China knocks Western Europe from top spot for FDI "attractiveness"

Discover the 2008
Attractiveness Surveys

But perception yet to match reality: in record year for investment flows globally, Western Europe still receives 37% of foreign direct investment

LA BAULE, FRANCE, 5 JUNE 2008 - China has been ranked the most attractive destination for foreign direct investment, ahead of Eastern Europe and Western Europe, in a survey of business leaders released today at the World Investment Conference in La Baule, France. Ernst & Young’s fifth annual European attractiveness survey, An open world, shows that the world’s regions have become much more equal in terms of where businesses want to invest.

But these investor perceptions are not yet backed up by the reality of investment flows. Although 47% of survey respondents ranked China as the most attractive investment destination, it still draws 8% (including Hong Kong ) of global foreign direct investment (FDI) inflows according to the United Nations Commission for Trade and Development (UNCTAD). While only 33% of respondents ranked Western Europe as their top choice investment location, the region still accounts for 37% of global FDI inflows according to UNCTAD.

“The world is becoming a level playing field when it comes to businesses’ perceptions of their cross-border investment options,” said Marc Lhermitte, Partner of Ernst & Young France. “The developed markets of Western Europe and the US are being challenged by competing equals. As they look ahead, businesses are chasing growth through Asian consumers’ spending power, but Europe and the US still remain vastly diversified and powerful markets.”

Other findings of the survey include:

• The number of FDI projects across Europe was up by 5% to 3,712 in 2007 (up from 3,531 in 2006), but FDI job creation fell by 18% in 2007, with a total of 176,551 jobs created (down from 214,987 in 2006).
• The top five countries for number of projects in 2007 remained the same, but Central and Eastern Europe countries rose quickly
• UK, France and Germany remained 1st (713 projects attracted), 2nd (541) and 3rd (305) respectively. The UK topped the job-creation ranking as well.
• The Czech Republic maintained its place, despite attracting 27% fewer projects. It moved from fourth to third place in the job creation table despite creating 14% fewer jobs than last year.
• Russia leapt to fourth position for jobs created (+85%) and moved from 13th to 8th for number of projects (+60%).
• Poland and Romania maintained their position in terms of number of projects. In terms of job creation, Poland fell to second, creating 41% fewer jobs than last year.
• Slovenia saw the biggest growth in terms of job creation (multiplied by five) and jumped to 15th position in the ranking.
• “How to” invest is becoming more important than “how much” for investors considering sustainable location options. Survey respondents pay more attention to political and legal stability (54%) and telecoms infrastructure (51%) than labor costs (47%).
• Russia, still an outsider FDI destination in our previous surveys, scored this year’s sharpest climb up the attractiveness ladder (up nine points, to a 21% rating). Russia has made notable progress in attracting investor interest over the last two years, rising from a 5% rating in 2006 to gain the confidence of one-fifth of our global panel.
• The shift towards a knowledge economy in Western Europe is slower than the relocation of traditional industries from Europe. Western Europe is more active in services FDI (60% of all jobs created through FDI in 2007, 43% in 2006), but it is not yet snaring the large high-tech, high value-added services projects needed to replace its declining industrial base (30,000 fewer industrial jobs created in 2007 than 2006, a drop of 51%).
• When asked how to make Europe more attractive, respondents cited a combination of increased flexibility in European labor markets (42%) and simplified regulations (39%)
• Investors are also calling for innovation in education and the supply chain. Alongside high technology clustering and research and development, respondents also seek innovation in high-performance communication channels (48%), and supply chain (27%) that will also allow them to prosper in mature economies. According to investors, the improvement of European innovation capacity is primarily a matter of culture and education (34% each), rather than financial and tax incentives (31%).

About the survey :
The Ernst & Young’s European attractiveness survey, now in its fifth year, is based on an original two-fold methodology that reflects:
First, the ‘perceived’ attractiveness of Europe and its competitors by foreign investors based on the views and opinions of a representative panel of 834 international decision makers. These executives were interviewed by research organization Institut CSA between February and March 2008. The attractiveness of a location is a combination of image, investors’ confidence and the perception of the country or area’s ability to provide the most competitive benefits for FDI.
Second, the ‘real’ attractiveness of Europe for foreign investors – the reality of FDI, based on Ernst & Young’s European Investment Monitor (EIM). This database tracks foreign direct investment projects that have resulted in new facilities and/or the creation of new jobs. By excluding portfolio investments, mergers and acquisitions, it shows the reality of investment in manufacturing or services operations by foreign companies across the continent.

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