Competition Takes Many Forms

It may surprise some readers to know that we recently compiled an overtly positive review of the Irish economy. In the course of this review, we noted that despite the severe problems that the country had encountered a few years ago, the Irish economy was now facing what we described as a chronic balance of payments surplus.

This has been, in part, the result of a stronger trade balance but primarily the result of some extremely strong inflows that are notionally termed as being ‘direct investment flows’. In theory, direct investment flows are investments made by foreign companies in real assets such as plant and equipment but also included in this category are intra-company transfers. Almost amusingly, some of the recent direct investment flows into Ireland have rather implausibly been larger than Ireland’s entire GDP and this has of course occurred as a result of the significant number of (prominent) multi-nationals that are using Irish domiciled subsidiaries as tax efficient vehicles. 

There is of course something of a furore developing over these types of corporate tax avoidance strategies but for now, at least, the situation has resulted in a great deal of money residing in the Irish banking system. Initially, these inflows into the local financial system were simply recycled by the Irish banks into the repayment of many of their crisis-era international debts. Now that many of these historical liabilities have been discharged, the continuing inflows of funds are, it seems, increasingly being channelled into Irish assets and even into new credit growth. Hence, we are anticipating a rather unique boom in Irish assets over the next year or so despite the ongoing travails of much of the rest of the Euro Zone. We might be envisaging a (further) and quite possibly imminent calamity in Portugal and Greece before too long but Ireland seems to be ploughing its own rather unique and positive furrow for now.

Another rather unique theme that comes to mind at present centres on Australia.