Foreign investors back Europe, but is Europe back? - EY Attractiveness Survey Europe June 2021
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Foreign investors back Europe, but is Europe back? EY Attractiveness Survey Europe June 2021
Contents
Foreword 3 Julie Linn Teigland
EY EMEIA Area
Managing Partner
Executive summary 4
1
Foreign investment set to 6
rebound following 2020
downswing
2
Life sciences and e-commerce 16
are rare bright spots for
investment
Hanne Jesca Bax
EMEIA Managing partner
3
Markets & Accounts
Skills, sustainability, stimulus and 28
simplification: the key ingredients
for long-term attractiveness
Methodology 52
The findings in this report are based on a two-step methodology that analyze Marc Lhermitte
Partner
the reality and perception of Foreign Direct Investment (FDI) in Europe. The reality EY Consulting, Global Lead —
of investment in Europe is based on the EY European Investment Monitor (EIM), FDI & Attractiveness
an EY proprietary database produced in collaboration with OCO. This database
tracks FDI projects that have resulted in the creation of new facilities and jobs.
The perception of foreign investment in Europe is assessed by an online survey
conducted by Euromoney in March and April 2021, based on a representative
panel of 550 international decision-makers. In addition, this report contains
views and insights from EY professionals and other stakeholders.
2 EY Attractiveness Survey Europe June 2021
ey.com/attractiveness
Foreword
2020 was characterized by a global pandemic, a new stimulus. This is a radically different approach to the fiscal
US President, a last minute trade deal between the EU and prudence adopted immediately after the global financial
the UK, coupled with sharp declining GDP across the globe, crisis. As we explore in this report, the EU’s Recovery and
leading to over 12 million job losses in Europe alone. All of Resilience Facility (RRF) targets the areas that are featuring
these factors resulted in an unprecedented stimulus package more prominently on potential European investors’ agendas:
to rescue Europe's economy. Innovations in technology and sustainability. Although
businesses are naturally sceptical about the impact of big
This is not exactly the stability that investors crave. But,
government initiatives, and it will take some time for the
despite the unprecedented circumstances, foreign investment
funding to be released, the size and scope of the packages
in Europe only declined by 13% in 2020 and is expected to
will contribute to Europe being an attractive destination
rebound swiftly. And although investment was down overall,
for foreign investment in the long-term.
some areas actually fared very well. For example, investment
in the life sciences sector surged 62%, and the number of But Europe is by no means out of the woods. Unfortunately,
logistics projects increased 11%. concerns about geopolitics, trade tensions and new regulation
have risen to the top of the agenda as factors that could
Amid the volatility, investment in Europe is relatively resilient
undermine Europe’s attractiveness. Governments should
because it is perceived to be a stable environment that has
take note.
the fundamentals that investors need: an abundant supply
of skilled labor, robust infrastructure, political stability and This is why collaboration between multiple stakeholders
a large addressable market. is key to fortifying Europe’s competitiveness on the global
stage. Individual countries, both within Europe and beyond,
But, Europe cannot be complacent. COVID-19 has elevated
must work together to calm geopolitical tension and reach
the importance of a number of factors that influence location
consensus on issues such as how to tax digital businesses.
decisions. Take skills, for example. Businesses have always
Governments, academia and businesses must collaborate
located their operations in areas where there is an abundance
to ensure that Europeans are equipped with the skills that
of talented workers. But COVID-19 has accelerated
businesses will need in the future. And governments must
businesses’ digital strategies and, as a consequence, their
also collaborate with the scientific community, businesses
need for digital competencies. In addition, the survey data
and wider society to promote environmental sustainability.
reveals that 9 in 10 businesses consider environmental
sustainability to be an important factor that determines It’s imperative that Europe does what it takes to cement its
their investment strategy. perception as an attractive investment destination. After
all, foreign investment has the potential to create jobs for
This raises a key challenge for European policy-makers: can
those left unemployed, provide opportunities for businesses
they cater for businesses’ new and changing priorities while
that have suffered, and revitalize regions that have been
also continuing to get the fundamentals right? Can they use
hit hard. In short, it can trigger much-needed sustainable
the crisis as a catalyst for change to create a better Europe?
economic growth.
Encouragingly, our report reveals that there is a significant
We hope that the findings in this report initiate a
opportunity to reframe Europe’s attractiveness. For example,
conversation about foreign investment and Europe’s future.
the EY organization has identified 1,000 “shovel-ready”
As part of commitment to building a better working world,
green projects that could create three million jobs, almost
EY professionals are dedicated to helping businesses, sectors
a quarter of the number lost due to the pandemic.
and countries recover, transform and thrive. We firmly believe
The EU has shown its cohesion and collective strength that foreign investment has a key role to play in this endeavor.
in devising and implementing its vast economic recovery
EY Attractiveness Survey Europe June 2021 3
Executive summary
1 Foreign investment set
to rebound following
2020 downswing
2 Life sciences and
e-commerce are rare
bright spots for investment
In 2020, the turbulence and uncertainty caused by Due to its relative success in containing COVID-19 during
COVID-19 caused foreign direct investment (FDI) in 2020, investment in Germany fell less precipitously than in
Europe to fall 13% compared with 2019 to France and the UK, meaning that the three are virtually tied
5,578
as Europe’s top investment destinations. In 2020,
France The UK Germany
attracted attracted attracted
inward investment projects.
Europe has proved its resilience in 2020 because
foreign businesses still see it as fundamentally one 985 975 930
of the most stable, skilled and sophisticated regions FDI projects FDI projects FDI projects
around the world to invest for the long-term.
Investment is set to rebound this year as pent-up Supply chain disruption, restrictions on movement, national
lockdowns and uncertain demand caused manufacturing
demand to execute projects is unleashed:
FDI to decline
–22%
By contrast, logistics
FDI projects increased by
40%
of executives plan to establish
+11%
or expand operations in to just 1,320
Europe in the next 12 months, projects in .
compared with just 2020.
A spike in logistics investment by online retailers that
27%
were mobilizing to cater for surging demand more
at April 2020. than compensated for a significant decline in logistics
investment linked to industrial demand.
Reflecting long-term optimism in Inclinations toward major supply chain reorganization that
Europe as an investment destination, were present when COVID-19 first hit have evaporated:
of businesses feel they must
20%
reshore or nearshore operations
believe that Europe's in the short term, compared
63% attractiveness will improve
during the next three years.
with 83% in April 2020.
2022 2023 2024
Life sciences was the only major sector that experienced
an increase in foreign investment as businesses rapidly
Only 5% think it
moved to meet the surging demand for COVID-19 vaccines,
will deteriorate.
treatments and personal protective equipment.
Source: EY European Investment Monitor (EIM) 2021. EY Attractiveness Survey Europe June 2021 (total respondents: 550).
4 EY Attractiveness Survey Europe June 2021
ey.com/attractiveness
3 Skills, sustainability, stimulus and
simplification: the key ingredients
for long-term attractiveness
Although there is cautious optimism that foreign investment in Europe will rebound, policy-makers and businesses
cannot relax. Because the factors that influence location decisions are changing, the private and public sectors together
need to focus on four key areas to ensure that the continent remains an attractive long-term investment destination.
1 Revamp Europe’s digital skills base 3 Simultaneously deploy short-term stimulus
Digital skills have long been mentioned as a priority and longer-term transformation programs
for governments seeking to attract international Europe's economic recovery plans are on track, both at
investment. Or new role of technology triggered by the European and national levels. Investors may rank
COVID-19 — digital customer experiences, “phygital” these massive resilience and recovery plans (such as
work environments, and more automated production the EU's €672.5b RRF) among the least critical factors
lines and back offices — makes this an absolute that will determine their future location decisions. But
imperative. Tellingly, 92% of international investors this is probably because they were, at the time our
say that the availability of a workforce with technology survey was conducted, more interested in short-term
skills is an important factor that determines where they stimulus measures and the recovery of European
invest. Sophisticated businesses therefore monitor which economies than in the longer-term effects of digital
universities are creating graduates with technology and sustainability-related programs. Governments
expertise and factor this into their location decisions. It is therefore need to combine long-term reforms with
encouraging that EU policy-makers have put digital skills more immediate support.
at the forefront of recovery plans. But this must happen
in close consultation with industry so that skills are 4 Continue down the hard path of tax
created that businesses actually need. harmonization and transparency
Europe must redouble its efforts to pursue tax stability.
2 Cement Europe’s “green leader” status Whether it be the work of the EU Code of Conduct
Environmental sustainability increasingly influences Group or the enforcement of State aid rules, the use
investors’ location decisions: 9 in 10 surveyed businesses of preferential tax arrangements that undermine
say sustainability is important to their investment competition has been significantly reduced. But now the
strategy. Encouragingly, 85% of businesses already focus must shift to digital taxes. Individual countries’
consider Europe a green leader. To fortify this perception, digital services taxes create complexity, which is
Europe must continue to support investment in the magnified when businesses want to sell across all of
green economy. The EY organization has identified Europe and the world. European leaders must therefore
1,000 shovel-ready green projects that could create seek to reach consensus with other countries on how
almost three million jobs in the near future. digital businesses will be taxed.
92 % of international investors
say that the availability of a
workforce with technology skills
is an important factor that
determines where they invest.
Source: EY European Investment Monitor (EIM) 2021. EY Attractiveness Survey Europe June 2021 (total respondents: 550).
EY Attractiveness Survey Europe June 2021 5
Foreign investment
set to rebound following
2020 downswing
A total of
5,578
FDI projects were announced
in Europe in 2020,
a 13% annual decrease
1
During the next 12 months,
40%
of businesses plan to establish
or expand operations in Europe,
a significant increase on the
27% reported in 2020 and 2019
62%
of investors expect Europe's
attractiveness to improve
over the next three years
6
ey.com/attractiveness
Foreign investment set to rebound following 2020 downswing
European foreign
investment in 2020:
down, but not decimated
Businesses from around the world announced 5,578 FDI at the beginning of the year stopped investment plans in their
projects in Europe in 2020, a 13% decline from 2019. This is tracks and created immense economic uncertainty.
the first time that foreign investment posted a double-digit
Given the turbulence when the pandemic first hit Europe,
year-on-year percentage decrease since 2009, when the
it’s remarkable that investment only declined by 13% last year.
global financial crisis triggered an 11% fall. Last year’s drop
And by historical standards, investment levels in 2020 were
needs no explanation. The onset of the COVID-19 pandemic
still greater than in any year before 2016 (see Figure 1).
Figure 1: Number of foreign investment
projects announced in Europe
–13%
6,653
6,356 6,412
6,041
5,578
5,083
–11% 4,448
3,957
3,712 3,720 3,758 3,909 3,797
3,531
3,303
3,065
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: EY European Investment Monitor (EIM) 2021.
EY Attractiveness Survey Europe June 2021 7
Foreign investment set to rebound following 2020 downswing
Why was investment so resilient? Despite the
unprecedented circumstances, foreign businesses still Figure 2: Political stability, reliable
see Europe as fundamentally one of the most attractive infrastructure and skills sway investors
regions around the world to invest for the long-term.
And why wouldn’t they? Europe has a relatively stable
Q. In your company's future location choices, what factors
political and regulatory regime, a highly skilled workforce
may influence your decision to select a particular country?
and comparatively robust transport, energy and telecoms
(Only the top three choices are shown; see Chapter 3 for the
infrastructure. Following an unprecedented year, it’s
full graph)
no surprise that surveyed businesses identify these as
the three most important factors that determine where
they locate their operations. And Europe has them all
(see Figure 2).
Stability of the political and
53%
Businesses are therefore proceeding with plans that regulatory regime
they might have first developed as early as 2017.
Illustrating this, 41% say their 2021 investment plans
have not changed due to COVID-19, and 17% have
actually increased their investment plans. Just 30% The reliability and coverage
44%
decreased their investment plans, while 11% delayed them of infrastructure (transport,
(see Figure 3). telecoms and energy)
So, although some businesses throttled back, investment
levels are still healthy given the extraordinary times.
The skills and availability
44%
of the workforce
Source: EY Attractiveness Survey Europe June 2021
(total respondents: 550).
8 EY Attractiveness Survey Europe June 2021
ey.com/attractiveness
Foreign investment set to rebound following 2020 downswing
Figure 3: Foreign businesses maintain
European investment plans
Q. T
o what extent have you changed your 2021 investment
plans because of the COVID-19 outbreak?
Substantial increase in 2021 investment plans 7%
Minor increase in 2021 investment plans 10%
No change in 2021 investment plans 41%
Delay of 2021 investment plans until 2022 or after 11%
Minor decrease in 2021 investment plans 26%
Substantial decrease in 2021 investment plans 3%
Complete cutback on 2021 investment plans 1%
Source: EY Attractiveness Survey Europe June 2021 (total respondents: 550).
EY Attractiveness Survey Europe June 2021 9
Foreign investment set to rebound following 2020 downswing
Investment optimism
is resilient, but is it
sustainable?
What does the future hold for foreign investment? The has solid fundamentals of political stability, a skilled
long-term outlook for Europe seems encouraging: when workforce and advanced infrastructure. This stability is all
asked which regions will be most attractive to establish the more important to investors in the current turbulent
operations when the COVID-19 pandemic is behind us, environment globally.
Western Europe ranks first, with Central and Eastern Europe Importantly, the survey data cannot be interpreted as a
and North America tied in second place (see Figure 4). glowing endorsement of Europe’s long-term attractiveness.
In parallel, 63% of investors believe Europe’s attractiveness Rather, the increase in investment appetite reflects an
will improve during the next three years. Only 5% think it will unleashing of pent-up demand following a year in which
decrease (see Figure 5). COVID-19 restricted businesses’ ability to deliver projects.
Businesses consider Europe to be attractive in the That said, it does indicate that FDI may rebound quickly
long-term for the same reasons that caused investment to previous levels, assuming significant headwinds
levels to be resilient in 2020: it is a large market that do not emerge.
“
The optimism in the survey is well founded. Despite
the short-term setback caused by the depth and duration
of new waves of COVID-19, progress with vaccination rollouts
and a relaxation of containment measures should pave the way
for a strong rebound in economic activity in Europe in the course
of 2021. In contrast to the global financial crisis, manufacturing
and export levels have already recovered and in many Central and
Eastern European countries are already above pre-pandemic levels.
Marek Rozkrut
Head of EY EMEIA Economists Unit
10 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Foreign investment set to rebound following 2020 downswing
Figure 4: Europe expected to be most attractive
for foreign investment post- COVID-19
Q. W
hich of the following regions do you believe will be the most attractive to establish operations once the
COVID-19 pandemic is behind us? Please select your top three choices. (Note: 83% of surveyed businesses
already have a presence in Europe, so these findings predominantly reflect a European view of global attractiveness.)
Western Europe 80%
Central and Eastern Europe 64%
North America 63%
China 53%
India 49%
Japan 47%
Brazil 33%
Other Asia 26%
North Africa 18%
Middle East 16%
Sub-Saharan Africa 14%
Russia 13%
Latin America 12%
Oceania 8%
Can't say 1%
Source: EY Attractiveness Survey Europe June 2021 (total respondents: 550).
EY Attractiveness Survey Europe June 2021 11Foreign investment set to rebound following 2020 downswing
“
At the forefront of all our minds right
now is the pandemic and the impact
of that pandemic, both in terms of
financial markets and how quickly
In the near term, the survey points to a rapid rebound: we’ll recover. Fortunately, the vaccine
40% of surveyed businesses plan to establish or expand
operations in Europe during the next 12 months, a
is coming much quicker than we
significant increase on the 27% that had such plans in thought it would, so I am cautiously
2020 and 2019. In fact, appetite to invest in Europe is at
optimistic that we're going to come
its highest level since the financial crisis.
The pace at which investment recovers will likely vary
out of this faster than we hoped,
significantly across sectors. Investment in industries least than anybody would have thought.
impacted by COVID-19, including consumer, industrials,
digital and life sciences, will likely recover much faster
than those that remain depressed, including transport Pravina Ladva
and hospitality. Group Chief Digital Transformation Officer
Swiss Re
Figure 5: Investors are confident that Europe’s
attractiveness will increase in the next three years
Q. T
o what degree do you think Europe's attractiveness will evolve over the next three years?
2% It will significantly decrease
2% Can't say
3% It will slightly decrease
16% It will significantly improve
31% It will stay the same
46% It will slightly improve
Source: EY Attractiveness Survey Europe June 2021 (total respondents: 550).
12 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Foreign investment set to rebound following 2020 downswing
Headwinds
remain
However, executives polled by EY professionals say there Looking further into the future, Europe could become less
are a number of short- and long-term risks to Europe’s attractive if it falls behind in delivering what foreign investors
attractiveness. In the short term, the vaccine-driven economic value most:
recovery could falter if new vaccine-resistant strains of
• Stable political and regulatory regimes
COVID-19 emerge that require a return to social distancing.
• A highly skilled workforce
Economic growth and foreign investment activity could also
be dampened if the curtailing of various forms of COVID-19 • Robust transport, energy and telecoms infrastructure
support happen too quickly or have a greater negative impact • Cost competitiveness
than previously anticipated.
Currently, Europe performs well on all of these measures by
Then there are longer-term threats. The survey reveals that
international standards. But with other regions competing
businesses think protectionism and uncertainty about tariff
for FDI, there is no room for complacency (Chapter 3
and trade policies represent a greater threat to Europe’s
explores how Europe is preparing to maintain its long-term
attractiveness than they did in 2020. The US’s vast economic
attractiveness in more detail).
stimulus package also has the potential to attract some FDI
away from Europe.
“
The stimulus can't go on forever, so it's really
a matter of when, not if, taxes will go up. We saw
in the UK’s budget announcement that's certainly
in the cards, and if we put all of that and then the
cons of policy items in terms of sustainability and
green taxes and the whole energy transition, it gets
even more challenging for companies like BP.
Jan Lyons
Senior Vice President, Tax, BP
EY Attractiveness Survey Europe June 2021 13Foreign investment set to rebound following 2020 downswing
Strategic risks in focus: investors wary will issue and update regulatory frameworks that will set
of simmering geopolitical, regulatory not only European but possibly also global standards. This
and trade tensions will greatly impact the European investment environment,
especially in the digital and environmental sectors, bringing
Despite the current optimism surrounding Europe, investors both risks and opportunities. The European Commission has
are concerned about global and local political risks proposed the Digital Markets Act and Digital Services Act to
(see Figure 6). An EY survey of global executives confirms regulate the digital sphere and big tech. And much work will
that political risk is top of the agenda1: 94% say that their be done to update the EU’s legislative framework in order to
company was impacted by unexpected political risks at least enable the continent and its businesses to meet its emission
some of the time in the past 12 months and, over the next reduction target of 55% by 2030. The single most important
12 months, 49% expect the effect of political risk on their challenge will be to lead the way and transform while not
company to be higher than it is today. compromising European competitiveness.
The COVID-19 pandemic has accelerated many existing Globally, rivalries between big powers and the disentangling
trends, including greater regionalization and protectionism, of US-China interdependence, as well as the geopolitics of
especially in strategically important sectors. In this context technology and data, will result in trade tensions and tariff
of global tension, especially between the US and China, uncertainty. Within Europe, the lingering consequences
European countries and the EU are working to define their of Brexit, a new German Chancellor after 16 years of
place and role. Angela Merkel and, more generally, the political, economic
A determined move toward strategic autonomy2 will define and social consequences of the pandemic will determine
European regulatory output over the next few years. The EU the political risk environment.
“
Europe can’t transform its economy and society alone.
Whether it be raw materials to produce batteries or the
skills to advance artificial intelligence, Europe will need
access to global value chains. The key risk to Europe’s
attractiveness is that we try to do all this ourselves,
that we look inward instead of outward.
Alessandro Cenderello
EY Managing Partner for EU Institutions
EY, Geostrategy in Practice Survey, May 2021.
1
EY, 2021 Geostrategic Outlook, December 2020.
2
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Foreign investment set to rebound following 2020 downswing
By introducing FDI screening, export controls and new far less protectionist approach. In considering its next
competition laws, some governments have intervened in a move, it must strike a careful balance between promoting
way that even more directly impacts foreign investment in foreign trade and investment and managing the risks that
Europe. By international standards, the EU has adopted a this brings.
Figure 6: Risks to Europe’s attractiveness
in the next three years
Q. What are the three main risks affecting Europe’s attractiveness
over the next three years? Select up to three options.
41% Rise in protectionist
feelings among politicians
and populations
The evolution of European
33 % legislative framework on
Evolution of European
environment legislation
29% digital services
Uncertainty related
and policies to tariff and trade policies
27% High volatility in currencies,
commodities and other
Political instability 26% capital markets
in the EU
20% The EU without
Migration flows
15 % the UK
14% Limited innovation
Environmental
concerns
13 %
capacity in Europe
Aging population
12% Skills shortages
Source: EY Attractiveness Survey Europe June 2021 (total respondents: 550).
EY Attractiveness Survey Europe June 2021 15Life sciences and
e-commerce: rare bright
spots for investment
France, the UK and Germany
are tied as Europe’s top
investment destinations
Manufacturing investment fell
22%
2
due to supply chain disruption
and uncertain demand;
e-commerce logistics and
R&D investment both increased
Investment across all
major sectors fell, with
the exception of life sciences
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Life sciences and e-commerce: rare bright spots for investment
A three-horse race For example, France, the UK and Spain saw their economies
shrink by 8.2%, 9.9% and 11.0% respectively in 2020. All
between Europe’s three countries experienced double-digit annual declines in
foreign investment, with Spain experiencing the biggest drop
largest economies (see Figure 7). By contrast, Germany’s economy only shrunk
by 4.9% and, in turn, only suffered a 4% decline in foreign
investment. The result? Germany has caught up with France
and the UK to the extent that the three are tied as Europe’s
Foreign investment fell in 8 of Europe’s 10 largest FDI top investment destinations.
destinations. But some countries proved more resilient than Foreign investment increased in only 7 of Europe’s 20 largest
others. A wide range of factors determine the attractiveness markets. Investment in these countries has historically been
of individual countries, but in the year dominated by much lower than in France, the UK and Germany, meaning
COVID-19, the countries that best weathered the pandemic significant swings in investment levels are more likely. By
and minimized economic losses also suffered the smallest contrast, investment was particularly weak in Hungary (–54%),
declines in foreign investment. Serbia (–32%), Spain (–27%), Romania (–27%) and Russia (–26%).
Figure 7: Number of foreign investment projects announced in Europe
Rank Country 2019 2020 Change 2019/20 Market share (2020)
1 France 1,197 985 –18% 18%
2 UK 1,109 975 –12% 17%
3 Germany 971 930 –4% 17%
4 Spain 486 354 –27% 7%
5 Belgium 267 227 –15% 4%
6 Poland 200 219 10% 4%
7 Turkey 176 208 18% 4%
8 Netherlands 255 193 –24% 4%
9 Ireland 191 165 –14% 3%
10 Portugal 158 154 –3% 3%
11 Russia 191 141 –26% 3%
12 Italy 108 113 5% 2%
13 Finland 75 92 23% 2%
14 Switzerland 73 91 25% 2%
15 Austria 69 76 10% 1%
16 Sweden 63 75 19% 1%
17 Serbia 103 70 –32% 1%
18 Romania 78 57 –27% 1%
19 Lithuania 60 53 –12% 1%
20 Hungary 105 48 –54% 1%
Other countries 477 352 –26% 6%
Total 6,412 5,578 –13% 100%
Source: EY European Investment Monitor (EIM) 2021.
EY Attractiveness Survey Europe June 2021 17Life sciences and e-commerce: rare bright spots for investment
#1 France
FDI projects Change 2019/20
985 –18%
13
• Top destination for manufacturing
(341 projects) 16
11
• Top destination for R&D projects 9 19
despite 23% drop (+4% for Europe) 2
8
5 6
3
1
14 15
20
18
10 17
4 12
7
Rank Country FDI projects Change 2019/20
• Top destination for headquarters (94 projects)
#2 The UK 975 –12% • Greater London region particularly affected, with a –29%
drop (from 538 to 383)
• Top destination for data centers (34 projects)
#3 Germany 930 –4% • Top destination for business services (138 projects)
• 2nd largest destination for transport and logistics projects
#4 Spain 354 –27% (40 projects)
• On average, each project creates 135 jobs (vs. 34 in France,
48 in Germany)
• 3rd largest destination for transport and logistics (33 projects)
#5 Belgium 227 –15% • The Flemish region is the fifth in Europe for R&D projects
• Top destination in Central and eastern Europe
#6 Poland 219 +10% • 6th largest destination for manufacturing (77 projects)
• 2nd largest destination for manufacturing (153 projects)
#7 Turkey 208 +18% • 2nd largest destination for projects in chemical, plastics
and rubber (48 projects)
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Life sciences and e-commerce: rare bright spots for investment
Rank Country FDI projects Change 2019/20
• 2nd biggest drop in terms of number of projects compared
#8 Netherlands 193 –24% to 2019 in the top 10
• 6th largest destination for software and IT services (50 projects)
• 6th largest destination for software and IT services
#9 Ireland 165 –14% (50 projects)
• 6th largest destination for business services (40 projects)
• 6th largest destination for software and IT services, which represents
#10 Portugal 154 –3% more than a third of the total number of projects (50 projects)
• Top activity: manufacturing (37 projects)
• Top sector: machinery and equipment (21projects)
#11 Russia 141 –26% • Top activity: manufacturing (107 projects)
• Top sector: business services (15projects)
#12 Italy 113 +5% • Lombardy is the leading Italian region with more than half
of the projects (58 projects)
• Top sector: Software and IT services(15projects)
#13 Finland 92 +23% • Top activity: manufacturing (22 projects)
• Top sector: Software and IT services (20 projects)
#14 Switzerland 91 +25% • Top activity: business services (40 projects)
• Top sector: Software and IT services (12 projects)
#15 Austria 76 +10%
• Top sector: Software and IT services (24 projects)
#16 Sweden 75 +19% • Almost a third of the projects are related to business
services (23 projects)
• Top sector: Transportation, manufacturing and suppliers
#17 Serbia 70 –32% (21 projects)
• Top activity: manufacturing (56 projects)
• Top sector: Software and IT services (18 projects)
#18 Romania 57 –27% • Top activity: logistics (17 projects)
• Top sector: Software and IT services (23 projects)
#19 Lithuania 53 –12% • Top activity: Research and Development(19 projects)
• Top sector: Machinery and Equipment (7 projects)
#20 Hungary 48 –34% • Top activity: manufacturing (22 projects)
EY Attractiveness Survey Europe June 2021 19Life sciences and e-commerce: rare bright spots for investment
France: attracting most projects Germany: proving resilient
France tops the foreign investment country rankings by International businesses announced 930 FDI projects in
10 projects. Businesses announced 985 new investments Germany in 2020, a 4% annual decrease. Because Germany’s
in France, an 18% annual decrease. Investment declined pace of investment held up relatively well compared to that of
significantly because key sectors such as aeronautics and both France and the UK, the country was able to narrow the
hospitality were significantly disrupted by the pandemic; gap with the two largest FDI destinations.
also, the number of projects announced in the previous year
Investment proved resilient because Germany’s good
was uncharacteristically high. In 2019, investment rocketed
management of the pandemic in 2020 allowed it to cushion
by 17%, propelling France to attract more projects than any
its impact on GDP, which only declined in Germany by half as
other European country for the first time. Still, labor and
much (–4.8%) as it did in the UK (–9.9%).3 In addition, exports
tax reforms in recent years, combined with its large market
remained strong, as Germany benefited from the early
size, helped France to maintain its position as Europe’s top
Chinese rebound. Looking at specific categories of FDI, the
investment destination.
number of logistics projects more than doubled from 63 to
Manufacturing investment fell in France by 17%. Despite 129 year on year. By contrast, the number of manufacturing
this, the country maintains its European leadership in projects decreased by 37% and 33% compared with 2019
manufacturing, ahead of Turkey, accounting for 25% of and 2018 respectively.
all FDI manufacturing projects in Europe. Around 8 in 10
manufacturing projects in France involved existing investors
expanding operations rather than investment in completely
new projects.
UK: still facing Brexit uncertainty
Foreign investors announced 975 projects in the UK in 2020,
a 12% annual decline. Despite the double-digit decrease,
investment declined less severely than in France, leaving
the two tied as the top destination for investment.
Amid ongoing Brexit uncertainty last year, just 112
manufacturing projects were announced in 2020, down 15%
on 2019 and 20% on 2018. Although the long-term economic
impact of the trade deal with the EU remains to be seen —
and the manufacturing sector may suffer further — investors
appear comforted that a deal was signed.
Foreign investment in the UK could have declined by an
even greater extent had it not been for its dominance in
service-based projects, which include business and shared
services centers, regional headquarters, contact centers
and R&D facilities. The UK attracted 21% of all service-based
investment projects in Europe in 2020. It performed
especially well in R&D, securing 114 such projects in 2020,
a 12% and 54% increase on 2019 and 2018 respectively.
IMF World Economic Outlook, April 2021.
3
20 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Life sciences and e-commerce: rare bright spots for investment
Manufacturing FDI suffers major sectors, with the exception of life sciences, where the
number of projects rose 50% annually to 105. However, despite
most, and reshoring help the decline, there are reasons for optimism. Following a 12.8%
contraction in 2020, industrial product manufacturing across
is not on the way the Eurozone is expected to grow by 9.6% in 2021 and 4.1% in
2022.4 This positive outlook may attract more manufacturing
FDI in 2021 and beyond.
Logistics FDI increased but could not compensate for the
Not all FDI project categories are equal for the countries decline in manufacturing investment: 595 projects were
and cities that welcome them. Industrial projects (including announced last year, an 11% annual increase. Notably, 80% of
manufacturing, logistics, and testing and services sites) are the increase was accounted for by Amazon, which doubled its
most highly sought after because they create significant number of logistics projects in Europe last year to cater for a
numbers of qualified jobs and have a strong economic spike in online shopping.
multiplier effect. R&D FDI posted a minor increase: 574 R&D centers were
Just 1,320 manufacturing projects were announced in announced in 2020, a 4% increase on 2019. Investment was
2020, a 22% decrease on 2019 and a 33% decline on 2018 particularly strong in the life sciences sector, where the number
(see Figure 8). Manufacturing investment declined in all of R&D projects more than doubled to 75 projects.
Figure 8: Major foreign investment
categories (drop in Europe)
2019 2020 Change 2019/20
Manufacturing facilities 1,684 1,320 –22%
Logistics 534 595 +11%
R&D centers
552 574 +4%
Source: EY European Investment Monitor (EIM) 2021.
Oxford Economics, March 2021.
4
EY Attractiveness Survey Europe June 2021 21Life sciences and e-commerce: rare bright spots for investment
Supply chain resilience prioritized
over reshoring
Supply chain relocation could have a significant impact on Currently, many companies would prefer to avoid disruptive
FDI in Europe. When the pandemic first hit, severe supply and costly reorganizations. Asia is showing solid signs
chain disruption caused many businesses (83%) to consider of recovery, and multinationals will maintain a presence
nearshoring or reshoring back to their domestic market. there for now. Even so, some may relocate selected critical
This would have significantly impacted foreign investment in activities to Europe, mitigating future disruption risks, but
Europe, with international businesses potentially relocating it will take time and incentives to drive mass investments
operations away from Europe coupled with some European in Europe.
businesses returning to Europe. But one year later, the survey Although businesses are less keen to reshore and nearshore
data reveals that most businesses have not pursued these operations than they were 12 months ago, there is stronger
plans, with just 20% planning to reshore operations to their appetite to reduce their dependence on single or dominant
domestic market and only 23% expecting to nearshore closer source countries and to operate more regional-based
to customers (see Figure 9). supply models.
“
Both the pandemic and the escalating geo-political trade
tensions mean that many advanced manufacturing and
mobility businesses are looking at supply chain resilience as
a key area of focus. In practice, this is likely to lead to more
regional supply chains, with a corresponding likelihood of
reinvestment in the supply chain moving to Europe.
Peter Matthews
EY UK&I Advanced Manufacturing & Mobility Leader
22 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Life sciences and e-commerce: rare bright spots for investment
Figure 9: Limited appetite for major
supply chain restructuring
Q. H
ow will you change your supply chain model compared
with what it was before COVID-19 ?
Reduce the dependence of our supply chain
39%
from single-/dominant-source countries
Operate more regionally
34%
based supply models 23% Nearshore closer to our customers
20%
Reshore activity back to
our domestic market
19%
Increase our manufacturing
16%
presence in Europe
Transition to lean or
additive manufacturing
30% None of these options
Source: EY Attractiveness Survey Europe June 2021 (total respondents: 550).
EY Attractiveness Survey Europe June 2021 23Life sciences and e-commerce: rare bright spots for investment
Sectors: a mixed bag
of growth, resilience
and distress
With the exception of life sciences, foreign investment fell COVID-19 significantly influenced investment levels in each
in all major sectors in 2020 (see Figure 10). But some sector. The pandemic restricted the movement of people, so it’s
industries were hit much harder than others. Investment in the no surprise that investment fell in mobility-related industries.
automotive and aeronautics industries declined by more than By complete contrast, the life sciences sector faced a surge in
30%, while investment in the machinery and equipment and demand, which explains the 62% spike in projects.
finance sectors fell by more than 20%. By contrast, investment
in the wholesale, retail and distribution, and chemicals sectors
was more resilient, declining by just 2% and 5% respectively.
Figure 10: The top 10 sectors for foreign investment in Europe (2020)
Sector 2019 2020 Change 2019/20 Market share (2020)
Software and IT services 1,219 1,046 –14% 19%
Business services and professional services 774 691 –11% 12%
Machinery and equipment 536 425 –21% 8%
Agri-food 377 322 –15% 6%
Transportation manufacturers and suppliers 472 305 –35% 5%
Financial services 367 285 –22% 5%
Chemicals, plastics and rubber 283 268 –5% 5%
Life sciences 164 265 62% 5%
Electronics 291 259 –11% 5%
Wholesale, retail and distribution 246 240 –2% 4%
Other 1,683 1,472 –13% 26%
Source: EY European Investment Monitor (EIM) 2021.
24 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Life sciences and e-commerce: rare bright spots for investment
The investment dynamics in notable sectors are outlined below: projects in France in 2020 compared with 2019, meaning
France has slipped below Germany as the largest attractor
• Software and IT services remains, by some distance,
of business and professional services investment. Surveyed
the largest sector attracting foreign investment in Europe.
businesses are not bullish on the prospects for FDI in this
Businesses in this sector announced 1,046 projects in
sector, only ranking it sixth in terms of its potential to
2020, a 14% annual decrease. This accounts for 19% of all
drive future growth. This is likely a result of companies in
foreign investment projects in Europe. Investment in this
distressed sectors cutting outsourcing contracts, which can
sector was down significantly in the UK (–30%) and France
be done at relatively short notice.
(–29%), but increased in Germany (+13%). Despite the
annual decrease in investment, the overall outlook remains • Transportation manufacturing FDI suffered the largest
bright. When asked which sectors will drive Europe’s growth decline of all major sectors in Europe: just 305 projects
in the coming years, the digital sector was cited most were announced in 2020, a 35% decrease on 2019 and
frequently (see Figure 11). a 43% decrease on 2018. The limitations on movement
during much of 2020 and into 2021 dampened investment
• Business and professional services companies
levels significantly. Though investment in this sector fell in
announced 691 projects in 2020, an 11% annual decrease.
France (–27%), the UK (–23%) and Germany (–15%) in 2020,
Accounting for 12% of all foreign investment projects in
these countries still attracted around half of total foreign
Europe, this is the second-largest sector for investment.
investment across the continent.
Notably, businesses in this sector announced 23% fewer
“
The trade dispute between the US and China could actually cement
the US’s dominance, with the country recently convincing TSMC
and Samsung to invest in leading-edge manufacturing. The potential
opportunity for Europe is that many companies are now reviewing their
supply chain amid ongoing trade uncertainty. The challenge will be for
European leaders to put in place incentives to encourage investment.
Tom Loozen
Partner and EY Global Telecommunications and EMEIA TMT Leader
EY Attractiveness Survey Europe June 2021 25Life sciences and e-commerce: rare bright spots for investment
• Financial services companies announced 285 projects in • Life sciences FDI was robust in 2020. Businesses in this
2020, a 22% yearly decline. Historically, the UK has secured sector announced 265 projects, a 62% increase on 2019.
the highest levels of FDI in financial services across Europe. The number of life sciences projects doubled in a number
Whilst the UK maintained its top position in 2020, the of countries, including France, Germany and Belgium, while
number of FDI projects fell to 56 (a 43% annual decrease) the number surged by 62% in the UK. The increase was
which places it just marginally ahead of France (49 projects) driven by businesses catering for surges in demand for the
and Germany (37 projects). vaccines, treatments and PPE needed to combat COVID-19.
“
2020 was an incredibly challenging year for
the financial services industry, but the pandemic
also revealed a once-in-a-generation opportunity
for transformation. CEOs across the sector
believe that 2021 looks set to remain extremely
challenging, but are more optimistic over the
longer-term, with technology transformation
helping the industry to better respond to
evolving customer demands. The acceleration
of digital transformation over the last year will
continue apace. The pace of recovery is also very
dependent on stronger consumer confidence
and increased access to capital.
Zeynep Deldag
EY Netherlands Banking and capital markets leader
26 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Life sciences and e-commerce: rare bright spots for investment
Figure 11: The digital economy, CleanTech and
renewables will drive Europe’s future growth
Q. W
hich main business sectors will drive Europe's growth in the coming years?
Please select your top two options.
Digital economy (IT, telecoms and media) 51%
CleanTech and renewables 36%
Healthcare and wellbeing 27%
Automotive and mobility 21%
Financial services 17%
Business services 16%
Energy 12%
Consumer industry (including agri-food) 11%
Real estate and construction 3%
Can't say 2%
Other 1%
None 1%
Source: EY Attractiveness Survey Europe June 2021 (total respondents: 550).
EY Attractiveness Survey Europe June 2021 27Skills, sustainability,
stimulus and simplification:
the key ingredients for
long-term attractiveness
3
28 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Skills, sustainability, stimulus and simplification: the key ingredients for long-term attractiveness
The survey data paints an encouraging picture of Europe’s • The acceleration of technology for customer access,
long-term attractiveness. But policy-makers cannot become cost reduction and new work environments
complacent. All regions, countries and cities vie for foreign • A sharper focus on climate change and sustainability
investment, and the factors that businesses consider most in investment decisions, including social and
important when determining where to invest are evolving. societal concerns
Take infrastructure as an example. Many years ago,
• An expectation that multidimensional policies will
transport infrastructure swayed investment decisions.
play a role in economic recovery and encourage
Today, businesses consider digital infrastructure as
international investment
a critical factor: three-quarters cite the rate of 5G rollout
as important in determining which countries they invest in, Knowing that these factors will increasingly influence
and 25% say this is critically important. investment decisions, EY professionals recommend that all
three layers of government; European, national and local
This is just one example. The skills businesses need are
authorities adopt a four-pronged approach to bolstering
rapidly shifting toward digital capabilities. Then there is
Europe’s long-term attractiveness:
the sustainability agenda, which is growing in significance
1
and increasingly influencing location decisions. All of
Revamp Europe’s digital capabilities
these trends were accelerated by COVID-19. For Europe,
2
this means that it must not only continue to do the basics
Cement Europe’s sustainability supremo status
well, but also be agile enough to cater for businesses’ new
demands when considering investment destinations.
EY research shows that executives making location decisions 3 Implement multidimensional stimulus policies
4
expect three trends to accelerate in the next three years as a Continue down the hard path of tax harmonization
result of COVID-19 and therefore increasingly influence their and transparency
European investment plans (see Figure 12):
EY Attractiveness Survey Europe June 2021 29Skills, sustainability, stimulus and simplification: the key ingredients for long-term attractiveness
Figure 12: COVID-19 will accelerate digital
and sustainability megatrends
Q. Which of the following trends do you expect to accelerate most in the next three years as a result of COVID-19?
Digital customer access to services 29%
Focus on sustainability and climate change 17%
Adoption of technology that automates manual
human processes
14%
Government intervention in, and regulation of,
business and the wider economy
12%
Reversal of globalization 12%
Geopolitical tensions 11%
Reshored’ or ‘nearshored’ supply chains in Europe 5%
Source: EY Attractiveness Survey Europe June 2021 (total respondents: 550).
5
Bruegel: Setting Europe’s economic recovery in motion: a first look at national plans, Bruegel
30 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Skills, sustainability, stimulus and simplification: the key ingredients for long-term attractiveness
Revamp Europe’s
digital capabilities
COVID-19 has rapidly accelerated the adoption of technology universities create graduates with broader technology skills,
by both businesses and consumers. When asked which trends and factor this into their location decisions.
they expect to accelerate most in the next three years as a
European policy-makers understand the importance of
result of COVID-19, businesses ranked digital customer access
digital upskilling and reskilling, and have made these crucial
to services first and the adoption of technology that automates
components of their COVID-19 economic recovery plans. The
manual human processes third.
European Commission lists this as one of seven core focus
Technology-related factors have long influenced where areas for Member States, while some national stimulus plans
businesses locate their operations, and COVID-19 has for growth include a series of measures to enhance skills.
cemented this. But which issues are most important? Governments’ focus on skills is admirable and should be
According to the survey data, the availability of a workforce welcome news for investors, given that it is the top factor that
with technology skills is most important: 92% say this is either determines their location decisions. That said, it is imperative
critical (43%) or important (49%). that governments engage with industry so that they harness
the capabilities that industry will need in the future. European
Whether it be cloud computing, data analytics, remote sensors
governments have not always done this as much as their
or artificial intelligence, the type of digital skills that businesses
counterparts in Asia and the US.
need depends very much on the type of business and the
technologies it is developing and deploying. Given the rapid In addition, 20% of the national recovery programs under
emergence of new technologies, even businesses themselves the EU Next Generation Recovery Fund need to be spent on
might not know which digital skills they will need 5 to 10 years digitalization projects. Italy has decided to spend €42b of its
from now. Therefore, rather than trying to evaluate how many, €204.5b national plan on digitalization (21%), Germany €15b
for example, artificial intelligence or sensor experts could be out of €27.9b (54%), Spain €16b out of €69.5b (23%) and
employed in a certain region, many businesses analyze which France €10b out of €41b (24%).5
EY Attractiveness Survey Europe June 2021 31Skills, sustainability, stimulus and simplification: the key ingredients for long-term attractiveness
Viewpoint
External viewpoint
Jovita Neliupšienė
Vice Minister, Ministry of the Economy
and Innovation of the Republic of Lithuania
“
We are striving for Lithuanian companies to reorient
toward the creation of high value-added, digital
and innovative industry; focusing on investments
in the Lithuanian IT, communications and financial
technology sectors and on attracting investment
into manufacturing and life sciences.
32 EY Attractiveness Survey Europe June 2021ey.com/attractiveness
Skills, sustainability, stimulus and simplification: the key ingredients for long-term attractiveness
External viewpoint
Maintaining Lithuania’s
attractiveness
Lithuania is attractive to investors because of its talent. period of up to 20 years (the Green Corridor incentive) is
Many people have higher education, and we have a particularly relevant — and unique to Lithuania. Within free
higher-than-average number of graduates per thousand economic zones, Lithuania also applies a corporate profit
people in the field of science, technology, engineering tax exemption to companies for 10 tax periods, and a
and mathematics (STEM). 50% reduction for a further 6 periods thereafter.
But we want to do more. Therefore, the national In addition, R&D expenses are allowed to be deducted from
Government, together with the OECD, has developed taxable income three times in the tax period in which they
the Lithuanian skills strategy. This covers four priorities: are incurred. A reduction of taxable profit to 50% is also
developing the skills of young people; increasing the applied if the company invests in significant technological
participation of adults and enterprises in training; improvements.
using skills in the workplace; and strengthening the
governance of the skills system. We have received about Life sciences is primed for further growth
60 recommendations on how to improve these areas and
We are striving for Lithuanian companies to reorient
are now focused on implementing them.
toward the creation of high value-added, digital and
Aside from skills, other initiatives we have put in place innovative industry; focusing on investments in the
to improve our attractiveness include the creation Lithuanian IT, communications and financial technology
of financial instruments for the development of sectors and on attracting investment into manufacturing
infrastructure in Lithuania’s regions, strengthening and life sciences.
the innovation ecosystem, digitizing public services,
Over the last few years, the Lithuanian life sciences
and generally creating a more transparent and
sector has grown tremendously and currently contributes
business-friendly environment.
2% of Lithuania's GDP. The Government has an ambitious
strategic goal for this sector of 5% of GDP by 2030.
Tax incentives are key to attracting
particular investment
Tax incentives, competitive tax rates and various
financing programs are crucial to attracting R&D and Jovita Neliupšienė
manufacturing companies. The initiative to exempt Vice Minister, Ministry of the Economy
profits from large-scale investment projects for a and Innovation of the Republic of Lithuania
EY Attractiveness Survey Europe June 2021 33Skills, sustainability, stimulus and simplification: the key ingredients for long-term attractiveness
The new ”phygital” workplace will require There are, in fact, multiple reasons. For a start, businesses
new tech skills and location strategies believe that the choice of quality locations will be crucial to
attracting and retaining employees, even with increased remote
Businesses’ desire to locate their operations in locations where working. In addition, many businesses want workers to be
there is an abundance of workers with technology skills may present in the office for at least some time in order to foster
seem surprising, given that many have now operated remote a collaborative working culture.
or distributed working for over a year and will likely continue
More than three-quarters of surveyed companies pinpoint
to do so.
the rate of digital adoption by the general population, IP rights
According to EY research, remote working will grow from protection, the regulatory approach to data, the availability
20% of employees being offered at least 20% of remote of VC and other finance, as well as the rate of 5G rollout as
working time pre-COVID-19 to at least 60% of employees being important to determining where they locate. (see Figure 13).
allowed to work at least 40% of their time remotely.6 This raises
an important question: if employees can productively work
from home, why do businesses need to pay attention to the
presence of talent as part of their location strategies?
In our industry, 5G, edge cloud, network function virtualization
and network APIs unlock exciting new business models. Network
“
functions become available ‘as a service’ – capacity, speed, latency,
quality of service – dynamically, locally and on demand. Already
today we provide commercial enterprise mobile networks for
critical and highly sensitive environments, such as in mining.
Rainer Deutschmann
Group Chief Operating Officer, Telia
6
EY and Urban Land Institute, Future of Work: a global real estate player’s point of view on the Future of Work and its impact on real estate, 2020.
34 EY Attractiveness Survey Europe June 2021You can also read
