately 114,000 enterprises in S.11) are presented as a proxy for all the MNEs in this release.1 A more comprehensive account of foreign-owned enterprises is currently under development.
Figure 2.1 breaks down the main direct contributions of large multi-nationals to GDP (they also contribute indirectly through purchase of goods and services from domestic corporations). The largest part of their impact is net profit, which, as mentioned, flows out to the rest of the world as dividends and reinvested earnings. The next largest element is consumption of fixed capital or depreciation, which is included in Ireland's gross national income. The taxes and wages are small relative to the overall GDP impact but large in national terms (€3.2 billion and €4.5 billion respectively in 2017).
| Depreciation (P.51c) | Profit after Tax (B.2n-D.5) | Tax (D.5) | Wages (D.1) | |
| 2013 | 2.804 | 22.7278555493065 | 1.57114445069354 | 3.299724271043 |
| 2014 | 3.691 | 28.1044225596436 | 1.68857744035643 | 3.51480052037702 |
| 2015 | 30.443 | 53.9407438708199 | 2.54425612918007 | 3.76957506196674 |
| 2016 | 35.056 | 46.9322586623958 | 2.77474133760423 | 4.39131598698228 |
| 2017 | 39.048 | 53.4074317749697 | 3.15756822503034 | 4.47685888473852 |
Profit Share
The gross profit (B.2g) of the non-financial sector as a whole increased by 11.1% to €146.5bn in 2017. Compensation of employees (D.1 Uses - wages and salaries), which is the other main component of gross value added, also increased in the latest year, by 4.6%, from €51.9bn in 2016 to €54.3bn in 2017. The bar graph (left axis) in Figure 2.2 illustrates the values of profits earned and wages paid by large MNEs and Others. The line graphs (right axis) show the share of total GVA that is profit. The first group of bars represent the Other Non-financials, for which profit and wages are both major components. The second group of bars represent the large MNEs, for whom the profit is far greater than the pay to employees, reflecting the fact that much of their activity is contract manufacturing for which they do not pay wages directly in Ireland. Hence, while among the Other Non-Financials around 57% of GVA was profit in 2017, the large MNEs' profit share was 96% in 2017.
| X-axis label | Other Profit | Other CoE | Other Profit Share | Large MNE Profit | Large MNE CoE | Large MNE Profit Share |
|---|---|---|---|---|---|---|
| 2013 | 37.3969165624702 | 38.5201020113813 | 49.2602545055043 | |||
| 2014 | 39.0342968924997 | 40.625661950489 | 49.0011512175609 | |||
| 2015 | 44.3423629919369 | 44.0020785944656 | 50.1925895910149 | |||
| 2016 | 47.075321588053 | 47.4682752125389 | 49.7921839036256 | |||
| 2017 | 50.842018880836 | 49.7859163527745 | 50.5247561353663 | |||
| 2013 | 27.103 | 3.299724271043 | 89.1466164623089 | |||
| 2014 | 33.484 | 3.51480052037702 | 90.5002311671124 | |||
| 2015 | 86.928 | 3.76957506196674 | 95.8437973017567 | |||
| 2016 | 84.763 | 4.39131598698228 | 95.0744773953249 | |||
| 2017 | 95.613 | 4.47685888473852 | 95.5271603590789 |
Investment
Non-financial corporations invested €54bn in total on gross fixed capital formation in 2017 while their gross value added was €202bn. Figure 2.3 shows the investment rate, which expresses gross fixed capital formation as a percentage of gross value added, for the last five years. The bars on the left represent the domestic non-financial sector, while those on the right are the large foreign MNE's. As can be seen from Figure 2.3, the large multi-nationals had an unusually high investment rate in 2016, owing to large imports of intellectual property.2 In 2017 their investment rate was 25%, a large fall from the previous year, and lower than the rest of the non-financials, which had a 29% investment rate. The EU average has been around 23% in recent years.
| X-axis label | Other GVA | Other GFCF | Other Investment Rate | Large MNE GVA | Large MNE GFCF | Large MNE Investment Rate |
|---|---|---|---|---|---|---|
| 2013 | 76.6927175803315 | 18.6421720444121 | 24.307616984475 | |||
| 2014 | 80.4823556868725 | 21.2366722163525 | 26.3867428271815 | |||
| 2015 | 89.0262545883281 | 27.2647208034201 | 30.6254833807135 | |||
| 2016 | 95.2143893632328 | 31.3966634277007 | 32.9747043883522 | |||
| 2017 | 101.309035299665 | 29.0911424378401 | 28.7152496831013 | |||
| 2013 | 30.772356484968 | 6.00240988 | 19.5058505933146 | |||
| 2014 | 37.4182273195579 | 8.046658 | 21.5046478051464 | |||
| 2015 | 91.1735936446689 | 25.210258 | 27.6508328697145 | |||
| 2016 | 89.6480316837372 | 52.817787 | 58.916839564679 | |||
| 2017 | 100.561557784985 | 24.971163 | 24.8317185513295 |
Return on Equity
The return on equity is a measure of corporate profitability. It is the ratio of entrepreneurial income (B.4g) less taxes on income and wealth (D.5) to total equity liabilities (Table 2.9 Liabilities AF.5). The various components for domestic corporations and large foreign-owned multinationals are graphed in Figure 2.4.
| X-axis label | Other B.4g - D.5 | Other Equity Liabilities | Other Return on Equity (right axis) | Large MNE B.4g - D.5 | Large MNE Equity Liabilities | Large MNE Return on Equity (right axis) |
|---|---|---|---|---|---|---|
| 2013 | 43.9308522619505 | 459.368833603358 | 9.56330709624995 | |||
| 2014 | 46.973071785389 | 559.314256476141 | 8.39833264421587 | |||
| 2015 | 51.1363626563604 | 848.700028206678 | 6.02525756531583 | |||
| 2016 | 56.606122655292 | 891.702866397412 | 6.34809248555941 | |||
| 2017 | 61.9126047788184 | 814.427829330637 | 7.60197558937827 | |||
| 2013 | 23.3538555493065 | 51.151318510692 | 45.6564097060858 | |||
| 2014 | 29.4124225596436 | 67.346393438692 | 43.6733447150645 | |||
| 2015 | 77.1217438708199 | 131.236372686692 | 58.7655253585353 | |||
| 2016 | 75.2822586623958 | 194.905219358692 | 38.6250603806822 | |||
| 2017 | 86.7234317749697 | 239.21571102852 | 36.2532341216628 |
While the net entrepreneurial income of large MNEs is of the same order as that of Other Non-Financials, their equity liabilities are far lower. Their return on equity is between 36% and 59%, while Others have a return between 6% and 10%. The European average is around 18% in recent years. Many of the large MNE's are unlisted wholly-owned subsidiaries of the foreign parent and thus their equity liability may not reflect the market value of the enterprise. Furthermore, the substantial foreign direct investment in Ireland is spread across financial instruments, of which equity is only one. The Other Non-Financials include large PLCs which have their headquarters redomiciled here, but which have little or no entrepreneurial income here, and these bring down the average return on equity.3
1Further business statistics on foreign-owned multi-nationals in Ireland are provided in the annual Business in Ireland - Summary Results publication. As well as covering a larger number of enterprises, this publication has some differences in methodology (PDF 138KB) with these institutional sector accounts (see note).
2The level shift in 2015 occurred primarily as a result of corporate relocations that were recorded mainly as changes in the capital asset balance sheets, rather than capital investment. These relocations thus did not add to gross fixed capital formation.
3Further analysis of the foreign MNE's return on investment is given in Foreign Direct Investment in Ireland 2017. The note Redomiciled PLCs in the Irish Balance of Payments provides a more detailed description of corporations relocating headquarters here.
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