European attractiveness survey: 2012 performance, 2013 prospects

Evaluating Europe’s FDI story

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It is clear that despite the wider economic gloom — in fact in part because of it — Europe has a positive FDI story to tell.

FDI growth offers a rare source of new jobs that provides relief for policymakers and citizens alike. It is crucial that this momentum continues over the next six months.

What is working in Europe’s favor?

European market - too big to ignore: The uncertainties created by the Eurozone crisis have increased and they continue to worry European executives and foreign investors. However, the international business community realizes that the European market is too big to ignore. Investors are attracted by the strong fundamentals Europe possesses.

Investors able to drive a hard bargain: To keep the wheels of industrial investment turning, many European economies are, to a certain degree, accommodating demands from foreign investors.

This can be seen from the following instances:

  • In May 2012, Nissan Motor Company negotiated with Spanish labor unions on the terms of employment for a project that will create 700 jobs.
  • In June, chemical giant BASF SE announced a €40m investment in Catalonia, Spain. Similar arrangements have been made in the case of the automotive sector.
  • Jaguar Land Rover has agreed a pay deal with unions in the UK as part of an ambitious investment plan.

The importance of FDI: Despite understandable worries about Europe’s economic prospects, foreign investors are considered and discerning supporters of the continent. A factor that supports FDI is the increasing flexibility of policymakers, who recognize the important role FDI plays in creating jobs and stimulating economies.

Geographic differences remain prevalent: Western European countries are attracting more projects while their CEE neighbors are benefiting from more jobs. Look a little closer and the performance of some individual countries stands out. Who would have thought that Spain would temporarily overtake Germany to become the third-largest recipient of FDI projects in the first half of 2012? Germany — so long Europe’s powerhouse — will certainly reverse its slight decline in FDI market share.

France, by contrast, has performed relatively well and is second only to the UK in its share of European projects. There has been a welcome increase in both Services and Manufacturing, especially in CEE countries such as the Czech Republic.

What’s more, there has been a substantial increase in the Logistics sector, with US and German firms the principal investors.

The flip side of the coin

Restructuring hits Europe hard: In the first six months of 2012, the Eurozone reported a total of 677 restructuring cases: 406 cases that resulted in job losses, 263 cases that created jobs and eight that involved both job loss and gain. With 158,806 job losses and 110,332 job gains, the net effect was a loss of 48,474 jobs in Eurozone.

Europe’s competitiveness divide: Many of Europe’s difficulties can be traced to the disparities in competitiveness which continue to exist between its northern and southern regions. The continent could do more to ensure that countries other than Germany benefit from demand in Asian and Latin American rapid growth markets.

And yet, the fact that companies from all over the world continue to choose to invest in Europe is evidence that, for now at least, the region retains rich and deep-rooted strengths.

Viewpoint: Dave Read

 

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“Amid the immediate worries of the Eurozone, sovereign debt and high unemployment, it’s easy to forget that Europe is falling behind in a global race: a race for investment, a race for trade, and a race for growth.

While EU policy-makers have been focused on fighting recession and stimulating their economies, Asian and Latin American countries have been moving forward — at pace. Trade patterns, research and innovation successes and economic growth are all long-term trends that are threatening Europe’s position in the global economy. The pressure is on.

With innovation essential for Europe’s economic growth and creating much-needed jobs, governments’ ability to support entrepreneurial activity is key to increasing productivity. Investments are being made, but EU governments and businesses should work together to overhaul the fragmented landscape that currently exists. A more streamlined and coordinated approach would lead to new product development, process improvement and entrepreneurship.”

Dave Read
EY’s Government & Public Sector Leader for Europe, Middle East, India and Africa

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