ΆΓ  [Ombudsman's Diary]Ireland the Celtic tiger, a success story

Korea Herald 2001. 2. 28   

Many in Korea have debated the costs and benefits of foreign direct investment (FDI) since the financial crisis of 1997. The introduction of foreign capital, technology and ideas have shaken the very foundations of Korean society and challenged the traditional values that have so shackled its people from being able to adopt forward thinking ideas necessary to survive in the knowledge-based global economy.

For those who fail to appreciate the benefits of FDI, one need only turn to Ireland's raging economy, currently the envy of all Europe, as an example of how FDI can be used as a tool to catapult a nation from the periphery to core status. Rumor even has it that Dublin has more Mercedes-Benzs and BMWs than any city in the world.

Due to the remarkable similarities shared between Ireland and Korea in terms of their dynamic, export-oriented economies, history, and temperament, Koreans should feel more confident about jumping on the FDI bandwagon. The pay-off, of course being, huge economic benefit for Korea.

What can Korea learn from the Irish model? What factors explain Ireland's successful FDI policy? In short, many companies are attracted to a favorable tax environment, competitive operating costs, and a productive and flexible workforce.

Indeed, over the past seven years, the Irish economy outperformed all other European economies, recording an average growth rate of 8.5 percent, compared to the EU average of 2.3 percent.

The transformation of Ireland's economy in less than a decade is nothing short of spectacular. Thanks to the Industrial Development Agency (IDA), the Irish economy has benefited enormously from its proactive approach towards attracting FDI. According to the International Trade and Investment Report 2000, Ireland took in over 5.7 percent of total FDI flows into the EU while accounting for just over 1 percent of EU GDP. On a per capita basis Ireland ranked second in the EU, behind Sweden, in terms of attracting FDI.

Benefits have come in the form of increased specialization, improvements in the skill and educational level of the labor force concentrated in high-technology areas, expertise and know-how spilling over from imported technology embedded in foreign investment, and the adoption of cutting-edge international practices by Irish firms.

Looking at this from a structural perspective (hard factor), Ireland offers many financial incentives to foreign-investment firms. In fact, Ireland offers one of the most beneficial corporate tax environments in the world. Profits derived from eligible manufacturing and qualifying services are subject to a tax rate of 10 percent until December 31, 2002. According to a 2000 report by Deloitte & Touche, this rate is far below that of other European countries, which average rates of around 30 percent. Furthermore, Ireland enjoys favorable tax treaties with other countries, including Korea, with regards to the repatriation of interest thus enticing foreign-invested companies to choose Ireland as their base of operations.

Just as impressive is Ireland's commitment to developing a state-of-the-art telecommunications infrastructure. An investment of over $5 billion has resulted in cutting-edge optical networks and virtually unlimited bandwidth. The completion of the global crossing transatlantic fiber-optic cable project has put Ireland in position to become a major eBusiness hub in Europe. The connections offered are superior to those in Europe because they connect directly to the U.S. backbone without passing through heavily congested Internet centers like London.

Ireland also enjoys a wonderful transportation infrastructure. A highly efficient distribution network brings most of Europe within 24-48 hours by truck. Completion of new road and sea routes is bringing all of Europe within easy access, while expanded airport facilities link Irish businesses to the world, as is envisioned by Korea with the completion of the Inchon International Airport.

One area Korea should focus on in particular is Ireland's successful establishment of a consensual partnership for managing the economy, involving government and social partners. Under the Partnership 2000 arrangement, a combination of tax reform and wage restraint was mutually agreed upon. This has contributed to industrial peace, moderate wage increases, progressive tax reductions, and sustained job creation. Korea, too, must continue to strive to develop a culture of negotiation and trust between government, labor, and management to overcome the crisis of confidence latent in Korea's industrial relations.

Perhaps a more important determinant of Ireland's recent success has been its impressive investments in human capital (soft factor). In terms of meeting the needs of a competitive global economy, Ireland's educational system ranked second in the world after Finland, according to the IMD World Competitiveness Yearbook 1999.

Since 1992 there has been a 16 percent increase in the number of students studying science/applied science courses; a 35 percent increase in those studying engineering/technology courses; and a 16 percent increase in those taking business/administration courses. In addition to an educated English-speaking base, Ireland has the youngest population in Europe with over 40 percent under the age of 25 years.

Furthermore, employment costs in Ireland are lower than in most European countries. The future availability of a young, educated, and affordable workforce bodes well for Ireland's ability to attract foreign-invested firms. Korea, like Ireland, is resource-deprived, and thus must invest in the quality of its most valuable asset, the knowledge pool of its workforce.

There is no denying that Ireland has benefited immensely from FDI. Ireland's fostering of a friendly foreign-investment climate during the 1990s has led all U.S. information technology companies like Microsoft, Oracle, and Lotus to establish a presence in Ireland.

By following Ireland's example, Korea too should stay the course of economic restructuring and fine-tune its FDI regime. Currently, Korea ranks 17, placing it in the top 25 of the world's favorite destinations for FDI, according to an annual report by AT Kearney from the CEOs of the world's 1,000 biggest companies.

The Office of the Investment Ombudsman's (OIO) vision is to accelerate and facilitate the process of globalization through ushering in and promoting FDI in Korea, so that one day, she may be regarded as the world's favorite destination for FDI.

The writer is a communications coordinator of the Office of the Investment Ombudsman. He can be contacted on (02) 3460-7653 or lee-justin11@hotmail.com. - Ed.