DUBLIN (Reuters) - U.S. business chiefs gathered in the Irish capital on Thursday to give thanks for low taxes, a cool climate and the financial crisis - three factors that have helped produce a bumper year in their favorite corner of Europe.
But there was a hint of foreboding at the American Chamber of Commerce’s annual Thanksgiving lunch in Dublin that Ireland’s promise to maintain its low corporate tax rate, its crisis wage cuts and its perfect weather for high-tech data farms may not be enough to keep the relationship sweet.
A limited pool of skilled workers, the loss of lucrative pharmaceutical patents and the threat of a fresh European attack on its low company taxes mean Ireland will need to fight to keep the investment flowing.
For its part, the government is thankful that multinationals, many of them based in the United States, are still backing Ireland as it struggles to recover from economic crisis and an international bailout in 2010.
“I’d like to give thanks for the U.S. investment and the enormous job creation,” Finance Minister Michael Noonan told the executives gathered for a traditional Thanksgiving feast of turkey and pumpkin pie, saying he expected another record year for investment this year.
“It’s important that what is being offered in Ireland is as attractive as it ever was,” he said, promising to maintain a package of incentives for companies and executives to face down growing competition from Britain, Israel and Singapore.
U.S. firms invested $30 billion into Ireland last year, more than in China and the rest of emerging Asia combined, according to the American Chamber of Commerce.
Ireland has long cultivated its ties with the huge Irish-American community, and the country is sometimes tongue-in-cheek called the 51st state of the union.
But sentimentality does not attract U.S. business projects. Thanks to the 12.5 percent company tax rate and transfer pricing - in which multinationals route profits from high tax to low tax countries - foreign firms can repatriate most of the money they pour into Ireland, bolstering their profits.
Ireland, lying on the western edge of Europe and relatively isolated from many of its major markets, jealously guards the competitive advantage brought by the low tax regime.
But European hostility over this has re-emerged, with German opposition leader Peer Steinbrueck, who hopes to oust Chancellor Angela Merkel in elections next year, criticizing it last month.
A storm over how multinationals cap their tax bills, brewing since a Reuters investigation into the issue, is likely to put Ireland in the spotlight, an editorial in The Irish Times noted on Thursday. “For the government, such developments are a major concern,” the newspaper said.
At Thursday’s lunch, Noonan reiterated that the corporate tax rate was “not negotiable”.
Multinationals have benefited from Ireland’s economic crash as business costs have fallen back to 2003 levels, according to the IDA, the agency tasked with attracting foreign investment.
Dublin commercial property prices, once on a par with Manhattan and Moscow, have more than halved. Capitalising on this, Google (GOOG.O) spent 100 million euros last year on the tallest commercial office building in Dublin. The U.S. technology giant plans to kit it out with a swimming pool in the basement for its 2,000 plus staff.
But high-tech companies are struggling to find enough talent in Ireland, where graduates preferred to become architects or real estate agents during the property-fuelled boom years rather than software engineers or scientists.
Multinationals are fighting over recruits from overseas who have brought plethora of foreign accents to the coffee shops and sandwich bars of Dublin’s trendy south docklands area, where Google and Facebook have large offices.
In September, a senior Facebook executive said the firm would continue investing in Ireland, where it already has over 400 staff, as long as it could find the right sort of employees.
Conscious of the problem, the government has introduced tax breaks for overseas workers who move to Ireland.
Peter O’Neill, head of the American Chamber of Commerce in Ireland, said Ireland can not rest on its laurels if it wants to attract the right worker and the right companies to Ireland.
“The bar is getting higher all the time,” said O’Neill, who is chief of IBM Ireland. “Investment is mobile, people are mobile, you’ve got to have the right environment at all times.”
A strategy to lure drugs companies, started in the 1960s, has made Ireland the largest net exporter of pharmaceuticals in the world, according to Dublin-based industry group PharmaChemicalIreland. Products such as Viagra and Botox are manufactured in the country.
But this reliance on the life sciences sector, which employs over 47,000 people, has become a weakness as patents lapse on a host of drugs, allowing competitors to make cheap copies elsewhere. These include Pfizer’s Lipitor and Enbrel, although Enbrel will go off patent later than originally scheduled.
Officials in Ireland say the “patent cliff” will be offset by new patented drugs and products coming into production but there will be a time lag, according to experts.
“The new products coming on-patent in the short-term will not be able to offset the fall in exports of these blockbuster drugs coming off-patent,” said Chris Van Egeraat, lecturer at Maynooth University. “We are going to talk about billions in a reduction of exports”.
The impact is already being felt; Irish exports fell sharply in September from record highs the previous month.
“You’ve two risks for Irish exports: you’ve the specific risk related to the patent cliff, and you have the risk related to the global environment,” said KBC Ireland chief economist Austin Hughes, predicting a gentle slowdown. “But luckily a lot of the companies that are in Ireland are doing well.”
Irish officials can at least be thankful that the weather at least is here to stay.
Ireland’s temperate climate, often the bane of wind-swept tourists, is an asset for data center operators. Natural air can be used to cool the rows of giant servers that act as the world’s online library without costly heavy air-conditioning.
Google recently opened a 75 million euro data center, housing computers that run cloud computing services, where users store data on secure external servers rather than their own network or computer. Microsoft (MSFT.O) also unveiled a $130 million expansion to its Dublin-based “mega” data center earlier this year.
Cheaper and better options exist in Europe, but Ireland is fast becoming a cloud hub for the region because the tech giants already installed in Ireland are opting to build out in a country which they know and like.
“Ireland will become an increasingly important attraction for the cloud market,” said Rakesh Kumar, an analyst with Gartner, which advises companies such as Microsoft and Cisco.
“These companies... have got facilities, they’re happy with them, they’ve got good skills and good languages... so when they have a choice to either expand and build out new sites in different regions, it makes a lot of sense to stick to what they have,” he said.
Writing by Lorraine Turner and Conor Humphries; Editing by Carmel Crimmins and David Stamp