Foreign investment into Europe is set to rebound this year following a downswing in 2020, when FDI fell by 13%, according to the annual EY Europe Attractiveness Survey. Forty percent of businesses plan to expand operations in the Old Continent in 2021, compared with 27% at the start of COVID-19.
The survey finds that for the first time, France, the UK and Germany are virtually tied as Europe’s most attractive investment destinations, attracting 985, 975 and 930 projects respectively. Meanwhile, the largest decrease in the number of projects was recorded by Hungary (-54%), and the countries with the highest increases were Switzerland (25%), Finland (23%), and Sweden (19%).
Critical ingredients for investors
Investors agree on four critical ingredients for attractiveness when deciding where to invest: skills, sustainability, government stimulus and tax simplification.
- Skills: The new role of technology triggered by the COVID-19 pandemic – in customer experience, more automated production lines and back offices, and “phygital” (physical and digital) work environments – means revamping Europe’s digital skills base is imperative.
- Sustainability: Environmental sustainability will influence investors’ location decisions with 90% of respondents saying it is important to their investment strategy and 85% already consider Europe a “green leader”.
- Stimulus: Foreign investors noted that national and European recovery plans are aimed at the long-term and deep-rooted transformation of economies and societies. Businesses also expect governments to provide short-term economic stimulus and help restart the European economy.
- Simplification: Tax stability, transparency and harmonization are crucial as those doing business in Europe face a perfect storm of agreed changes and upcoming challenges. For example, standardized corporate tax rates will impact location strategies for investors as well as new digital business and environmental regulation and tax, which are to be defined.
“The corporate world is entering the era of purpose-led growth, growth that is sustainable and delivers value that will benefit all stakeholders. FDI is one of the most impactful drivers of positive change in countries and for societies” Julie Teigland, EY EMEIA Area Managing Partner, said.
“Business leaders tell us that digital infrastructure and skills and a robust sustainability agenda that takes into account the positive environmental impact of new projects are critical in determining where they invest. And the projects are out there, for example, the EY organization has identified 1,000 shovel-ready green projects that could create three million jobs, almost a quarter of the number lost due to the pandemic.”
The EY Europe Attractiveness Survey is based on qualitative research conducted in March and April 2021 with 550 international decision-makers – from companies across a range of industries and headquartered around the globe, from small and medium-sized enterprises (SMEs) to multinationals – and quantitative analysis of FDI projects announced in Europe in 2020.