Europe remains hot spot for foreign investors


By Sabine Vollmer

The lingering euro-zone debt crisis and the lure of rapidly growing economies in Asia and Latin America have turned some foreign investors away from Europe, but many still view the region as a key destination for foreign direct investments.

Across Europe, there was a 4% increase in foreign direct investment projects from 3,757 in 2010 to 3,906 in 2011, a new Ernst & Young study says. The number of jobs created by the investments rose 15% to about 158,000 – the most in four years.

The study was based on a survey of 840 international investment decision-makers and a database of investments made.

US companies invested in 1,028 projects, or 26% of the total, which was the most of any nation, followed by German companies (11%) and UK companies (8%). Investments from emerging markets were also up, led by Chinese companies, which came in seventh (4%).

“Despite the current turmoil in Europe, its fundamental strengths continue,” Marc Lhermitte, head of E&Y’s International Location Advisory Services and the study’s author, said in a statement. “The attraction of its 500 million high-spending consumers, together with a stable and transparent legal and regulatory environment, remains a powerful draw for investors.”

Worldwide, executives who make foreign investment decisions said they were most drawn to Europe’s research and innovation capacity (46%) and the diversity and quality of its labour force (39%).

About 80% of the executives were at least fairly confident Europe would overcome the debt crisis. Still, the region’s attractiveness has suffered in the past six years, particularly in Central and Eastern Europe. Western Europe held up better.

The UK, Germany and France were the top three European recipients of foreign investments last year. Together, the three countries accounted for 46% of the European FDI projects. The UK remained the most attractive country with 679 projects (17% of the total). France’s total fell 4% to 540. Germany secured 597 projects in 2011, achieving a 7% year-over-year increase, which reflects its relatively strong economic performance through the economic crisis.

The number of projects in Spain increased 62% to 273, as investors saw opportunities in cities and regions providing relatively low labour costs and a highly skilled and educated workforce.

Central and Eastern Europe saw a decline in investment. Investors were concerned about the region’s dependence on exports to Western European economies. Russia experienced a 36% decline, dropping to 128 projects. The report said some countries in the region, including Poland, Hungary, the Czech Republic and the Baltic nations, continued to attract good FDI inflows based on relatively favorable labour costs and skills availability.

Looking ahead

The fragility of the euro zone has left investors more hesitant. Only 26% had plans to establish operations in Europe during 2013, down from 33% in the 2011 survey.

However, more than a quarter are eyeing possible acquisitions, a sign that many European assets are expected to become available as vendors adjust to be more realistic about recovery prospects and valuations, E&Y says.

Europe still demonstrates a strong, perhaps surprising, level of attraction. In terms of investor perception, Western Europe and Central and Eastern Europe rank second and third, respectively, behind China as the most attractive destinations for FDI.

Amongst survey respondents, 38% say that Europe’s future attractiveness will improve, but it’s interesting to note that this rises to 51% amongst non-European investors, who are more confident about Europe’s future prospects than Europeans themselves.

Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.

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