European attractiveness survey
Plan B … for Brexit

An EY survey on foreign investment decisions in Europe and the prospect of Brexit

This report is part of a series by EY on the attractiveness of Europe and European countries for cross-border investments. Since 2000, this series has provided information on international location strategies and their impact on countries and cities in Europe. The global political, economic and investment landscape has entered an exceptional period of transition. In the US, newly appointed President Donald Trump has promised to recast US policies in ways likely to have profound effects both on the US economy and upon investment flows in the US and worldwide.

The tectonic plates of our multi-polar world are shifting. Companies from China, India and other newer markets are continuing to expand on a world stage. Europe is changing too. This year will see elections in the Netherlands, France and Germany which may have far-reaching policy implications. Investors see uncertainty everywhere. As the year advances, EY's European Attractiveness survey will aim to capture more outcomes and assess implications.

Our first step, however, is this attempt to look at the impact of the UK's historic decision to leave the European Union upon the European investment landscape within this backdrop of continentwide change.

On 23 June 2016, the citizens of the UK voted by 51.9% to 48.1% for their country to leave the European Union (EU). The UK Government has said it expects to invoke Article 50 of the EU's Lisbon Treaty and thereby trigger negotiations with the remaining 27 EU member states in March 2017. Michel Barnier, the Chief Negotiator appointed by the European Commission to handle the process, has said that a deal must be struck by October 2018. The transition will coincide with wider changes in the political landscape as President Donald Trump begins to recast US policies.

Implementing Brexit will be extraordinarily complex. On 17 January, Theresa May, the UK Prime Minister, said she hopes to retain partial membership of the customs union, backed by a free trade agreement (FTA) with the EU. But continuing full membership of the single market was not an option. The UK Government wishes to balance the needs of the UK economy with the desire for control of borders and laws expressed by its citizens. EU leaders are clear and consistent that membership of the single market is incompatible with restrictions on the free movement of their citizens. Business leaders must start preparing their analyses and plans for life after Brexit. To help them in this process, EY commissioned a survey to investigate what impact the referendum and resulting uncertainties are having upon foreign direct investors and their European ambitions.

Foreign direct investment (FDI) is vital to the economic well-being of the UK and the rest of Europe. The impact of Brexit on investment mobility and location is therefore a critical issue for companies and policy-makers. Last year, foreign investors made 5,083 decisions to set up or expand operations in Europe, building or renewing productive assets and creating 217,666 jobs. Historically, the UK has been Europe's top FDI destination. According to our calculations, the UK secured a record 1,065 FDI projects in 2015 (20.9% of the European total), which created over 40,000 jobs in the country in that year.

There appears to be a growing likelihood that companies located in the UK will lose seamless access to the single market. And it also appears likely that some companies — and not just those in the financial services sector — will reshape, transfer, downsize or transform some of their operations both in the UK and sometimes, in consequence, elsewhere in Europe. However, some business leaders have already said that the current context will not change their plans to invest in the UK.