FDI in 2015 at record in Europe, Brexit investor worries rise
According to EY's 2016 European attractiveness survey, foreign direct investment (FDI) into Europe hit a record high with 5,083 FDI projects in 2015 (up by 14% year-on-year), leading to the creation of 217,666 new jobs (+17%). However, polling of investor intentions reflect Brexit fears with just 36% of the international companies it interviewed now felt the UK would become more attractive as an investment destination over the next three years, sharply down from 54% last year.
EY (Ernst and Young) said that the top three countries in terms of FDI project numbers — the UK, Germany and France — together account for 51% of all FDI projects and a third of all jobs created. Western Europe (WE) continues to dominate FDI projects with a 77% share (81% in 2014). Other key FDI destinations, such as Spain, the Netherlands, Belgium and Ireland, all posted positive growth in 2015 but countries in Central and Eastern Europe grew almost 4 times as fast as their counterparts in Western Europe.
In relation to jobs, Central and Eastern Europe (CEE) saw the creation of 50% of all FDI jobs in Europe, thanks to the strength of the region in manufacturing, which accounted for 69% of the FDI projects in the region. Poland, Russia and Romania achieved the highest number of jobs created.
The Netherlands – which rose one position to number five in the top 10 FDI destination ranking — recorded 47% growth in FDI projects in 2015 compared with Ireland's 20%. The UK took more than a fifth of all FDI projects in Europe last year while Ireland took 2.5% of the 5,083 total.
The attractiveness survey which had 1,469 respondents, shows that investment prospects have declined in the top European destinations in the immediate future. In the UK, only 23% investors have plans to establish or expand operations over the next year, down from 27% last year. Similarly, in Germany, only 23% of the investors (down from 25% in 2015) have investment plans. Investment plans in France have taken the worst hit with only 24% investors keen on investing, down from 35% last year.
EY says Europe faces fierce competition from other regions when it comes to attracting foreign investors. Europeans need to convince the investors as to why Europe still deserves the close attention of corporations from around the world. Our conversations with multinationals and entrepreneurs point to some very clear, very urgent — yet very complex — areas of reform, to be tackled together by governments and businesses.
According to the FT:
The EU accounts for £741bn of investment in the UK and just under half of overall investment flows in 2014, with £76bn. A fall in inward investment would affect not just the UK’s growth but also its ability to finance its current account deficit — which most recently reached £33bn, or 7% of gross national product. It would also be likely to shake the UK from its position in Europe as the most attractive destination for investment in the region.
Who is investing in Europe?
The EY report says that intra-European projects continue to dominate FDI activity, with 2,751 near-shore investments amounting to 54% of all projects and 108,543 jobs created. Outside of Europe, the US led all FDI investments into Europe — 1,193 FDI projects and 58,437 jobs created — and is the top country globally to invest in Europe. In the finance and business services sector, the US created 558 projects and 22,425 jobs.
Asia is also increasing its activity in Europe, with 735 FDI projects (+13%) and 37,215 jobs created in 2015. China is the biggest Asian investor in Europe, with 238 projects (+2%) and 8,917 jobs created. India's FDI is also noteworthy, with 126 projects in Europe — 37% more than last year. India was among the top three non-European investing countries in the finance and business services sector (55 projects, +22%).
The EY survey shows that Greater London ranks as the leading urban area by number of FDI projects in 2015 — accounting for 406 out of 1,065 FDI projects in the UK — followed by Greater Paris with 159 FDI projects. The Munich and Bavaria area in Germany emerges as the fastest growing urban area for investors in 2015, with year-on-year growth of 134%, followed by Berlin.
In terms of investor sentiment, London is once again the most attractive European city, followed by Paris — which has notably improved its appeal up by 14% over the previous year. According to investors, the top 10 cities for FDI investment ranking includes three cities in Germany — Berlin, Frankfurt and Munich — as well as two cities in Spain — Barcelona and Madrid. Rome features as a new entrant in this year's top 10 cities with a 5% increase in its attractiveness for FDI over last year.
EY says Europe's manufacturing appeal remains intact, accounting for 49% of FDI projects and 62% of FDI jobs. In manufacturing industry, Poland (117 projects, +34%), Turkey (105 projects, +52%) Hungary (69 projects, +103%), Serbia (51 projects, +76%) and Romania (51 projects, +21%) drove FDI growth. Germany overtook the UK as the most attractive destination for transportation and communications projects (81 projects, +72%), while the UK supplanted Germany as the number-one destination for retail and hospitality projects (43 projects, +26%) over last year. The automotive sector drove manufacturing growth in Hungary and Poland, while machinery and equipment dominated in Turkey, Serbia and Romania.