EU Economy
Germany, UK and France are Europe's most popular locations for FDI
By Michael Hennigan, Finfacts founder and editor
May 28, 2014 - 2:55 AM

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Germany UK and France are Europe's most popular locations for foreign direct investment (FDI) according to a report published Tuesday. Germany continues to be seen as the most attractive FDI destination in Europe. Forty percent of investors in a poll put Germany first, up two percentage points from 2013). Germany was particularly favored by  companies doing business in Central and Eastern Europe: 63% of them voted it the most attractive FDI destination in Western Europe. The UK (22%) is second in these perception ratings, gaining +6 percentage points on last year - - the highest gain witnessed by any European country.

FDI into Europe reached an all-time high last year, according to EY’s (Ernst & Young) annual European Attractiveness Survey [pdf]. The report, now in its 12th year, combines an analysis of international investment into Europe over the last year with a survey of more than 800 global executives on their views about how and where global investment will take place in the next decade.

The 3,955 investment decisions in 2013 represent an all-time high, "showing investors’ confidence in a resilient and adaptable Europe." In 2013, 166,343 jobs were created through FDI in 42 European countries, down 2% from 2012 but still 15% below pre-crisis levels.

The UK once again took the lead in terms of FDI with 799 projects in 2013, an increase of 15% with Germany also showing a strong increase of 12% to 701 projects. More surprisingly France seems to have halted its decline as an investment destination with a project increase of 9%. Although Spanish investment fell by 19%, after the spike in 2012 caused by bargain hunters, it stayed in fourth place with Belgium and the Netherlands in fifth and sixth places respectively. Ireland logged 111 projects in 2013 according to the survey down from 123 in 2012.

More than half of FDI projects in 2013 were announced in three countries: the UK, Germany and France. Spain, Belgium, the Netherlands, Ireland and Finland experienced a stable year, securing, between them, 18% of FDI projects and 17% of jobs. Central and  Eastern Europe (CEE) drew 5% fewer investment projects than in 2012, as the crisis reduced the number of projects from Western European automotive companies and shared services outsourcers.

Software and business services remained the leading FDI sectors in Europe in terms of projects, with 509 (up 27%) and 483 (down 31%) respectively. Nearly half of the software projects originated from US-headquartered companies. 

The other big winners in the year in terms of sectors were Pharmaceutical and Scientific research increasing 58% (to 141) and 96% (to 88) respectively. Unsurprisingly research and development showed a significant increase of 23% when project type was analyzed (with a 64% increase in job creation). Manufacturing showed an increase of 5% but job numbers were down 12%, investors remaining wary of Europe’s high labor costs. 

Intra-European investment is Europe’s major source of FDI but, in terms of investment at a country level, the US remained Europe’s single leading FDI generator, accounting for 1,027 (or 26% of the total) inward investment projects in 2013. The UK increased its share of US investment projects – up from 26% to 27%, nearly double that of its closest competitor, Germany. 

Overall, however, US investment fell 2%. By contrast investment from the BRICs significantly picked up with project numbers increasing 28% overall to 313 and job creation increasing 37% to reach 16.900 jobs. Chinese investment has increased three-fold in the last six years with Indian and Russian investment also at an all-time high in 2013. There was a similar upswing in the numbers of jobs that were created by BRIC projects – up 37%. Germany overtook the UK as the top destination for investment from the BRICs up 50% from last year.

The report says much of the overall improvement or decline in a country’ prospects for FDI was decided by its leading cities. Investment projects into London were up 21% to 380. London now takes nearly half of all the FDI projects into the UK, the highest proportion of any major European country. The major German cities of Düsseldorf 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 to attract as much new investment and it had a major impact on their countries’ overall rankings. 

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