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2010 European attractiveness survey - Ernst & Young - Global

Scorecard and highlights

Foreign direct Investment – European slowdown
Global foreign direct investment (FDI) slumped by 39% in 2009,1 with a 36% slide in FDI inflows to Europe2 as economic uncertainty caused hesitation among investors. In Europe, the number of projects fell 11%, to 3,303, while FDI job creation maintained a three-year downtrend, falling another 16% to 124,923.

Where the investment is going: FDI created 18% fewer jobs in Western Europe. Almost half of the shortfall was in the service sector, but industry suffered heavily too. In Central and Eastern Europe, the precipitous slide in job creation slowed in 2009. Overall, new FDI projects declined 23%, but there were 76,629 new FDI jobs, down only 14% on 2008 – outpacing FDI job creation in Western Europe.

Origins of investment: a majority of FDI in Europe still comes from the USA, Germany, France and the UK. But collectively, the BRICs are now the third largest investor in Europe. China is Europe’s eigth largest inward investor and Chinese FDI is the third largest creator of jobs in Europe, Indian the eighth-largest.

Recovery – slower than some
Western Europe is still perceived as the second most popular destination for FDI but, in 2010 investors again rank China the world’s most attractive FDI destination. After a flight to European "safety" in 2009, in 2010, investors look at forecast global growth of 4%,3 see that only 1%4 is likely in Europe and turn their eyes to high-growth markets.

China has proved that political stability, advancing infrastructure and a vast internal market co-exist with rapid growth, earning it an attractiveness rating of 39%, a point ahead of Western Europe. India, with 22%, equals USA/Canada in attractiveness perceptions, although both trail Eastern Europe by two points.

Geography becomes a relative concept: old illusions about East and West have crumbled. Sophisticated economic centers, stability and attractive markets are found worldwide, by global corporations originating in both developed economies and fast-growth markets.

Europe’s growth hot spots – entrepreneurs and innovation
Executives offer up-beat views on a variety of European business sectors. Information and communication technologies keep the limelight, followed by energy and utilities, financial services and cleantech. Technology and innovation, as well as a green commitment, spread also across many existing areas of European industrial and business strength, will drive tomorrow’s European economy.

Europe needs policies that remove barriers to its undoubted business and innovation talent, enabling Europe-based businesses to make the rapidly growing economies and their consumers the purchasers of Europe’s products, services and ideas.

Tomorrow’s Europe will be created by its entrepreneurs, not its policy-makers, investors believe. Confusion has given way to clarity: the best way for states to stimulate future European attractiveness is to support small and medium enterprises, high-tech industries and innovation, reduce taxation and increase flexibility, investors say. Investors expect governments to guarantee security, stability and – in times of economic crisis – to provide aid and growth through public initiatives. As conditions normalize, investors believe private business and entrepreneurship are the drivers of Europe’s economic future.

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1. “Global and Regional FDI Trends in 2009,” The Global Investment Trends Monitor, 19 January 2010, UNCTAD, Geneva, Switzerland
2. “Global and Regional FDI Trends in 2009,” The Global Investment Trends Monitor, 19 January 2010, UNCTAD, Geneva, Switzerland
3. World Economic Outlook Update, International Monetary Fund, 26 January 2010, Washington DC, USA
4. World Economic Outlook Update, International Monetary Fund, 26 January 2010, Washington DC, USA

When the European economy started to contract in 2007, few could have predicted the scale and drama of the events that have followed. Even as recession ends, economic growth may well be weak for the short term, and it looks certain to be very different and more volatile in the longer run.

Our global economy has turned into a multi-polar world in which China, India, Brazil and the Middle East have now joined the traditional players of North America, Europe and Japan as both the destination and source of global investment. Capital is now clearly flowing in multiple directions. New corporate giants are emerging to compete. Both opportunities and challenges have grown as a consequence. Old assumptions have been found wanting but the new rules of competitive success have yet to be established.

In this new environment, Europe is still perceived as lacking clarity in its direction or the necessary commitment and speed to adapt.


Our interviews with 814 of the world’s most demanding business leaders, all in search of their next international investment opportunities, indicate that Europe needs a wake-up call if it is not to lose ground to its more dynamic competitors. Ernst & Young’s 2010 European attractiveness survey shows that Europe is vulnerable both on its Eastern front (left to rebuild its financial and social systems) and on its Western front (less cost competitive by the minute and not perceived as a “hot spot” for knowledge-intensive investments).

Foreign investors are setting the alarm clock.


They have a vested interest in and a strong influence upon Europe’s economies, its industrial champions, banks and regulators. They clearly demonstrate, at the same time, their commitment and sense of urgency with an impressive 3,303 investment decisions in 2009, only 11% fewer than in 2008. Although their projects will be smaller, more selective and more regionally concentrated, they will ride on the demand for technology, services, consumer goods and infrastructure and, of course, all things green and renewable. We all have an interest in making sure that decision-makers in Europe hear the alarm.

How will this transition impact decisions to create and invest in Europe?


In what state will foreign investors find European countries and regions, clusters and industries after two years of recession? How will foreign investors perceive Europe’s competitive advantages and distinct opportunities in the future? In their global decisions, how will they make choices between the various destinations of our new world order? Which FDI investors truly have long-term confidence in Europe? What will be the substance and size of their future projects? While there is no easy solution to Europe’s current situation, finding new ways for the continent to benefit from globalization will be a priority: how can governments and businesses assure Europe’s future prosperity?

These issues form the core of Ernst & Young's 2010 European attractiveness survey. We hope you find it interesting and useful in helping to shape the necessary debate.


Jay D. Nibbe Jay D. Nibbe

EMEIA Deputy Area Managing Partner - Markets
Ernst & Young		 Marc Lhermitte Marc Lhermitte

Partner
Ernst & Young Advisory

 

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