European attractiveness survey: 2012 performance, 2013 prospects

FDI scenario in Europe

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Despite the global downturn and the uncertainties created by the ongoing Eurozone crisis, Europe continued to attract foreign direct investment.

In the first half of 2012, foreign companies made more than 1,500 investment decisions in Europe, an increase of 6.3% on the first six months of 2011. Jobs created by FDI in the first half of 2012 (78,299) go some way to compensate for the jobs lost as a result of restructuring and supply chain squeezes across many industries in Europe.

Clearer skies for Central and Eastern Europe
Western European (WE) countries continued to attract a greater number of investments, but they were of lower value and created fewer jobs than projects elsewhere on the continent.

However, the main story of the first half of 2012 is the recovery of Central and Eastern Europe (CEE) as an FDI destination after a significant slowdown in 2010 and 2011, when investment in the region hit historic lows.

In the first half of 2012, WE attracted 75% of all FDI decisions. However, more than half (53.8%) of the jobs created by FDI were in CEE countries. Salary cost differences strengthen Europe’s overall competitive position.

FDI in Europe by region
EY - FDI in Europe by region

Which sectors are driving FDI in Europe?
Added attraction of Europe’s services sector: together, business services and software companies (mostly from the US, UK, France, Spain and India) held their positions as the top two generators of FDI projects in Europe, accounting for 29.4% of investment decisions in 1H12.

Automotive creates a third of total jobs: FDI projects in the automotive sector continued to grow, mostly in CEE. In 1H12, the sector was the largest contributor of FDI jobs – thanks to large investments from German, American and Japanese original equipment manufacturers and suppliers.

Global logistics firms eye Europe: In 1H12, there was a strong increase in FDI projects undertaken in Europe by logistics services companies, primarily by US and German providers.

Increase/decrease (in share of FDI projects and jobs)
EY - Increase/decrease

FDI by sector

Sector Projects Jobs
1H11 1H12 1H11 1H12

Business services

16.8%

19.4%

4.4%

10.7%

Software

11.0%

10.0%

4.3%

2.2%

Automotive components and assembly

7.4%

8.0%

23.5%

33.1%

Machinery and equipment

6.7%

7.3%

9.2%

8.3%

Other Transport Services

4.0%

6.1%

1.0%

2.0%

Chemicals

4.0%

4.7%

1.4%

4.5%

Financial Intermediation

4.9%

4.4%

2.7%

1.6%

Electronics

4.5%

3.8%

4.8%

4.4%

Food

4.4%

3.7%

3.8%

3.6%

Plastic and rubber

2.4%

3.5%

1.9%

3.6%

Others

34.0%

29.3%

43.0%

26.0%

Source: EY's European Investment Monitor 2012 (interim).

In terms of FDI funds, the US remains the largest external investor in Europe, with 32.5% of the total, mostly in the business services and software sectors. In the same period, 7 European countries were among the region’s top 10 investors in the continent.

Germany strengthened its place as the largest European country investing in Europe, accounting for 12.5% of projects and creating 27.2% of the total FDI jobs. Large manufacturing investments were announced by Draexlmaier, Thyssenkrupp AG and Volkswagen AG.

Emerging market companies are investing in an effort to move up the value chain
Our half-time report also indicates that companies from emerging markets are expanding, albeit carefully, in selected European markets. During 1H12, entrepreneurs from the BRIC countries accounted for 5.7% of FDI projects and 7% of job creation in Europe.

Viewpoint: Mark Gregory

 

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““The economic situation in Europe continues to deteriorate. Demand is weakening across the continent as a result of confidence slumps and de-leveraging by consumers, governments and corporates. Faced with challenging domestic markets, Europe's governments and companies are looking to exports and inward investment as the means to improve their own performance. The result is increasing competition for the sales and resources that are available.

Trade is a two-way business. Increasingly, we are seeing inward investment flows reflect patterns of export and import. So Chinese investment is flowing to Germany and German goods are flowing to China. Success in this environment requires a clear strategy and flawless execution: only the excellent will succeed. In practice this means: identifying your sources of competitive advantage which may be cost, quality or innovation; working through how these advantages can be developed and maintained; and articulating and selling the benefits of investing or partnering to customers, partners and investors.”

Mark Gregory
Chief Economist, EY, UK and Ireland

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