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European attractiveness survey: Foreign investment in Europe at all-time high

May 23, 2016

LONDON, England - According to EY's 2016 European attractiveness survey, foreign direct investment (FDI) into Europe hit a record high with 5,083 FDI projects in 2015 (up by 14% year-on-year), leading to the creation of 217,666 new jobs (+17%).

Western Europe (WE) continues to be the most appealing FDI destination in Europe, accounting for the 77% of all FDI projects.

Together, the UK, Germany and France account for slightly more than half (51%) of all FDI projects across all of Europe. Poland and Russia are the top performers by FDI projects growth overall, with an increase in market share of 61% and 60% respectively over the previous year. The Netherlands – which rose one position to number five in the top 10 FDI destination ranking – recorded 47% growth in FDI projects in 2015. In terms of job created, Central and Eastern Europe (CEE) saw the creation of half (50%) of all FDI jobs, as the region received 69% of FDI projects in manufacturing.

Despite a positive 2015 for FDI investment in Europe, geopolitical and macroeconomic challenges are denting investor sentiment. Among 1,469 executives interviewed globally, only 22% plan to expand their European operations in the immediate future, down from 32% last year.

Marc Lhermitte, EY International Location Advisory Services leader and report author, says:

"Despite an uncertain business environment and a variety of geopolitical risks, investors continue to see Europe as a relatively safe haven. Europe's strengths are its digital and logistical infrastructure, skilled labor force and stable legal and regulatory environments. However, inflexible labor markets, high labor costs and complex corporate taxation regimes are relative investment turn-offs."

Andy Baldwin, EY Area Managing Partner-elect – Europe, Middle East, India and Africa, says:

"At first glance, the data suggest that Europe continues to be the destination of choice for FDI. However, when you dig below the surface, the need for business, governments and entrepreneurs to form a coalition to address long-standing and much needed supply side labor and taxation reforms are all too clear. This year's survey is also taking place against the backdrop of the EU Referendum and broader geo-political tensions, so these are perhaps impacting investors' plans to expand European operations at this stage. Other noteworthy points from the survey are the continued attractiveness of Greater London as the first choice in Europe for investment, an increasing focus on infrastructure renewal across Europe and the inexorable rise of China as a major player in FDI."

Who is investing in Europe?

Intra-European projects continue to dominate FDI activity, with 2,751 near-shore investments amounting to 54% of all projects and 108,543 jobs created. Outside of Europe, the US led all FDI investments into Europe – 1,193 FDI projects and 58,437 jobs created – and is the top country globally to invest in Europe. In the finance and business services sector, the US created 558 projects and 22,425 jobs.

Asia is also increasing its activity in Europe, with 735 FDI projects (+13%) and 37,215 jobs created in 2015. China is the biggest Asian investor in Europe, with 238 projects (+2%) and 8,917 jobs created. India's FDI is also noteworthy, with 126 projects in Europe – 37% more than last year. India was among the top three non-European investing countries in the finance and business services sector (55 projects, +22%).

City ranking

Greater London ranks as the leading urban area by number of FDI projects in 2015 – accounting for 406 out of 1,065 FDI projects in the UK – followed by Greater Paris with 159 FDI projects. The Munich and Bavaria area in Germany emerges as the fastest growing urban area for investors in 2015, with year-on-year growth of 134%, followed by Berlin.

In terms of investor sentiment, London is once again the most attractive European city, followed by Paris – which has notably improved its appeal up by 14% over the previous year. According to investors, the top 10 cities for FDI investment ranking includes three cities in Germany – Berlin, Frankfurt and Munich – as well as two cities in Spain – Barcelona and Madrid. Rome features as a new entrant in this year's top 10 cities with a 5% increase in its attractiveness for FDI over last year.

Sector breakdown

Europe's manufacturing appeal remains intact, accounting for 49% of FDI projects and 62% of FDI jobs. In manufacturing industry, Poland (117 projects, +34%), Turkey (105 projects, +52%) Hungary (69 projects, +103%), Serbia (51 projects, +76%) and Romania (51 projects, +21%) drove FDI growth. Germany overtook the UK as the most attractive destination for transportation and communications projects (81 projects, +72%), while the UK supplanted Germany as the number-one destination for retail and hospitality projects (43 projects, +26%) over last year. The automotive sector drove manufacturing growth in Hungary and Poland, while machinery and equipment dominated in Turkey, Serbia and Romania.

European attractiveness survey: Foreign investment in Europe at all-time high

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