Against the global backdrop of geopolitical and economic instability, foreign direct investment (FDI) into Europe hit a record high with 5845 FDI projects in 2016 (up by 15% year-on-year), leading to the creation of 259,673 new jobs (+19%).
These are the findings of the 2017 European Attractiveness Survey by EY, the multinational firm providing assurance, tax, transaction and advisory services worldwide.
Western Europe continues to be the most appealing FDI destination in Europe. The UK remained Europe's champion, closely followed by Germany and France. The three countries together account for slightly more than half (51%) of all FDI projects across the continent.
Spain reinforced its fourth position, with Poland rising one position in the FDI rankings, becoming the first country in Central Europe to enter the top five investment destinations.
Central and Eastern Europe (CEE) remained highly competitive and attractive, capturing 23% of FDI projects but 52% of jobs.
By number of FDI projects among the top 20 countries, Sweden, Italy and the Czech Republic are the top growth performers, with an increase of 76%, 62% and 57% respectively over the previous year.
FDI performance and job creation surge across Europe
Poland ranks second in terms of 2016 job creation (22,074), following the UK, which leads with 43,165 new jobs attributable to FDI projects. In 2016, Russia, Serbia, France and Romania join the ranks of the UK, Poland and Germany in each attributing more than 15,000 jobs to FDI projects.
Who is investing in Europe?
US companies were Europe’s biggest investors in 2016 , accounting for 22% of all European FDI projects in 2016. The majority of FDI into Europe, however, arose from intra-European FDI flows, which grew by 18% in 2016 to 3,272 new FDI projects, accounting for 56% of all European FDI projects and 138,431 newly created jobs. Germany consolidated its position as the leading home-grown cross-border investor, launching 651 projects last year – up by 25% over the previous year. Following Germany, the top five intra-European investors by FDI projects were France (346), UK (335), Switzerland (289) and Italy (187).
The survey also reveals that Chinese companies were more active in Europe in 2016, registering 297 FDI projects (25% more than the previous year) and creating 7,919 jobs. Two-thirds of projects generated by Chinese companies were borne out of sales and marketing, followed by manufacturing and R&D investments projects – 52 and 22 respectively.
Software and business services sectors together accounted for 25% of FDI projects last year, underpinning Europe’s digital transformation. Software was the biggest source of FDI into Europe in 2016, launching 780 projects – up 12%. Business services followed as the second most active sector for FDI with the number of projects soaring 47% in 2016.
Despite a positive 2016 for FDI into Europe – a region with more than 500 million consumers and 30 million companies – geopolitical and macroeconomic challenges are denting investor sentiment. Among 505 executives interviewed globally in March this year, only 28% plan to expand their European operations in the immediate future, down four percentage points from 32% in 2015.
However, investors’ confidence about Europe’s longer term has surged with the proportion of investors expecting a return to steady economic growth after at least five years rising to 56% from 45% in 2015.
Andy Baldwin, EY Area Managing Partner – Europe, Middle East, India and Africa, says:
“Over 2016, geopolitical concerns were top of mind for boardrooms and policymakers, yet investors continued to invest in the world’s biggest single market and we’ve seen the Eurozone’s GDP growth outpace the US for the first time since the financial crisis in 2008. While the slow growth of many emerging markets in 2016 appears to have contributed to Europe’s attractiveness, our survey finds that global investors see Europe’s workforce as a vital asset. The introduction of robotics and artificial intelligence is also serving to reinforce Europe’s traditionally strong manufacturing and business services sectors.”
Looking ahead: the future of Europe rests upon talent and innovation
Education and the urgency to improve skills in Europe emerged as investors’ most important motive in investing in the region (37%, up from 29% in 2015), followed by the need to support high-tech and innovation (34%).