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Foreign investment projects into Europe reach all-time high in 2013
EY LLC, Kyiv, Ukraine, Tuesday, July 01, 2014
UK and Germany remain dominant as top recipients of FDI in Europe as Eastern Europe continues to lose its shine
US remains top investor in Europe, BRIC investment strengthens
More confidence in Europe as a destination for future investment
Five year pre- and post-crisis analysis highlights Germany as real FDI ‘winner’
London and Paris, 1 July 2014: – Foreign direct investment (FDI) into Europe reachedan all-time high last year, according to EY’s annual European Attractiveness Survey.The report, now in its 12th year, combines an analysis of internationalinvestment into Europe over the last year with a survey of more than 800 globalexecutives on their views about how and where global investment will take placein the next decade.
Despite the fact that Europe only pulled out ofrecession half way through the year, 2013 was a record year for FDI with 3,955projects, up 4% from 3,797 in 2012. Among major markets, investment projectsinto the UK, Germany and France all increased, with only Spain and EasternEurope showing declines.
Marc Lhermitte, EY’s Head of International LocationAdvisory Services and author of the report comments: “2013 could well be aturning point for economic confidence and foreign direct investment decisionsas the marathon recession in many parts of Europe finally came to an end. Asorganizations have begun to see growth and profits again boards are showinggreen lights for investment proposals”.
Destinations: FDI by country
The UK once again took the lead in terms of FDI with 799 projects in 2013, anincrease of 15% with Germany also showing a strong increase of 12% to 701projects. More surprisingly France seems to have halted its decline as aninvestment destination with a project increase of 9%. Although Spanishinvestment fell by 19%, after the spike in 2012 caused by bargain hunters, itstayed in fourth place with Belgium and the Netherlands in fifth and sixthplaces respectively.
FDI projects in Central and Eastern Europe, includingRussia, declined by nearly 5% while job creation fell by 4%, when the prolongedcrisis reduced the number of decisions by Western European automotive companiesor shared services outsourcers, for instance.
Analysis by sector and activity
Europe’s emergence from recession is also a reinforcement of its position forinnovation-driven and high value-added investments. Software and businessservices remained the leading FDI sectors in Europe in terms of projects, with509 (up 27%) and 483 (down 31%) respectively. Nearly half of the softwareprojects originated from US-headquartered companies.
The other big winners in the year in terms of sectorswere Pharmaceutical and Scientific research increasing 58% (to 141) and 96% (to88) respectively. Unsurprisingly research and development showed a significantincrease of 23% when project type was analyzed (with a 64% increase in jobcreation). Manufacturing showed an increase of 5% but job numbers were down12%, investors remaining wary of Europe’s high labor costs.
Where is investment coming from?
Intra-European investment is Europe’s major source of FDI but, in terms ofinvestment at a country level, the US remained Europe’s single leading FDIgenerator, accounting for 1,027 (or 26% of the total) inward investmentprojects in 2013. The UK increased its share of US investment projects – upfrom 26% to 27%, nearly double that of its closest competitor, Germany.
Overall, however, US investment fell 2%. By contrastinvestment from the BRICs significantly picked up with project numbersincreasing 28% overall to 313 and job creation increasing 37% to reach 16.900jobs. Chinese investment has increased three-fold in the last six years withIndian and Russian investment also at an all-time high in 2013. There was asimilar upswing in the numbers of jobs that were created by BRIC projects – up37%. Germany overtook the UK as the top destination for investment from theBRICs up 50% from last year.
Urban-centric investment
Much of the overall improvement or decline in a country’ prospects for FDI wasdecided by its leading cities. Investment projects into London were up 21% to380. London now takes nearly half of all the FDI projects into the UK, thehighest proportion of any major European country. The major German cities ofDüsseldorf and Darmstadt also saw major increases of 25% and 40% respectively.Helsinki was the fastest growing city in Europe with nearly 50% more projects.Other major European cities such as Paris, Barcelona and Dublin failed toattract as much new investment and it had a major impact on their countries’overall rankings.
Longer term trends
The 2014 survey also includes analysis of how five years of crisis andrecession have impacted European FDI. Comparing 2009-2013 and 2004-2008 revealssome significant winners and losers. Eastern Europe which attracted substantialinvestment in the 2000s was the major loser from the financial crisis withproject numbers down 12% whereas Western Europe the numbers rose 19%.
Among the major markets there was one easilyidentifiable winner in Germany whose project numbers more than doubled. The UKsaw projects go up by a more modest 12% while France was flat. Other ‘winners’among the larger markets included Spain, the Netherlands, Russia and Ireland.The top five ‘losers’ were all Eastern European countries as Romania, Hungaryand Bulgaria’s investments all halved in the period.
As Marc explains the type of investments have changedas well, “There was an increase in sales and marketing projects, anillustration of foreign investors’ commitment to seek every sign of growth andchase every opportunity in a stagnant economy. Investment sizes were alsosubstantially smaller than in pre-crisis years: average job creation from FDIprojects declined by 22% during the recession.”
Investors are more confident aboutEurope
The end of the recession in Europe also impacted the views of global investorsthat were polled in March 2014 about future prospects for European FDI. The2013 survey had only 39% of investors saying Europe would be a more attractiveinvestment destination in the next three years, with a 23% saying it wouldbecome worse. This year, the survey had 54% saying it would get better, andonly 12% saying it would decrease. Asian investors were even more upbeat, with60% having optimism in the future.
Marc explains, “Investors emphasize that recovery isnot an invitation to be complacent and that competitiveness remains the key tosustainable growth and a more attractive Europe. Our respondents stress theimportance of an ecosystem-related approach to innovation and entrepreneurshipas the first step”.
Perceptions on what sectors will prove to be ofinterest in the next three years reflect the reality on the ground. ICT, LifeSciences and Energy are highlighted by investors as the key drivers forEuropean growth over the next decade.
Investors continued to highlight some of the long-termweaknesses of the European economy by highlighting the need to improve labormobility and skills development while at the same time cutting regulation anddeepening economic integration.
Marc concludes, “Although the worst might be behind usand there are strong signs that we will see a further upswing in investment in2014, there is no room for complacency. Investors remain realistic rather thaneuphoric about the current environment and want to see governments continuingto tackle the long-term systemic problems Europe faces.”
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