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Europe

Attractiveness survey 2016

How can Europe's investors turn resilience into growth?

Europe in 2015 remained under tension and mired in several crises: tense geopolitics with Russia and several foreign fronts, historically low confidence in EU institutions, terrorist attacks in France and Belgium, uncontrolled migration everywhere. Moreover, several economies remained in a dramatic state and on a very difficult recovery path.

"Destination Europe" nevertheless experienced a record year in terms of foreign direct investment. With 14% more projects, it hosted 5,083 international locations, creating 217,666 new jobs according to the 2016 European Attractiveness survey. And the European FDI story is also reinforced by the dynamics of mergers and acquisitions, up 68% from 2014.

Improved macroeconomic and financial conditions despite a – timid but solid - growth of 1.5% in the Eurozone, better consumption patterns, low interest rates, falling oil prices and fiscal demand-side policies did what they could to maintain the confidence of multinationals, mid-size businesses and entrepreneurs from Europe, Asia and the US. Investors turned, for a moment, their attention away from China, Brazil or Africa, all providing disappointing growth and more difficulties. Despite an uncertain business environment and geo-political risks, investors continue to see Europe as a relatively safe haven, with 82% expecting investment prospects to improve or remain the same over the next three years. Europe's strengths are its digital and logistical infrastructure, skilled labor force and stable political, legal and regulatory environments. However, inflexible labor markets, high labor costs and complex corporate taxation regimes are relative investment turn-offs.
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EY - 2016 European attractiveness survey - Marc Lhermitte

Marc Lhermitte
EY Advisory, Global Lead Attractiveness and Competitiveness

 

Facts & figures

European FDI in 2015: what the numbers say

EY - 2016 European attractiveness survey - European FDI in 2015: what the numbers say

Leading industries for FDI investments in Europe

EY - 2016 European attractiveness survey - Leading industries for FDI investments in Europe

 

Europe's recovery continues

In 2015, Europe built on the momentum it established in 2014 and achieved a record level of 5,083 projects (up 14%) and 217,666 jobs (up 17%) created by foreign direct investment (FDI).

This was at a time when, Europe was facing multiple head winds, such as the migration crisis, sluggish growth and terrorist attacks in France and Belgium. In part the numbers reflect the share of capital allocated to developed markets over emerging markets, but it also reflects an increased focus by national policy-makers on FDI as a route to economic growth.

FDI projects and jobs in Europe

EY - 2016 European attractiveness survey - FDI projects and jobs in Europe

34%
of growth in FDI in Central and Eastern Europe compared with 9% in Western Europe

Western European destinations maintain the lead, but there was strong growth in Central and Eastern Europe

The top three countries in terms of FDI project numbers — the UK, Germany and France — together account for 51% of all FDI projects and a third of all jobs created. Western Europe (WE) continues to dominate FDI projects with a 77% share (81% in 2014). Other key FDI destinations, such as Spain, the Netherlands, Belgium and Ireland, all posted positive growth in 2015 but countries in Central and Eastern Europe grew almost 4 times as fast as their counterparts in Western Europe.

As far as jobs are concerned, Central and Eastern Europe (CEE) saw the creation of 50% of all FDI jobs in Europe, thanks to the strength of the region in manufacturing, which accounted for 69% of the FDI projects in the region. Poland, Russia and Romania achieved the highest number of jobs created.

Which are the top countries for FDI in Europe?
EY - 2016 European attractiveness survey - Which are the top countries for FDI in Europe?
Source: EY's 2016 European attractiveness survey (total respondents: 738)

The UK leads the field in both numbers of projects and jobs

EY - 2016 European attractiveness survey - The UK leads the field in both numbers of projects and jobs

 

European cities

As Europe slowly recovers and regions and cities strive for growth, competition is increasing and investors are being presented with more choices.

The top of the list is unchanged, with London and Paris dominating the FDI perception and reality rankings.
EY - 2016 European attractiveness survey - Top urban areas for investors in 2015

 

FDI origin: intra-European investment dominates

Intra-European projects continue to dominate FDI activity (54% of all projects). The US continued to favor the region, with finance and business services making up the bulk of its FDI activity. The retail and hospitality sector saw a big jump in FDI from the US (54 projects, up 80%).

Asia is also increasing its FDI flows: China invested in 238 projects (up 2% on 2015) primarily in the UK and Germany, and created 8,917 jobs (down 25%). India's FDI was also noteworthy, with 37% more projects than last year. India was among the top three non-European investing countries in the finance and business services sector (55 projects, up 22%).

 

Intra-European FDI projects continue to surge; Americas at distant second

EY - 2016 European attractiveness survey - Intra-European FDI projects continue to surge; Americas at distant second

Manufacturing, and finance and business services remain the drivers of FDI

 

Favorable exchange rates and cheaper oil added to Europe's industrial competitiveness. However, Germany, the UK and France saw little change in industrial activity, with growth focused in the CEE region. Hungary (69 projects, up 103%), Poland (117 projects, up 34%), Turkey (105 projects, up 52%), Serbia (51 projects, up 76%) and Romania (51 projects, up 21%) drove FDI in manufacturing facilities.

The automotive sector drove manufacturing growth in Hungary and Poland, while machinery and equipment dominated in Turkey, Serbia and Romania.

The UK extended its dominance in the finance and business services sector (496 projects, up 22%). But Germany overtook the UK as the most attractive destination for transportation and communications projects (81 projects, up 72%), while the UK supplanted Germany as the number one destination for retail and hospitality projects (43 projects, up 26%).

Top 5 sectors for FDI

EY - 2016 European attractiveness survey - Top 5 sectors for FDI

Investors increasingly focus on technology intensive investments… as European cities improve their perception of being digital leaders

Which business sectors will drive Europe's growth in the coming years?

EY - 2016 European attractiveness survey - Which business sectors will drive Europe's growth in the coming years?

Four out of the top 15 cities which can produce the next tech giant are European

EY - 2016 European attractiveness survey - Four out of the top 15 cities which can produce the next tech giant are European

What attracts investors to Europe?

Despite an uncertain business environment and a number of geopolitical risks, investors continue to see the region as an attractive destination, with 36% respondents expecting investment prospects to improve over the next three years.

Europe's strengths are its digital and logistics infrastructure, skilled labor force and stable political, legal and regulatory environments. However, inflexible labor markets, high labor costs and complex corporate taxation regimes are relative investment turnoffs.

What is keeping them away?

Geopolitical and macroeconomic challenges are denting investor sentiment. As per our survey, investment prospects have declined in the top European destinations in the immediate future. In the UK, only 23% investors have plans to establish or expand operations over the next year, down from 27% last year. Similarly, in Germany, only 23% of the investors (down from 25% in 2015) have investment plans. Investment plans in France have taken the worst hit with only 24% investors keen on investing, down from 35% last year.

Europe faces fierce competition from other regions when it comes to attracting foreign investors. Europeans need to convince the investors as to why Europe still deserves the close attention of corporations from around the world. Our conversations with multinationals and entrepreneurs point to some very clear, very urgent – yet very complex - areas of reform, to be tackled together by governments and businesses.

How attractive are the following features of Europe?

EY - 2016 European attractiveness survey - How attractive are the following features of Europe?

Does your company have plans to establish or expand operations in Europe over the next year?

EY - 2016 European attractiveness survey - Does your company have plans to establish or expand operations in Europe over the next year?

Investors who say it will improve: 36%   |    Investors who say it will remain unchanged: 46%

European attractiveness survey methodology

The “real” attractiveness of Europe for foreign investors
Our evaluation of the reality of FDI in Europe is based on EY Global Investment Monitor (GIM). This database tracks those FDI projects that have resulted in the creation of new facilities and new jobs. By excluding portfolio investments and M&A, it shows the reality of investment in manufacturing and services by foreign companies across the continent.

Data is widely available on FDI. An investment in a company is normally included in FDI data if the foreign investor acquires more than 10% of the company’s equity and takes a role in its management. FDI includes equity capital, reinvested earnings and intracompany loans.

But our figures also include investments in physical assets, such as plant and equipment. And this data provides valuable insights into:

  • How FDI projects are being undertaken
  • What activities are being invested in
  • Where projects are located
  • Who is carrying out these projects

The GIM is a leading online information provider, tracking inward investment across Europe. This flagship business information tool from EY is the most detailed source of data on cross-border investment projects and trends throughout Europe. The GIM is frequently used by government bodies, private sector organizations and corporations looking to identify significant trends in employment, industry, business and investment.

The GIM database focuses on investment announcements, the number of new jobs created and, where identifiable, the associated capital investment. Projects are identified through the daily monitoring of more than 10,000 news sources. To confirm the accuracy of the data collected, the research team aims to directly contact more than 70% of the companies undertaking these investments.

The following categories of investment projects are excluded from GIM:

  • M&A and joint ventures (unless these result in new facilities or new jobs being created)
  • License agreements
  • Retail and leisure facilities, hotels and real estate*
  • Utilities (including telecommunications networks, airports, ports and other fixed infrastructure)*
  • Extraction activities (ores, minerals and fuels)*
  • Portfolio investments (pensions, insurance and financial funds)
  • Factory and other production replacement investments (e.g., replacing old machinery without creating new employment)
  • Not-for-profit organizations (charitable foundations, trade associations and government bodies)

The “perceived” attractiveness of Europe and its competitors for foreign investors
We define the attractiveness of a country or area as the combination of its image, investors’ level of confidence in it as an investment destination and the perception of its ability to provide the most competitive benefits for FDI.

The research was conducted by the CSA Institute from February to April 2016, via telephone interviews with a representative group of 1,469 international decision-makers.

Our sample group included representatives from:

  • European businesses — 48%
  • North American businesses — 33%
  • Asian businesses — 15%
  • South American businesses — 1%
  • Middle Eastern businesses — 1%
  • Businesses from other regions — 2%

Overall, 65% of the 1,469 companies surveyed have a presence in Europe. And of the non-European companies, 30% have established operations in Europe.

*Investment projects by companies in these categories are included in certain instances e.g. details of a specific new hotel investment or retail outlet would not be recorded, but if the hotel or retail company were to establish a headquarters facility or a distribution centre, this project would qualify for inclusion in the database.

Disclaimer: FDI jobs data is available for 2,600 projects out of 5,083 projects (or 51%) in 2015

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