As I See It
Investors defy scare stories over uncertainty
We hear a lot about political uncertainty casting a shadow over investment intentions in every sector from finance to property. The latest data, showing a new record for overseas money pouring into Scotland, appears to tell a different story.
Scottish independence was supposed to have been a deterrent and has been followed by warnings that the European Union referendum is making them think twice before committing their money. The numbers suggest otherwise.
In fact Scotland is not alone in enjoying buoyant investment. It was a record year for Western Europe as a whole.
EY’s 2016 European attractiveness survey, shows there were 5,083 foreign direct investment (FDI) projects in 2015, up by 14% on the previous year, leading to the creation of 217,666 jobs (+17%).
Western Europe continues to be the most appealing FDI destination in Europe as a whole, accounting for the 77% of all FDI projects.
Together, the UK, Germany and France account for slightly more than half (51%) of all FDI projects across the continent, although Poland and Russia (the European bit) are the top performers by FDI projects growth overall, with an increase in market share of 61% and 60% respectively over the previous year.
The figures tell us other things about the shape of the European economy, and in particular the location of certain industries among those projects.
Central and Eastern Europe saw the creation of half (50%) of all FDI jobs, as the region received 69% of FDI projects in manufacturing, clearly a result of lower labour costs.
In spite of the EU concerns, Greater London continues to be the first choice city region in Europe for investment, accounting for 406 out of 1,065 FDI projects in the UK – followed by Greater Paris with 159 FDI projects. The Munich and Bavaria area in Germany emerges as the fastest growing urban area for investors in 2015, with year-on-year growth of 134%, followed by Berlin.
In terms of investor sentiment, London is once again the most attractive European city, followed by Paris – which has notably improved its appeal up by 14% over the previous year. According to investors, the top 10 cities for FDI investment ranking includes three cities in Germany – Berlin, Frankfurt and Munich – as well as two cities in Spain – Barcelona and Madrid. Romefeatures as a new entrant in this year’s top 10 cities with a 5% increase in its attractiveness for FDI over last year.
Investments within Europe accounted for 54% of all projects and 108,543 jobs created. Outside of Europe, the US led all FDI investments into the continent – 1,193 FDI projects and 58,437 jobs created – and is the top country globally to invest in Europe. In the finance and business services sector, the US created 558 projects and 22,425 jobs.
Asia is also increasing its activity in Europe, with 735 FDI projects (+13%) and 37,215 jobs created in 2015. China is the biggest Asian investor in Europe, with 238 projects (+2%) and 8,917 jobs created. India’s FDI is also noteworthy, with 126 projects inEurope – 37% more than last year. India was among the top three non-European investing countries in the finance and business services sector (55 projects, +22%).
Germany overtook the UK as the most attractive destination for transportation and communications projects (81 projects, +72%), while the UK supplanted Germany as the number-one destination for retail and hospitality projects (43 projects, +26%) over last year. The automotive sector drove manufacturing growth in Hungary and Poland, while machinery and equipment dominated in Turkey, Serbia and Romania.
The trends, therefore, look positive, although there is a sting in the tail. EY’s Marc Lhermitte, the report’s author, says that although investors are attracted by Europe’s strengths are its digital and logistical infrastructure, skilled labor force and stable legal and regulatory environments, it is also seen to have inflexible labour markets, high labour costs and complex corporate taxation regimes which are “relative investment turn-offs.”
This should be instructive to our political leaders who, instead of issuing silly and ridiculous warnings about rocketing house prices and the cost of holidays – or war breaking out – should be looking at how to address these fundamental cross-continent weaknesses.