The non-financial corporate sector in the institutional sector accounts

There are lots of reasons not the look at the figures for Ireland’s non-financial corporate sector in the quarterly institutional sector accounts (ISAs).  They are the figures that are most likely to be revised when the National Income and Expenditure (NIE) accounts are published in the summer.  And a much more information breakdown (by domestic, foreign-owned and redomiciled PLCs) will be published with the annual ISAs in the autumn. 

So, without expected it to be any more revealing that staring into a puddle here are the latest figures for the NFC sector.  First, the current account:

Lots of big numbers as can be expected given the scale of the MNCs that operate in the sector.  However, most of the 2020 changes are fairly modest (at least they are in this release anyway).

We can see that compensation of employees paid by NFCs held up fairly well in 2020 only showing a decline of 2.5 per cent or €1.7 billion.  However, this was supported by the government’s wage subsidy schemes and subsidies on production received were up almost 500 per cent. The (mainly domestic) firms receiving these subsidies used them to support the wages of their employees.

Amidst all the big number we see the continued rise in Corporation Tax payments from this sector.  In 2020, the NFC sector paid €9.6 billion of Corporation Tax up from €8.4 billion in 2019. 

Another item worth noting is the continuing rise in the amount of interest paid by the NFC sector.  The interest amount in the ISAs rose a further €2 billion in 2020.  This may be linked to the onshoring of tens of billions of IP assets by US MNCs.

The figures in the capital account are even more murky – particularly those in the lower panel showing capital formation, acquisition of non-produced assets and net borrowing.

The NFC sector in Ireland has been doing an enormous amount of capital formation expenditure in recent years.  This has been to the extent that a €50 billion drop in NFC investment is of concern to no one.  This is because the main reason for the wild fluctuations in the GFCF has been IP onshoring by US MNCs.  These transactions can be worth tens of billions but their impact on the overall economy is limited.

The lower panel shows that their has also been significant expenditure on the acquisition of non-produced assets.  Again this is linked to IP onshoring but is IP that is not the result of R&D activity.  The assets here include licenses and marketing assets such as customer lists.  This shows a large drop in 2020, but, like capital spending, is a figure that is subject to revision in the NIE.

This means that the bottom line is not informative either.  The net borrowing position of the NFC sector may have improved by more than €70 billion but most of this is due to reduced onshoring of IP by US MNCs.  We’ll get a much better picture of what is happening in the business sector in Ireland, and most importantly the domestic business sector, as the CSO works through it release schedule for the year.