Foreign direct investment (FDI) into Europe held up in 2012 despite the ongoing economic problems in the Eurozone, according to Ernst & Young’s annual European Attractiveness Survey.
This report, now in its 11th 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.
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Despite the recession, the reports finds there was only a moderate 3% reduction in FDI project numbers down from 3,906 in 2011 to 3,797 in 2012. However, investment levels still remain higher than pre-crisis levels and the number of jobs created was up by 8% on 2011 to 170,434.
Marc Lhermitte, Ernst & Young’s head of International Location Advisory Services and author of the report said:
"The crisis has led foreign investors to actively pursue scarce opportunities and restructure their manufacturing presence in Europe. Consequently, we have in fact witnessed an investment rebound in key destinations including the UK, Germany and Ireland, but also in Poland and Russia. Foreign investors are for the most part confident that Europe will weather these hard times, and emerge stronger and different".
Although rapid-growth markets are capturing the interest of foreign investors, Europe still remains the world’s largest FDI destination in terms of value, although its share in global FDI declined from 28.6% in 2011 to 22.4% in 2012, according to the United Nations Conference on Trade and Development (UNCTAD).
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FDI by country
The UK once again took the lead in terms of FDI with 697 projects in 2012, an increase of 3% although Germany is now closer than it has ever been in second place with 624 projects an increase of 5%. After overtaking the UK in the number of projects in manufacturing sectors during 2011, Germany is now catching up with sectors driven by services – France (471), Spain (274) and Belgium (153) came third, fourth and fifth respectively.
The countries in Western Europe that did particularly well and received a significantly higher number of projects compared to 2011 were Spain (273), Ireland (106), Belgium (153) and Finland (62). This was primarily down to a decline in relative unit labor costs, which enhanced their competitiveness.
A second group of Western European countries including France (471), the Netherlands (161), Italy (60) and Switzerland (61) attracted fewer projects and relatively few jobs. The reasons for the decline in investment vary from stagnant growth in France and Italy to high operating costs in the Netherlands and Switzerland.
Central and Eastern Europe (CEE) picked up as an FDI destination in 2012 after two disappointing years. Though the number of investment decisions slipped 5% on the year, the region secured 26% more jobs. That meant that CEE providing competitive costs with nearshoring advantages overtook Western Europe to become the leading recipient of FDI jobs in Europe – mostly due to increased manufacturing in the region.
Poland had the continent’s biggest increase of 22% in 2012, attracting 148 projects. Within CEE, Poland outpaced Russia (128) to become the leading destination for FDI. Serbia was also a strong performer attracting 78 projects. However, investment into Turkey and the Czech Republic declined slightly with 95 and 64 projects respectively.
Analysis by sector
Business services and software remained the leading FDI sectors in Europe, providing 699 and 402 projects respectively. The UK was again the leading destination for these projects (28%), with Germany a distant second, followed by France and Spain.
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 1,045 (28%) inward investment projects in 2012 mostly in the business services and software sectors. The UK continued to be the favorite destination for American companies in Europe.
