EY’s 2016 study on direct investment in Europe

Foreign direct investment in Europe hits new record – Switzerland remains unattractive

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  • Number of direct investment projects in Europe up 16% to 5,873
  • Number of foreign investments in Switzerland continues to stagnate
  • Europe benefiting indirectly from the Swiss franc shock – Swiss companies are again stepping up their investment abroad
  • Digital technologies are a major opportunity for Switzerland

ZURICH, 26 MAY 2017 – Europe is surprisingly attractive, with companies from all over the world having never invested so much: the number of foreign direct investments in Europe rose 16% to 5,873, according to the latest European Investment Monitor from consultancy firm EY. This maintains the trend of recent years: since 2012, Europe has seen a steady rise in the number of direct investments – growing at a double-digit rate in the last three years. All this investment is also having an impact on the labor market. Last year, firms announced the creation of over a quarter of a million jobs in Europe from their foreign direct investments.

This is in contrast to the situation in Switzerland, where the number of investment projects from abroad dipped from 90 to 88. Growth was already well below the average for Europe as a whole back in 2015. And Switzerland is lagging Europe in the longer term too: the number of investment projects is still about 50% lower than before the crisis.

“The results for Europe are very pleasing, but the numbers for Switzerland make me less happy. Switzerland has been up with the leaders for decades in terms of government borrowing, unemployment, growth and infrastructure, but the strong franc means that the number of investments coming from abroad has been low for a very long time; it’s not yet back to the level seen before the global financial crisis,” says Marcel Stalder, CEO of EY Switzerland.

Consensus on Switzerland as a business location under pressure
Philip Robinson, Tax Partner and Member of the Board of Directors of EY Switzerland, adds: “What’s more, Switzerland as a business location has lost appeal since the pre-crisis period, due to several years of uncertainty over the future structure of corporate tax reform. The approval of the Minder Initiative and the Mass Immigration Initiative are further issues that have held companies back from investing in Switzerland. The rejection of the first version of Corporate Tax Reform III also showed that the consensus on Switzerland as a business location, which has existed for decades, can no longer be taken for granted.

Despite the stagnation in direct investment projects, the number of new jobs created by foreign investment in Switzerland leapt from 1,400 last year to more than 3,400. This record figure is due to a few large projects; essentially, the number of jobs created is still below the level seen in 2007 and 2008.

Switzerland remains one of the leading investors in Europe
Last year, Switzerland carried out 289 investment projects in other European countries, putting it in sixth position, ahead of G-7 countries like Japan and Italy. On a per capita basis, Switzerland runs by far the most foreign investment projects across Europe. The number has more than doubled since the outbreak of the financial crisis in 2009, rising steadily over the last four years. Swiss companies also create many jobs: the EY study counts over 7,100 jobs created in Europe outside Switzerland as a result of direct investment.

“Switzerland is a major support to European business and makes an important contribution to reviving the European economy,” says Philip Robinson. He notes, though, that Swiss foreign investments are a double-edged sword: “Many of these projects involve outsourcing internal services, especially manufacturing, abroad. The strong franc is the key driver here. But most Swiss companies – and not just family-owned ones – are not making full use of the business opportunities. Their continued attachment to their Swiss location often predominates.”

One in every four direct investment projects by Swiss companies within Europe served to set up or expand manufacturing capacity, creating nearly 3,200 new jobs. Typical projects are auto component production plants, food processing operations and manufacturing facilities for building materials. Such investments are frequently made in eastern Europe – nearly one in every two manufacturing jobs created by Swiss companies is in this region, with Poland benefitting the most out of the 13 target countries. Most investment projects launched by Swiss companies are in sales and marketing, but they tend to be small-scale. This is how they gain entry into new markets.

Swiss politics – the challenge of digitalization
“It’s good news for Switzerland that there is so much investment in Europe. I see it as a signal that the European economy will return to the growth path in the long term and that people will not be seduced by nationalism, protectionism and the critics of growth. Switzerland is also very well placed to strengthen its appeal as a business location: encouragingly, the mass migration initiative seems to be workable from an economic perspective, a new corporate tax reform has been initiated, and social welfare reform is well on track,” is how Marcel Stalder assesses business policy.

However, he sees the biggest challenge for the economy in the wave of digitalization that will gradually hit every sector. “Additive manufacturing procedures (3D printing) and process automation (robotics) in particular offer great opportunities for Switzerland as a business location. These new digital technologies can save large numbers of jobs, with the result that it is no longer worth outsourcing and some sections of the value chain are even being brought back to Switzerland.”


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About the study:

The actual amount of foreign direct investment (FDI) was determined on the basis of EY’s European Investment Monitor (EIM). This data source tracks foreign direct investment projects that have led to or are aimed at the creation of new business facilities and/or new jobs. By excluding portfolio investments, mergers and acquisitions, it illustrates the actual physical investments in products and services made by foreign companies throughout Europe. EY has carried out this study for more than ten years in cooperation with Oxford Intelligence, a research and consultancy company based in Birmingham (UK) that specializes in trade and investment.

About EY

EY* is one of Switzerland’s largest audit and advisory firms. EY employs about 2,700 people across 11 offices in Switzerland and Liechtenstein, and generated revenue of approx. CHF 661 million in the 2015/2016 financial year. Together with the 231,000 employees of the global EY organization, EY serves clients all over the world. EY offers an extensive portfolio of services to large as well as small and medium-sized businesses: integrated transformation advisory from strategy to IT architecture, assurance, transaction, tax, legal and people advisory services. Our highly trained staff, strong teams and local base in a globally integrated organization allow us to overcome the challenges our clients face. We are committed to “Building a better working world” – for our people, for our clients and for our communities.

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