Rise in foreign investment into Europe in 2012 despite volatility

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London, 9 November 2012 – Despite the global downturn and the uncertainties created by the ongoing Eurozone crisis, Europe continued to attract foreign direct investment (FDI) in the first half of 2012, according to interim data in EY’s mid-year European Attractiveness Survey.

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 squeezes on the supply chain across many industries in Europe. 

Marc Lhermitte, Head of EY’s International Location Advisory Services, comments, “Investors appear to have accepted the uncertainty and volatility in many European countries and industries as a “new normal”. The economic woes across the region are outweighed by the strong fundamentals that Europe presents including; the biggest concentration of high-power consumers, diverse and productive labor skills, an unmatched innovation climate, and superior infrastructure.” 

Where is the investment going?
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, Central and Eastern Europe (CEE) began to recover as a FDI destination in the first half of 2012. This follows 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. 

The UK remained the largest recipient of FDI projects in the first half of 2012 with France maintaining second place. However, Spain moved ahead of Germany to take third position. There has been a welcome increase in both the services and manufacturing sectors, especially in CEE countries such as the Czech Republic. There has also been a substantial increase in the logistics sector, with US and German firms being the principal investors. 

Three sectors drive FDI in Europe
Together, the business services and software industries (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 the first half of 2012. However, manufacturing sectors such as automotive, machinery, chemicals and consumer goods maintained their importance in terms of job creation. 

FDI projects in the automotive sector continued to grow, mostly in CEE, in the first half of 2012. The sector ranked third in terms of the FDI projects and was the largest contributor of FDI jobs – thanks to large investments from German, American and Japanese original equipment manufacturers and suppliers. 

In the first half of 2012, there was a strong increase in FDI projects undertaken by logistics services companies, primarily by US and German providers. Companies looking to navigate Europe’s dense, yet complex, supply chains, to streamline processes and find efficiencies are increasingly outsourcing to third party logistics firms. 

Investors
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. 

As in the same period last year, seven 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 the projects and creating 27.2% of the total FDI jobs. 

The report also indicates that companies from emerging markets are expanding, albeit selectively, in selected European markets. During the first half of 2012, entrepreneurs from the BRIC countries accounted for 5.7% of FDI projects and 7% of job creation in Europe. 

Flexible policymakers looking to attract investment
To keep the wheels of industrial investment turning, many European economies are, to a greater or lesser degree, accommodating demands from foreign investors. As Marc explains, “FDI is also being supported by the increasing flexibility of policymakers, who recognize the important role it plays in creating jobs and stimulating economies. As a result, many are seeking to facilitate investment by the judicious use of incentives such as tax credits and strengthened infrastructure.” 

Looking ahead
Marc concludes, “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. The economic climate across Europe will be challenging for some time but investors are now beginning to accept this new environment. The international business community realizes that the European market is too big to ignore. It is acknowledged that Europe retains strong fundamentals that cannot be overlooked and this will help it to remain amongst the top investment destinations in the world.”

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