- CEE investment picks up after two disappointing years
- UK remains top recipient of FDI in Europe although Germany closes the gap
- US remains top investor in Europe, BRIC investment weakens
Romania ranks 10th in Europe and 4th in Central and Eastern Europe (CEE) regarding the number of jobs attracted through foreign investments made in the country in 2012. Thus, last year, Romania attracted 7,114 jobs generated through foreign investment, 18.9% more than in 2011. CEE regained its traction in attracting foreign investments in 2012, after two disappointing years. The region attracted 26.1% more jobs, surpassing Western Europe. Companies in Europe and around the world are increasingly expanding their production capacities in Central and Eastern Europe. Renault, for example, produces only a quarter of its cars in France, the rest being produced in Romania, Morocco, Slovenia and Turkey.
Both Romania and the entire region enjoy the advantage of efficient and affordable human capital, making it more competitive compared with Western Europe. According to the Organization for Economic Cooperation and Development, annual wages in CEE countries remain on average half of those in Germany, France and UK.
In CEE, Poland is seen by far as the most attractive country for investments (37% of respondents). In Romania, investments into the country represented 7% of the total investment projects in Europe, slightly surpassing investors' perceptions regarding the attractiveness of the local market.
Foreign direct investment into Europe held up in 2012
Foreign direct investment (FDI) into Europe held up in 2012 despite the ongoing economic problems in the Eurozone, according to Ernst & Young’s annual European Attractiveness Survey. The report, now in its 11th year, combines an analysis of international investment into Europe over the last year with a survey of more than 800 global executives on their views about how and where global investment will take place in the next decade.
Despite the recession, the reports finds there was only a moderate 3% reduction in FDI project numbers down from 3,906 in 2011 to 3,797 in 2012. However, investment levels still remain higher than pre-crisis levels and the number of jobs created was up by 8% on 2011 to 170,434.
Although rapid-growth markets are capturing the interest of foreign investors, Europe still remains the world’s largest FDI destination in terms of value, although its share in global FDI declined from 28.6% in 2011 to 22.4% in 2012, according to the United Nations Conference on Trade and Development (UNCTAD).
Destinations: FDI by country
The UK once again took the lead in terms of FDI with 697 projects in 2012, an increase of 3% although Germany is now closer than it has ever been in second place with 624 projects - an increase of 5%. After overtaking the UK in the number of projects in manufacturing sectors during 2011, Germany is now catching up with sectors driven by services – France (471), Spain (274) and Belgium (153) came third, fourth and fifth respectively.
The countries in Western Europe that did particularly well and received a significantly higher number of projects compared to 2011 were Spain (273), Ireland (106), Belgium (153) and Finland (62). This was primarily down to a decline in relative unit labor costs, which enhanced their competitiveness.
A second group of Western European countries including France (471), the Netherlands (161), Italy (60) and Switzerland (61) attracted fewer projects and relatively few jobs. The reasons for the decline in investment vary from stagnant growth in France and Italy to high operating costs in the Netherlands and Switzerland.
Central and Eastern Europe (CEE) picked up as an FDI destination in 2012 after two disappointing years. Though the number of investment decisions slipped 5% on the year, the region secured 26% more jobs. That meant that CEE providing competitive costs with nearshoring advantages overtook Western Europe to become the leading recipient of FDI jobs in Europe – mostly due to increased manufacturing in the region.
Poland had the continent’s biggest increase of 22% in 2012, attracting 148 projects. Within CEE, Poland outpaced Russia (128) to become the leading destination for FDI. Serbia was also a strong performer attracting 78 projects. However, investment into Turkey and the Czech Republic declined slightly with 95 and 64 projects respectively.
Where is investment coming from?
Europeans remain confident in their neighbors as they contributed more than half of all European FDI inflows – seven European countries, led by Germany (406), the UK (255), France (198) and Switzerland (184) were among the region’s top 10 investors. Together, FDI projects from European countries and the US accounted for more than 80% of FDI flows into the region.
Only 245 projects (6.5% of the total) came from the BRICs, a concerning decline from 266 projects in 2011. The majority of the projects were directed at the UK (70) and Germany (63). By contrast projects from Japan were up by 17% from 150 to 176.
London – Europe’s most attractive city
London remains the unrivaled leader among Europe’s cities, both in terms of the opinion of investors (49%) as well as in the number of investment decision secured which stood at 313 in 2012. Business services, software and financial services accounted for more than 70% of these projects. Paris comes second, identified as attractive by 34% of investors and securing 174 decisions followed by Barcelona in terms of project creation and Berlin in the perception survey. And yet, despite their excellent infrastructure, skilled labor and high quality of life, European cities struggle in the global competition. London is the only European location investors name among the top 10 – compared to 3 in both India and the US, 2 in China and in Japan.
Forecast for 2013
Investors are “realistically” optimistic regarding Europe. While they think that the recession will end, they know that recovery is likely to take longer than it has done in the past. Half of our respondents predict a three-year recovery, while one-third expects it to take five years.
Marc Lhermitte, Ernst & Young’s Head of International Location Advisory Services and author of the report comments, “Thirty-eight percent of the companies interviewed are planning on investing in Europe next year, up from 26% in 2011. Despite economic uncertainty, investors have learned to master this “new normal”. They are also expecting further economic integration, fewer regulations and a renewed focus on education and innovation to move the European ‘dream’ a step closer to reality.”
About the survey:
European Attractiveness Survey is based on a twofold, original methodology that reflects:
1) 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.
2) 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 Institute CSA in February and March 2012, via telephone interviews, based on a representative panel of 840 international decision-makers.
About Ernst & Young
Ernst & Young is one of the world's leading professional services firms with approximately 167,000 employees in 700 offices across 140 countries, and revenues of approximately $24.4 billion in 2012. Our network is the most integrated at global level and its vast resources allow us to help our clients benefit from every opportunity. In Romania, Ernst & Young has been a leader on the professional services market since its set up in 1992. Our over 500 employees in Romania and Moldova provide seamless assurance, tax, transactions, and advisory services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. For more information, please visit www.ey.com