FDI (foreign direct investment) into Europe hits a new record with US$305bn invested in 2014 — a 36% year-on-year growth. In the year 43 European countries — including Russia and Turkey — achieved 4,341 projects reaching a 10% growth over 2013 and created 185,583 jobs (+12%). In a poll of global decision makers, 21% of 808 managers named Germany among their top three countries to invest in — a rise of three percentage points over 2014, according to EY’s 13th European attractiveness survey, launched today.
While Germany is still well behind China and the US, who scored 38 and 35 respectively, it leads competitors including India (18 points), Brazil (14 points) and Russia (11 points).
Today's report shows that Western Europe attracted 50% of investments worldwide in 2014, up from 45% last year, overtaking China as the most attractive investment destination, which saw a 6% decline in projects to 38%. An increase in North American investment, up from 31% to 39%, placed it in second place and saw China pushed down to third place.
Marc Lhermitte, EY’s head of International Location Advisory Services and author of the report said: “The improvement in Europe’s relative attractiveness stems not just from economic stabilization and recovery in Europe, but also from the greater uncertainty about the emerging markets and their ability to continue delivering the growth rates achieved over the past decade. Lower energy prices, a weaker euro and quantitative easing have all added impetus to Europe’s investment appeal and resulted in almost 200 thousand new jobs created across the continent which is a very encouraging figure as employment is one of the key drivers of economic growth.”
Country and city ranking: Who is winning the European attractiveness race?
More than half (52%) of FDI projects and 30% of jobs created by investments into Europe were captured by the top three destinations: the UK, Germany and France.
The UK is still the number one destination in terms of FDI projects and jobs. Turkey is a new entrant into the top 10 countries by FDI projects at the ninth position, replacing Finland. The remaining positions are taken by Spain, Belgium, Netherlands, Poland, Russia and Ireland.
The report says that the capability to restore economic growth, competitive edge, the ability to develop new-age companies and commercialize ideas for changing the lives of millions are a few reasons why European cities attract FDI, with London at the number one position, followed by Paris and Berlin. The top 10 includes three in Germany — Berlin, Frankfurt and Munich — as well as two cities in Spain — Barcelona and Madrid.
Central and Eastern Europe, Russia and Turkey account for more than half (52%) of Europe’s total jobs created by FDI — at 96,087 jobs — outpacing Western Europe. Slovakia is a new entrant into the top 10 countries by FDI jobs creation at the ninth position, replacing Serbia. The top 10 also include the UK, Russia, Poland, France, Germany, Romania, Spain, Turkey and Ireland.
Key sectors for FDI in Europe
An economic recovery, a depreciating euro and falling energy prices have all helped revive the appeal of manufacturing in Europe. Taken together, they underpin a 20% surge in FDI manufacturing projects and jobs. Logistics operations, also blue collar, rose 27%, driven by this industrial resurgence and a boom in e-commerce.
Services had a mixed year: software projects (27% increase), financial intermediation (37% increase) and back-office operations (15% increase) all grow strongly while business services (24% decrease) and research and development (1% decrease) slide.
The biggest investors
Although, European companies account for half (51%) of FDI projects into Europe itself and US multinationals a full quarter (25%), Chinese companies passed Japanese companies to become the fifth-largest FDI investors into Europe in 2014. With 210 projects, up by almost 40% from a year ago, Chinese investment into Europe shows the effect of the Chinese Government promoting outward investment as a means to acquire technology, brands and resources overseas to boost domestic high-value manufacturing and services.
A bumpy road ahead?
The survey of decision makers revealed that 59% of investors are confident about Europe’s prospects in the upcoming three years, but only 32% of executives have plans to establish or expand operations in Europe over the next year, while 64% do not have any plans.
Investors suggest that to make the best of Europe’s economic resurgence and further improve the investment climate, policy-makers should continue to remove impediments to business efficiency — such as excess bureaucracy and slow growth, which are still seen as major obstacles.
Foreign investors see bureaucracy (20%) and slow economic growth (17%) as the biggest flaws in Europe’s attractiveness, overshadowing the geopolitical uncertainty at Europe’s frontiers (11%) and big deficits (11%). European countries need to further enhance labor market flexibility, simplify regulations and foster business-friendly environments.
Lhermitte says: “Current debates across Europe are likely to influence the region’s attractiveness for investors. Any potential change in the UK’s relationship with the EU and key events — elections and reforms — in major European economies could affect the attractiveness rankings going forward. In particular, those countries — France, Spain, Italy and more —that have the potential to raise their investment appeal could contribute to an even more interesting Europe in the next couple of years.”
Pascal Macioce, EY’s EMEIA deputy managing partner, said: “A stable business environment, research and innovation capacity and its market are Europe’s top investment attractions. Investors believe the digital, health care and energy transformations will drive Europe’s renaissance, once again becoming the most desired investment destination.”