Western Europe overtakes China and North America as No 1 investment destination

A general view of the Palace of Westminster, with the Great Westminster Clock, more commonly known as "Big Ben" seen on April 5, 2015 in London. -- PHOTO: AFP
A general view of the Palace of Westminster, with the Great Westminster Clock, more commonly known as "Big Ben" seen on April 5, 2015 in London. -- PHOTO: AFP

SINGAPORE - Western Europe overtook China and North America as top investor favourite last year with with foreign direct investment (FDI) projects hitting a record high, an Ernst & Young survey released on Wednesday found.

Western Europe attracted 50 per cent of investments worldwide in 2014, up from 45 per cent last year, according to 808 decision-makers polled for EY's 13th European attractiveness survey.

China, last year's most attractive investment destination, saw a 6 per cent decline in projects to 38 per cent.

An increase in North American investment, up from 31 per cent to 39 per cent, placed it in second place and saw China pushed down to third place.

FDI into Europe hit a new record with US$305 billion attracted into the region in 2014, translating to a 36 per cent year-on-year growth, despite the global growth slowdown.

Last year alone, 43 European countries - including Russia and Turkey - drew 4,341 projects reaching a 10 per cent growth over 2013 and creating 185,583 or 12 per cent more jobs.

Said Marc Lhermitte, EY's head of international location advisory services and author of the report: "The improvement in Europe's relative attractiveness stems not just from economic stabilization and recovery in Europe, but also from the greater uncertainty about the emerging markets and their ability to continue delivering the growth rates achieved over the past decade."

"Lower energy prices, a weaker euro and quantitative easing have all added impetus to Europe's investment appeal and resulted in almost 200 thousand new jobs created across the continent, which is a very encouraging figure as employment is one of the key drivers of economic growth."

Said Pascal Macioce, EY's EMEIA Deputy Managing Partner: "A stable business environment, research and innovation capacity and its market are Europe's top investment attractions. Investors believe the digital, health care and energy transformations will drive Europe's renaissance, once again becoming the most desired investment destination."

5 other highlights of survey:

1. Top 3 countries in Europe

More than half (52%) of FDI projects and 30 per cent of jobs created by investments into Europe were captured by the top three destinations: the UK, Germany and France.

The UK is still the number one destination in terms of FDI projects and jobs.

2. London is the top city

The capability to restore economic growth, competitive edge, the ability to nurture new-age companies and commercialize ideas for changing the lives of millions are a few reasons why European cities attract FDI, with London at the number one position, followed by Paris and Berlin. The top 10 includes three in Germany - Berlin, Frankfurt and Munich - as well as two cities in Spain - Barcelona and Madrid.

3. Manufacturing revival in Europe

An economic recovery, a depreciating euro and falling energy prices have all helped revive the appeal of manufacturing in Europe. Taken together, they underpin a 20 per cent surge in FDI manufacturing projects and jobs. Logistics operations, also blue collar, rose 27 per cent, driven by this industrial resurgence and a boom in e-commerce.

Services had a mixed year: software projects (27% increase), financial intermediation (37% increase) and back-office operations (15% increase) all grow strongly while business services (24% decrease) and research and development (1% decrease) slide.

4. Chinese investors up their game in Europe

Although, European companies account for half (51%) of FDI projects into Europe itself and US multinationals a full quarter (25%), Chinese companies passed Japanese companies to become the fifth-largest FDI investors into Europe in 2014.

With 210 projects, up by almost 40 per cent from a year ago, Chinese investment into Europe shows the effect of the Chinese Government promoting outward investment as a means to acquire technology, brands and resources overseas to boost domestic high-value manufacturing and services.

5. Still a bumpy road ahead for Europe

The survey reveals 59 per cent of investors are confident about Europe's prospects in the upcoming three years, but only 32 per cent of executives have plans to establish or expand operations in Europe over the next year, while 64 per cent do not have any plans.

Foreign investors see bureaucracy (20%) and slow economic growth (17%) as the biggest flaws in Europe's attractiveness, overshadowing the geopolitical uncertainty at Europe's frontiers (11%) and big deficits (11%).

European countries need to further enhance labor market flexibility, simplify regulations and foster business-friendly environments.

Said Mr Lhermitte: "Current debates across Europe are likely to influence the region's attractiveness for investors. Any potential change in the UK's relationship with the EU and key events - elections and reforms - in major European economies could affect the attractiveness rankings going forward."