Europe is at a crossroads. Recession has once again returned to haunt many economies, the Eurozone crisis continues and the dynamics of the global economy grind relentlessly onwards from west to east, and north to south. With policy-makers beset by limited funds and facing an ever-increasing chorus of protest from voters, the prospect of achieving sustainable economic growth seems, on the surface at least, out of reach.
But despite this tide of negativity, Europe’s fundamental strengths endure. While the spotlight has focused on the world’s rapid-growth economies, Europe, too, remains a hotspot for investors. Ernst & Young’s European attractiveness survey, which measures the reality of Foreign Direct Investment
(FDI) and the perceptions of more than 800 decision-makers, found that in 2011 inward investment projects increased by 4% on the previous year and total significantly more than pre-crisis levels. And not only was the average project larger, but FDI job creation surged 15% and the share of Europe’s global FDI inflows increased from 26.9% to 28.2%.
We are not suggesting that FDI can solve the problem of growth in Europe, nor create the millions of new jobs Europe needs. We measure the number of projects. Many of these start with a relatively small number of jobs. But they tend to add more over the years. In the United Kingdom, for example, enlargement of existing subsidiaries typically accounts for more than half of all projects. So FDI — project by project, year by year — plays a critical role in renewing Europe’s stock of businesses, technologies, and ideas. And an uptick is a vote of confidence at a time when confidence in the future is scarce.
The perception of Europe, too, appears positive. Our survey found that investors see Western Europe as second only to China as the most attractive destination for global FDI, with Central and Eastern Europe ranked third. Investors also remain confident about Europe: 81% say Europe will overcome its current economic problems.
Such results demonstrate that in these times of global economic difficulty, stalling growth, high sovereign debt and a fragmented political system are not insurmountable obstacles to investment projects. For many investors, especially those from eastern markets, such uncertainty is actually business as usual.
Our survey also found that two thirds see several Europes. Although many countries remain in economic difficulty, Poland, by contrast, is enjoying dynamic growth and Germany continues to go from strength to strength. Clusters of worldclass technology are flourishing in France, London is gearing up for this summer’s sporting extravaganza and there are even bright spots in otherwise distressed economies — Italy’s midmarket champions and Spain’s renewable energy industry are two important examples.
Does this mean that Europe’s policy makers merely need to sit tight in the expectation that good times are certain to return? On the contrary, securing Europe’s competitive advantage in our global economy is far from assured. Against the backdrop of the single currency in crisis, investors have also stressed the urgent need for solutions to Europe’s pressing educational, entrepreneurial and innovation challenges. Policy makers and business leaders need to come together in order to address these issues and create the conditions for balanced and sustainable growth. Continued strong FDI will be pivotal in achieving this goal.
And while there are many bumps in the road ahead, the potential exists for Europe to “emerge”, or perhaps re-ermerge, ready to leverage many of its inherent adavantages if it can also urgently address its challenges. As we present our tenth European Attractiveness Survey, we would like to thank the hundreds of decision makers and Ernst & Young professionals who have taken the time to share their thoughts with us over the past decade.
