Business News 2009 Business
inward investment stalls as recession looms
inward investment stalls as recession looms
London 4 June 2009
UK retained its position as the most attractive
destination for inward investment in Europe in
2008, according to Ernst & Youngs latest
Country Attractiveness Survey published today.
However, inward investment into Europe was flat
in 2008, demonstrating the global recessions
toll on investment projects into the region. Retaining
its ranking as the most attractive European location
for FDI, the UK attracted 686 investment projects
in 2008 - 4% less than in 2007. The largest investor
in the UK remained the US (263 projects), followed
by India (49), France (46), Germany (42) and Japan
(30). Investment in London fell by 13% in the
The 7th annual report, which
examines figures for international investments
into Europe, new projects or expansions, revealed
that in 2008 Europe secured 3,718 investment announcements,
six more projects than in 2007. The number of
projects remained steady but the impact of the
impending recession on new employment was severe.
The number of jobs created fell 16% to 148,333,
accelerating a downward trend underway since 2004.
Five years of sustained
inward investment growth in Europe came to an
end in 2008, said Marc Lhermitte, Partner
at Ernst & Young and author of the report.
But, the true picture of how the global
recession has hit inward investment has yet to
emerge. Investment decisions for 2008 will have
been made many months earlier, which explains
why in 2008 Europe secured as many FDI projects
as the year before. We expect 2009 to tell a very
UK number one for job creation
Ernst & Youngs
study, now in its 7th year, analyses both actual
inward investment over the last 12 months and
attitudes of global investors regarding their
plans over the short to medium terms.
Retaining its ranking as
the most attractive European location for FDI,
the UK attracted 686 investment projects in 2008
- 4% less than in 2007. The 686 investments created
20, 000 jobs (16% fewer jobs than 2007), ranking
the UK as the number one location for FDI job
creation in Europe.
The largest investor in the
UK remained the US (263 projects), followed by
India (49), France (46), Germany (42) and Japan
(30). Indian investment surged ahead of traditional
investors, France and Germany, for only the second
time in the last 12 years.
The leading recipients of
FDI in Europe showed little change, despite the
economic turmoil. France, Germany and Spain, which
have been the most important countries for the
attraction of foreign investment since 1997, remained
top four countries.
Winners and losers
There were positive or relatively
stable trends in Germany, Switzerland, Sweden,
Italy and Ireland. Germanys 28% increase
- was fuelled by new regional headquarters for
German or Eastern European markets, and by industrial
demand for business services and software.
Ireland, although bruised
by plans to shift manufacturing jobs to more cost-competitive
countries, had a 35% increase in project numbers
as British and US companies continue to invest.
Some industries are so far
weathering the recession better than others. Machinery
and equipment saw a 19% increase in FDI projects
due to a surge of projects to supply wind turbines,
solar components, fuel cells.
Marc Lhermitte said: One
of the biggest winners has been the renewable
industries due to new green market opportunities,
with almost 6,000 new FDI jobs in 2008. Astute
businesses will be positioning themselves to take
market share and gain access this sector.
IT outsourcing, financial
and business services were early victims of the
downturn as their clients struggled, especially
in the UK, France and Spain. New jobs from these
sectors and countries slumped by 33% in 2008.
Former FDI hotspots such as the Czech Republic,
Slovakia or Turkey, saw numbers fall dramatically
especially in automotive and electronics.
Where the investment is coming
Europe's inward investment
market remains mostly fueled by European (German,
British and French mostly) and US investors (51%
and 25% respectively). BRIC investors contributed
to a relatively small number of projects into
Europe (6%), but the trend is rising fast: projects
from China and India have jumped from 118 to 182
projects. This has particularly benefited the
The recession will impact
European FDI even more in 2009. Provisional data
from the first quarter already indicates an 8%
drop in project announcements compared with the
first quarter of 2008. For the rest of the year,
53% of business leaders interviewed in the study
say they have no green field or expansion plans
Ernst & Youngs
study uncovered some revealing results for global
cities and their ability to attract inward investment.
Investors clearly have greater confidence in the
ability of cities with international qualities
or global cities to emerge from
the current situation than in the recovery capacity
of their second-tier rivals.
London, which retained its
position as the most attractive city for inward
investment in Europe in 2008 for the 7th year
in a row, secured 262 projects. However, London
was not completely immune to the grip of the downturn
with a 14% decline compared to 2007, halting a
four year growth spurt. But, in comparison to
its closest European city rivals, the capital
received a relatively high number of projects,
with Paris coming in second with 222 projects
and Madrid third on 80.
Marc Lhermitte elaborated,
However, the primacy of long-established
centres in the developed world including
Europes capitals is being challenged
by emerging Asian cities such as Shanghai and
Bangalore and by regional cities acquiring international
expertise. When business leaders from our study
were asked where the next Google or Microsoft
will emerge, Shanghai and Mumbai were seen as
the more credible alternatives than New York and
Silicon Valley, or London.
Europe as a refuge
emerging economies lose favour in short-term
The uncertain climate has
resulted in a temporary mood-shift amongst investors
to more familiar markets. For the immediate future,
businesses see Europe as the safer option to make
According to the survey,
which interviewed 809 global investors in February
2009, Western (40%) and Central and Eastern Europe
(39%) were neck-and-neck as the safest
regions for being the most attractive regions
in which to establish or expand operations.
There has been a retreat
in investor sentiment from the emerging BRIC markets
(Brazil, Russia, India and China). After topping
the attractiveness table in 2008, China loses
the lead as the most attractive region in which
to establish operations in 2009, ranking third.
India is fifth, behind North America, whilst Russia
and Brazil, previously rising stars, trail in
sixth and seventh place respectively.
Marc Lhermitte said: Today,
business leaders are focused on living through
the crisis and maximising returns on existing
assets. Though entering and operating in new markets
can offer tremendous opportunities, this can also
increase risks which decision-makers can ill afford.
The BRIC regions are
not providing the absolutely safe ground international
investors are looking for. Europe is seen as predictable
and safe. Investors are showing greater loyalty
to their countries of origin and historical markets,
launching fewer projects in Emerging Europe. And
thats why for the moment at
least theyd sooner stay at home than venture