Press release

Foreign investment projects into Europe reach all-time high in 2013

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  • UK and Germany remain dominant as top recipients of FDI in Europe as Eastern Europe continues to lose its shine
  • US remains top investor in Europe, BRIC investment strengthens
  • More confidence in Europe as a destination for future investment
  • Five year pre- and post-crisis analysis highlights Germany as real FDI ‘winner’

London and Paris, 29 May 2014 – Foreign direct investment (FDI) into Europe reached an all-time high last year, according to EY’s annual European Attractiveness Survey. The report, now in its 12th year, combines an analysis of international investment into Europe over the last year with a survey of more than 800 global executives on their views about how and where global investment will take place in the next decade. 

Despite the fact that Europe only pulled out of recession half way through the year, 2013 was a record year for FDI with 3,955 projects, up 4% from 3,797 in 2012. Among major markets, investment projects into the UK, Germany and France all increased, with only Spain and Eastern Europe showing declines. 

Marc Lhermitte, EY’s Head of International Location Advisory Services and author of the report comments: “2013 could well be a turning point for economic confidence and foreign direct investment decisions as the marathon recession in many parts of Europe finally came to an end. As organizations have begun to see growth and profits again boards are showing green lights for investment proposals”. 

Destinations: FDI by country
The UK once again took the lead in terms of FDI with 799 projects in 2013, an increase of 15% with Germany also showing a strong increase of 12% to 701 projects. More surprisingly France seems to have halted its decline as an investment destination with a project increase of 9%. Although Spanish investment fell by 19%, after the spike in 2012 caused by bargain hunters, it stayed in fourth place with Belgium and the Netherlands in fifth and sixth places respectively. 

FDI projects in Central and Eastern Europe, including Russia, declined by nearly 5% while job creation fell by 4%, when the prolonged crisis reduced the number of decisions by Western European automotive companies or shared services outsourcers, for instance. 

Analysis by sector and activity
Europe’s emergence from recession is also a reinforcement of its position for innovation-driven and high value-added investments. Software and business services remained the leading FDI sectors in Europe in terms of projects, with 509 (up 27%) and 483 (down 31%) respectively. Nearly half of the software projects originated from US-headquartered companies. 

The other big winners in the year in terms of sectors were Pharmaceutical and Scientific research increasing 58% (to 141) and 96% (to 88) respectively. Unsurprisingly research and development showed a significant increase of 23% when project type was analyzed (with a 64% increase in job creation). Manufacturing showed an increase of 5% but job numbers were down 12%, investors remaining wary of Europe’s high labor costs. 

Where is investment coming from?
Intra-European investment is Europe’s major source of FDI but, in terms of investment at a country level, the US remained Europe’s single leading FDI generator, accounting for 1,027 (or 26% of the total) inward investment projects in 2013. The UK increased its share of US investment projects – up from 26% to 27%, nearly double that of its closest competitor, Germany. 

Overall, however, US investment fell 2%. By contrast investment from the BRICs significantly picked up with project numbers increasing 28% overall to 313 and job creation increasing 37% to reach 16.900 jobs. Chinese investment has increased three-fold in the last six years with Indian and Russian investment also at an all-time high in 2013. There was a similar upswing in the numbers of jobs that were created by BRIC projects – up 37%. Germany overtook the UK as the top destination for investment from the BRICs up 50% from last year. 

Urban-centric investment
Much of the overall improvement or decline in a country’ prospects for FDI was decided by its leading cities. Investment projects into London were up 21% to 380. London now takes nearly half of all the FDI projects into the UK, the highest proportion of any major European country. The major German cities of Düsseldorf and Darmstadt also saw major increases of 25% and 40% respectively. Helsinki was the fastest growing city in Europe with nearly 50% more projects. Other major European cities such as Paris, Barcelona and Dublin failed to attract as much new investment and it had a major impact on their countries’ overall rankings. 

Longer term trends
The 2014 survey also includes analysis of how five years of crisis and recession have impacted European FDI. Comparing 2009-2013 and 2004-2008 reveals some significant winners and losers. Eastern Europe which attracted substantial investment in the 2000s was the major loser from the financial crisis with project numbers down 12% whereas Western Europe the numbers rose 19%. 

Among the major markets there was one easily identifiable winner in Germany whose project numbers more than doubled. The UK saw projects go up by a more modest 12% while France was flat. Other ‘winners’ among the larger markets included Spain, the Netherlands, Russia and Ireland. The top five ‘losers’ were all Eastern European countries as Romania, Hungary and Bulgaria’s investments all halved in the period. 

As Marc explains the type of investments have changed as well, “There was an increase in sales and marketing projects, an illustration of foreign investors’ commitment to seek every sign of growth and chase every opportunity in a stagnant economy. Investment sizes were also substantially smaller than in pre-crisis years: average job creation from FDI projects declined by 22% during the recession.” 

Investors are more confident about Europe
The end of the recession in Europe also impacted the views of global investors that were polled in March 2014 about future prospects for European FDI. The 2013 survey had only 39% of investors saying Europe would be a more attractive investment destination in the next three years, with a 23% saying it would become worse. This year, the survey had 54% saying it would get better, and only 12% saying it would decrease. Asian investors were even more upbeat, with 60% having optimism in the future. 

Marc explains, “Investors emphasize that recovery is not an invitation to be complacent and that competitiveness remains the key to sustainable growth and a more attractive Europe. Our respondents stress the importance of an ecosystem-related approach to innovation and entrepreneurship as the first step”. 

Perceptions on what sectors will prove to be of interest in the next three years reflect the reality on the ground. ICT, Life Sciences and Energy are highlighted by investors as the key drivers for European growth over the next decade. 

Investors continued to highlight some of the long-term weaknesses of the European economy by highlighting the need to improve labor mobility and skills development while at the same time cutting regulation and deepening economic integration. 

Marc concludes, “Although the worst might be behind us and there are strong signs that we will see a further upswing in investment in 2014, there is no room for complacency. Investors remain realistic rather than euphoric about the current environment and want to see governments continuing to tackle the long-term systemic problems Europe faces.” 

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