Ireland is undoubtedly one country in the world that has experienced a full economic cycle that comprised a period of economic boom followed by a period of rapid recession. Currently, numerous efforts are being put in by various stakeholders in Ireland to return the country’s economy into a path of rapid economic growth. The decline in the once boisterous levels of growth of the Irish economy was caused by the occurrence of the Global Financial Crisis (GFC) in between the years 2007-2010. The impact of the GFC has immensely hampered the economy of Ireland forcing country’s economists and other relevant stakeholders to seek financial help from the International Monetary fund and the World Bank. It is as a result of the intervention of the World Bank, the International Monetary Fund, as well as the implementation of other measures that have been put in by Ireland’s economists and other financial stakeholders to revamp the economy of Ireland (Andreas Ller, 2011).
Political and Economic Factors that Encouraged Massive Foreign Direct Investment in Ireland before the Onset of Global Economic Crises
Previously, Ireland’s main strategy in regards to the generation a considerable level of economic growth in the country was by attracting numerous foreign direct investments from other countries, such as the U.S (Ray Forrest, 2011). In order to be able to induce foreign countries to invest in Ireland’s economy, the country had to ensure that its political economy is extremely conducive for investment, so as to convince or attract foreign investors to invest in the country. Therefore, in an effort to make the political economy conducive for foreign investment Ireland’s government put in a series of measures to streamline its political economy (Barrell & Pain, 2000).
The first measure that Ireland put in place to streamline its political economy was through ensuring that all political factors affecting the country were favorable for foreign investors to invest in the country. Some of the political factors that attracted foreign investment into Ireland include the imposition of low corporate taxes for companies, training of an increasing number of English speaking workforces and maintenance of a stable political government. The Irish government has also removed all trade barriers. The government has also abolished all taxes on investors willing to begin export businesses in the country (Ciro, 2012).
Ireland’s continuous economic growth before the occurrence of the global financial crises served as an extremely crucial motivator for foreign countries to invest in Ireland. For example, Ireland achieved the greatest growth in its gross domestic product than any other country that is a member of the Organization for Economic Co-operation and Development between the years 1999 to 2004. The continuous growth in the GDP of Ireland played a crucial role in assuring investors that their investments would yield decent returns, if they decided to invest in Ireland (Global Economics Crisis Resource Center, 2009).
Ireland also did a lot to improve its social, legal and technological aspects of its political economy, so as to induce foreign investors to invest in the country. For example, Ireland’s effort to increase the number of English speaking workforce played a particularly crucial role in improving the social aspect of Ireland’s political economy. In terms of technological aspects, Ireland has placed a lot of emphasis in ensuring that it uses new and efficient technology by investing a lot of money into the construction of research institutes and in the funding of research (Saleh, 2010). In terms of legal aspects, Ireland has made enormous strides in making the country have sound legislation to support the foreign investment. For example, Ireland has reduced the level of competition in the communication sector by introducing the Communications Regulations Act. Ireland created legislation aimed at reducing insurance costs, so as to make them affordable (Herrmann & Lipsey, 2003).
Effects of the Global Economic Crises on Ireland’s Economy
The global financial crises had a devastating effect on the economy of Ireland. For example, Ireland’s sound and healthy rate of economic growth that had been experienced for a couple of years changed into a recession. The occurrence of the recession on Ireland caused a lot of credit borrowing from banks. The effect of increased borrowing from banks caused Irish banks to borrow funds from external sources so as to support the massive rush to obtain credit from locals of the country. This caused Ireland to get into a debt crisis as it owed an enormous sum of money to global financial institutions (International Monetary Fund, 2003).
The Global Financial Crises in Ireland also caused a decline in the property prices in Ireland. Falling prices in the value of property made it difficult for borrowers to pay back their loans, hence causing them to default (Szilagyi, 2011). Banks in Ireland, therefore, incurred enormous losses as a result of default in the payment of loans. Enormous losses made by banks resulted in a decline in the amount of confidence placed on Irish banks. Customers who had deposited their funds rushed to withdraw funds quickly, as they had fear that they would be unable to access their funds as a result of the loss that banks were recording (Kates, 2011).
An Examination of Ireland’s Future Attractiveness as a Destination for Foreign Direct Investment
A close examination of Ireland’s prospects of becoming attractive to foreign investors reveals that the country does indeed have a high hope of emerging as a viable country for foreign investment. The first reason why Ireland has a hope becoming attractive to foreign investors is the fact that the country’s export sector is well developed, hence, it will induce investors willing to engage in the export business to invest in the country. The fact that Ireland has an extremely efficient tax system that charges low corporate taxes also acts as an immense motivator for foreign investors to invest in the country. An efficient tax system will help motivate investors in Ireland by reducing cases of double taxation of companies; hence, inducing more companies to invest in the country, since the amount of taxes charged on businesses will be reduced. Low corporation tax rates will further reduce the tax burden on companies (Kraft, 2007).
The fact that Ireland has a well qualified and skilled workforce who can provide quality labor to foreign investors who decide to set up a business in the country also acts as a decent motivation for foreign investors to invest in Ireland. To add to this, Ireland has been investing a lot of capital to teach English to citizens of a working age (Wei, 2004). A highly qualified workforce that is well conversant with the English language assures foreign investors that they will easily find workforce that is easy to work with, if they decide to invest in the country. Another fact that will motivate investors to invest in Ireland in the future is the fact that the country has a well regulated product and labor market. A well regulated product and labor market assures foreign investors that illegal products or unqualified labor will not be a problem, if they decide to set up business in Ireland (Liebscher, 2007).
Ireland is also considered to have a truly friendly business environment. According to a survey done on 183 countries, Ireland emerged as the seventh best country to do business. In Europe alone, Ireland is the best country in terms of benefits derived from conducting a business. The profitability levels in Ireland are said to be extremely high. Ireland’s friendly and profitable business environment, therefore, acts as an immense motivator to foreign investors to invest their money in Ireland (Nanto, 2009).
The above essay, therefore, explains various strategies or measures that other countries could use to attract foreign direct investment in their countries. The option of increasing the level of foreign direct investment can be extremely viable to countries seeking to increase the growth of their economy (Paus, 2005). Therefore, countries seeking to increase the level of foreign direct investment in their country should follow Ireland’s example, so as to be successful in improving their economies (Welfens, 2011).