The Celtic Tiger: this is how economists used to call Ireland because of the impressive growth that the country achieved from the 1960s onward that transformed it from one of the poorest nations in Europe into one of the wealthiest.
When we talk about the Republic of Ireland, we refer to the southern part of the island West of the United Kingdom, as the northern part is called Northern Ireland and is still part of the UK. In fact, Ireland became independent from the UK in 1921, although the idea of a united Ireland brought turmoil against the United Kingdom from the 1960s until the Good Friday Agreement of 1998.
Source: Trading Economics
BUSINESS OPPORTUNITIES
First opportunity: wealthy market
The first opportunity in Ireland is that it is a great market because it is one of the wealthiest nations in the world. With a GDP per capita of 73,200 USD, Ireland is the second wealthiest country in Europe and the 10th wealthiest in the world.
No wonder that so many companies always look for retailers in Ireland as a way to enter in this rich market.
Yet, there is a trick here that I am going to explain you later in the risks.
Source: CIA World Factbook
Second opportunity: business-friendly environment
The second opportunity in Ireland is its favorable investment environment that stems from three pillars: the first is the low corporate income tax at 12.5%, the second is legal certainty and the third is the tax simplicity. There are several countries in Europe that want to be financial centers and that have low corporate income taxes (such as Cyprus and Iceland), or that have a standard official tax rate which is pretty high, but then you can lower it by using complex tax structures (this is the case of Luxembourg and Malta). But in Ireland everything is simple: there is only a 12.5% corporate income tax rate that the country did not raise even during the financial crisis of 2008-2011. The benefit of such simplicity is that, even if your tax structure does not go right, that is the maximum amount that you will pay. Many companies decided to play it simple and establish in Ireland because of this reason.
Source: World Bank
Third opportunity: English-speaking country
Of the advantages of Ireland business is the fact that, along with Malta, Ireland is the only English-speaking country in the European Union. When I mean English-speaking, I mean people that are native speakers of English. Also, you will find skilled workforce in Ireland, especially in its main industries: pharmaceuticals, technology, and financials.
Fourth opportunity: sound currency and public finances
The fourth opportunity is a that Ireland is a member of the European Union and of the Eurozone. To tell the whole story, the country experienced a terrible crisis from 2008 to 2011, and its participation to the European Monetary Union was in doubt, as with the rest of Southern Europe.
Nowadays the debt to GDP ratio in Ireland is less than 70% so its permanence to the Eurozone is without doubt.
Fifth opportunity: low level of corruption
The fifth opportunity in Ireland is its low level of corruption. Ireland ranks 18 out of 180 countries, the same level as Japan and even slightly better than France and the United States.
Source: Transparency International
BUSINESS RISKS
First risk: market smaller than what appears at first glance
Speaking about risks, the first one is that the GDP per capita in Ireland might not represent accurately the real purchasing power of Irish people: we previously wrote that it is 73,000 USD, right? But the average salaries in Ireland are only 43,000 USD.
Source: Central Statistics Office of Ireland
If we take Germany for example, i.e. a large manufacturing country, GDP per capita stood at 51,000 USD in 2017, and the average salaries in US dollars were 52,000 per year. You see, these two indicators in a country like Germany with a real manufacturing economy are more coherent than in a country like Ireland, that relies so heavily on foreign investments. Generally speaking, be skeptical of small countries that rely so heavily on foreign investments, because much of the economic activity that officially takes place on their soil, in reality is brought there only from a financial perspective, but it occurs somewhere else.
In the case of Ireland, the real purchasing power is not 73,000, but it is more likely to be closer to between 40,000 and 45,000 USD per year.
Second risk: dependency on foreign multinationals
The second risk is that Ireland is so dependent on foreign multinationals.
Just to give you an idea, Ireland exported USD 220 billion of goods and services in 2017 and imported just USD 98 billion. This number is disproportionate; that clearly means that Ireland is a place where foreign multinationals establish and use it as a hub to re-sell their products abroad, especially to the rest of the European Union. Should these companies decide that they want to move out of Ireland, it would have a negative effect on the economy.
Third risk: exposure to the United Kingdom
The third risk is Ireland’s exposure to the United Kingdom. The UK is the major trading partner of Ireland: 30% of Irish imports come from the UK; should a hard Brexit happen, it might lead to disruptions in the supply chain from the United Kingdom to Ireland, with negative repercussions on the overall Irish economy.
Fourth risk: small population
The fourth risk is that, although wealthy, Ireland is such a small market of just 5 million people; combined with the fact that the real purchasing power of its inhabitants is a little bit less than what we thought makes the internal market less attractive that what it looks at first glance.
Although Ireland is a giant in the import export trade, its domestics market is of little relevance
Fifth risk: tax system not suitable for SMEs
The fifth risk is that much of the very business-friendly investment climate in Ireland is more designed for big corporations than for small-medium enterprises. Take for example the SARP relief: it is a 30% tax relief on salaries given to staff recruited from overseas.
This tax break kicks in only for salaries beyond EUR 75,000 per year, roughly USD 85,000 per year; not something for a small-medium enterprise. Generally, such salaries are more common in big multinationals than in small-medium enterprises, therefore it is not really a country for small businesses, isn’t it?
CONCLUSIONS
This was our general analysis of Ireland of course if you have had the opportunity to work there and you have identified more opportunities or more risks, please write your comments below.
All things said, we think that Ireland has great potential. It was able to navigate a terrible crisis, it stuck to its strategy of attracting foreign corporations with its low, simple corporate income tax. As a result, Ireland has become a major player in the export and import trade between the US and the EU.
Yet this aggressive strategy could backfire due to Ireland’s dependency on foreign corporations, should the country’s well-oiled mechanism of attracting foreign investments start to jam.
Other info about Ireland in our Country Data page: Ireland
Globartis Research
Visit our business platform if you are looking for companies in Ireland.
