Most of Ireland's gross domestic product (GDP) is generated by foreign-owned corporations. Their wages and taxes stay in the country but their profit flows out to their owners, so their net effect on the economy is much smaller than their GDP effect. To provide better insight into the domestic economy, the non-financial and financial corporations sectors are divided into foreign-owned (S.11a) and domestic (S.11b) sub-sectors1. The redomiciled PLCs are Irish by the internationally accepted definition, but their large positions and transactions have little interaction with the rest of the domestic economy, and for this reason they are presented separately from the domestic non-financials as sub-sector S.11c.
Figure 2.1 breaks down the main direct contributions of foreign-owned corporations (S.11a) 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 (€6.4 billion and €19.1 billion respectively in 2018).
|Depreciation (P.51c)||Profit after tax (B.2n-D.5)||Tax (D.5)||Wages (D.1)|
The gross profit (B.2g) of the non-financial sector as a whole increased by 12.2% to €163.7bn in 2018. 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 6.0%, from €56.2bn in 2017 to €59.5bn in 2018. The bar graph (left axis) in Figure 2.2 illustrates the values of profits earned and wages paid. The line graphs (right axis) show the share of total GVA that is profit. The first group of bars represent the domestic non-financials (S.11b), for which profit and wages are both major components. The second group of bars represent the foreign multi-nationals (S.11a) 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 domestic non-financials around 39% of GVA was profit in 2018, the large MNEs' profit share was 88% in 2018.
|X-axis label||Dom NFC GOS||Dom NFC COE||Dom NFC CoE Profit Share||Foreign NFC profit||Foreign NFC CoE||Foreign NFC profit share|
In this year's publication 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) here2. This allows for analysis within each sector and sub-sector. For example, figure 2.3 shows the profit share of domestic corporations (financial and non-financial, S.11b and S.12b) in 11 NACE groups. Profit share is low in more labour-intensive economic sectors like agriculture, accommodation and food service, education, and health, but it is higher in capital-intensive financial services, industry and transportation.
|Nace_description||Compensation of employees (D.1)||Gross operating surplus (B.2g)|
|Agriculture, forestry and fishing (A)||642||127|
|Mining, industry (B-E)||6800||7797|
|Wholesale and retail trade; repair of motor vehicles and motorcycles (G)||7182||4112|
|Transportation and storage (H)||2576||2806|
|Accommodation and food service activities (I)||3422||977|
|Information and communication (J)||3317||1409|
|Financial and insurance activities (K)||4091||4907|
|Other services (L, N, R, S)||5069||2959|
|Professional, scientific and technical activities (M)||4467||2123|
|Education and Health (P-Q)||3320||1188|
Non-financial corporations invested €59bn in total on gross fixed capital formation (P.51g) in 2018 while their gross value added was €225bn. Figure 2.4 shows the investment rate, which expresses gross fixed capital formation as a percentage of gross value added, for the last six 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 2.4, the large multi-nationals had an unusually high investment rate in 2016 and 2017, owing to large imports of intellectual property.3 Domestic corporations had a lower and steadier investment rate throughout the period. The EU average has been around 23% in recent years, slightly lower than that of domestic Irish corporations.
|X-axis label||Domestic GVA||Domestic GFCF||Domestic Investment Rate||Fgn NFC Gross Value Added||Fgn NFC GFCF||Fgn NFC Investment Rate|
Foreign-owned non-financial corporations here have higher equity liabilities but also much higher net entrepreneurial income than the purely domestic corporations. Their return on equity is around 28% in 2018, while the domestic NFCs, once the redomiciled PLC's have been removed, have a return of around 8% in this year. The value for the EU 28 is in the middle, 19%. 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 return on equity is illustrated in figure 2.5.
|X-axis label||Domestic NFC Entrep'l inc excl current tax||Domestic NFC Equity Liabilities||Domestic NFC Return on Equity||Foreign-owned NFC Entrep'l inc excl current tax||Foreign-owned NFC Equity Liabilities||Foreign-owned NFC Return on Equity|
1Further business statistics on foreign-owned multi-nationals in Ireland are provided in the annual Business in Ireland publication. This publication has some differences in methodology (PDF 138KB) with these institutional sector accounts (see note).
2Basic price gross operating surplus is after the addition of taxes (D.29) and the subtraction of subsidies (D.39).
3The 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.