Ireland attracted 205 foreign direct investments (FDI) in 2018, a 52% (135) increase from 2017, according to this year’s edition of the EY European Attractiveness Survey, published today. Overall, Europe attracted 6,356 foreign direct investments last year, which, although a 4% decline on prior year, is the second-highest level of FDI since EY began compiling this data in 2000.
Commenting on the findings, Michael Hall, Partner at EY Ireland said, “Ireland’s impressive FDI performance does not come as a surprise and is consistent with the strong growth and high levels of job creation recorded in 2018. The results are a ringing endorsement of Ireland’s economy and the agencies involved in working to attract FDI. However, even good news brings with it a unique set of challenges. With more businesses arriving on our shores, the competition for talent is greater than ever and will continue to have an impact on wages which are already growing at a pace. Whilst competition is a highly desirable economic trend that drives innovation and future growth, firms must be ready for the challenge that this brings.”
The UK and Germany falter
Europe’s two largest economies, the UK and Germany, which together account for around one-third of the FDI in Europe, attracted 13% less investments than in the previous year (1,054 and 973 FDI projects respectively). The negative performance of the UK was primarily caused by a 35% decrease in manufacturing FDI projects to 140 and is perhaps reflective of the Brexit effect. In Germany, the production in the automotive sector decreased 7%, impacting negatively the overall 2018 performance in the country. France, which recorded a spectacular FDI growth of 31% in 2017, only grew by 1% in 2018.
Among the top ten European FDI destinations, in addition to Ireland, a number of countries recorded a very positive performance including Spain (32%), Belgium (29%) and Turkey (14%). Beyond the top ten, Italy recorded 63% year-on-year increase, scoring the fastest FDI growth among the top 20 countries in Europe. Meanwhile, a number of countries recorded negative growth of over 30%, specifically Czech Republic (.51%), the Netherlands (-32%) and Sweden (-32%).
Brexit starts to impact Europe’s attractiveness
Looking at the challenges facing Europe’s attractiveness, respondents to the survey stated that Brexit was its greatest risk, while in last year’s survey it came in fourth place, signifying that concerns around its impact are growing. Furthermore, only one in four (25%) businesses said that London was one of their top three cities for investment, down from 34% last year, perhaps a reflection that companies are now looking beyond the UK to invest as a result of Brexit.
Neil Gibson, Chief Economist at EY Ireland added, “Ireland’s FDI performance is all the more remarkable given the impact Brexit has had elsewhere in Europe. The survey identified talent, trade, technology and tax as the key themes driving FDI trends in 2018 and Ireland’s clear strengths in each of these areas is likely to lie behind its Brexit bucking performance. With investors citing the UK’s departure from the EU as the number one risk to European attractiveness over the next three years, it is clear that Ireland will need to continue to emphasise its fundamental strengths that are not under threat from the Brexit process.”
The research also uncovered that only 27% of businesses plan to establish or expand operations in Europe this year, compared with 35% last year. Based on EY’s tracking, this means that investment plans are now at a seven-year low. Furthermore, whilst the US remains the largest investor into Europe, accounting for 22% of European FDI in 2018, weak economic growth in the US coupled with tax reform in late 2017 caused US investment into Europe to increase by only 3% last year. This is a reduction from an average of 8% in the prior four years.
Andy Baldwin, EY EMEIA Area Managing Partner commented, “While the size and diversity of Europe’s market continues to make it attractive among global investors, we are now seeing the impact of Brexit and other political and economic uncertainty as investor optimism into Europe deteriorates. The UK’s historical competitive advantage in FDI has been eroded over the last three years largely due to Brexit, which means that thousands of new jobs have not been created. While competitive advantages remain, such as a flexible labour market and the rule of law, the persistent uncertainty experienced over the last three years is turning investors elsewhere as they are no longer willing to take a ‘wait-and-see approach’ on Brexit negotiations.”
Notes to Editor
About the European Attractiveness Survey 2018
Our evaluation of the reality of FDI in Europe is based on the EY European Investment Monitor (EIM), EY proprietary database, produced in collaboration with OCO. 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.
An investment in a company is normally included in FDI data if the foreign investor acquires more than 10% of the company’s equity. FDI includes equity capital, reinvested earnings and intracompany loans.
We define the attractiveness of a location as a combination of image, investors’ confidence and the perception of a country or area’s ability to provide the most competitive benefits for FDI. The field research was conducted by the CSA Institute in January and February 2019, via telephone interviews, based on a representative panel of 506 international decision-makers.
This panel was made up of decision-makers of all origins: Western Europe (40%); North America (29%); Asia (12%); Northern Europe (8%); Latin America (3%); Russia (3%); Central and Eastern Europe: (2%); Middle East (2% and Oceania (1%)
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