FDI Into Europe in 2010 Exceeds Pre-crisis Levels

LA BAULE, France, May 25, 2011 /PRNewswire/ -- Inward investment rebounded in Europe in 2010 with a record number of projects according to Ernst & Young's 9th annual European Attractiveness Survey. This report combines an analysis of international investment into Europe over the last year with a survey of over 800 global executives on their views about how and where global investment will take place in the next decade.

Across Europe there was a 14% increase in projects from 3,303 in 2009 to 3,757 in 2010. The majority of the 43 countries in Europe whose inward investment is measured by the survey showed an improvement. The number of new jobs created across Europe as a result of these investments was also up by 10% to 137,000 although this still remains well below the peak of five years ago.

Investment from the United States was the primary reason for the turnaround in FDI across Europe with an increase of 24% in project numbers on 2009. The US remains the critical investor for the European market with over a quarter of all projects.

Mark Otty, Area Managing Partner for Europe, Middle East, India and Africa comments, "Following a significant decline in investment during the worst of the global recession, investors are now coming back in force to Europe led by the United States. The challenge for Europe will be to maintain this momentum in an increasingly competitive global environment."

Analysis by country and sector

Although the UK and France remained the most attractive countries for investors with 728 and 562 FDI projects a growth of 7% and 6% respectively, the real success story for 2010 among the major European economies was Germany whose project numbers rose by 34% to 560 in 2010 challenging France for second place.

Countries in Central and Eastern Europe saw strong growth in 2010 with Russia, Poland, Hungary and the Baltics all recording double digit growth in the numbers of projects reflecting the strong economic recovery in the region and its growing attractiveness to business.

Portugal, Greece and Spain all saw a decline in project numbers and the latter was overtaken by Russia as the fourth largest recipient for FDI in Europe. By contrast Ireland saw a 36% growth in projects in 2010 underlining its long term competitiveness in terms of tax rates and a highly skilled workforce.

Sectors that were hit in 2009 with a decline in FDI projects saw a significant rebound in 2010. Investments in the automotive sector doubled in 2010 and provided 25% of the jobs created by FDI projects in Europe. FDI projects in business services and software also went up by 15% with a 65% increase in jobs created. Europe also attracted 204 projects in renewable energy in 2010, up 29% on the previous year. Not all sectors saw an increase: Food, Pharmaceuticals, Minerals and Telecoms which did comparatively well in 2009 all saw a decline in project numbers in 2010.

Although the numbers of jobs created in 2010 was up on 2009, it remains nearly 40% below the 2006 peak, as the nature of the investments into Europe has shifted in relative terms in the last five years from large manufacturing projects to smaller business services.

Marc Lhermitte, author of the report from Ernst & Young comments, "Europe's ability to continue to attract investment for a wide range of sectors ranging from automotive to business services as well as focus on cleantech projects highlights its sustained wide appeal to investors."

Where is investment coming from?

The recovery in investment from the United States was a significant component of the improvement in the overall inward investment picture into Europe in 2010 with a record number of projects – 972 – announced. Other countries that showed a strong improvement in terms of intra-European investment included the UK, Switzerland and the Netherlands. Outside of Europe the numbers of investment projects from India and South Korea showed the most significant increase (up 32% and 148% respectively).

Outlook for 2011

An improved investment outlook is already emerging as confidence across Europe picks up. Research from the 800 global executives interviewed for the European Attractiveness Survey in Spring 2011 highlights a 5% increase this year in the number of companies looking to invest in Europe and a 6% fall in the number of investors with no plans to do the same in Europe.

As Lhermitte comments, "A third of those interviewed said they intended to invest in Europe this year with half looking to expand existing operations and a quarter planning an acquisition or joint venture. In the next two years investors believe that IT and cleantech will be the strongest drivers of European growth."

Respondents confirmed that China remained the most attractive place in which to establish operations with Western Europe a close second. Looking three years ahead, investors remain confident in Europe with Western Europe ranking joint first with China. India and Brazil have also seen slight increases in terms of their attractiveness to foreign investors.

More worryingly for the longer term when asked to identify which city the next global innovation leader will come from, the investors only highlighted one European city – London – in the top ten cities worldwide.

Otty concludes, "Europe is now competing as an investment destination with rapid growth economies that are both seeking new investment themselves and looking increasingly to invest internally to grow. To continue to attract global business Europe has to combine a competitive economic policy with an investment in building a highly trained and innovative workforce."

About the survey:

The Ernst & Young's European attractiveness 2011 survey is based on a twofold, original methodology that reflects:

The "real" attractiveness of Europe for foreign investors. Our evaluation of the reality of FDI in Europe is based on Ernst & Young's EIM. This database tracks FDI 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.

The "perceived" attractiveness of Europe and its competitors by foreign investors. 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 Institut CSA in January and February 2011, via telephone interviews, based on a representative panel of 812 international decision-makers.

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SOURCE Ernst & Young