Analysis reveals that the COVID-19 pandemic disrupted many business plans leading to the delay or cancellation of 35% of 2019 foreign direct investment (FDI) projects into Europe, according to the 20th edition of EY Europe Attractiveness survey.
This comes as analysis of 2019 projects highlights stronger YoY performance compared to the 2018 (0.9%, up from -4%)
Based on research conducted in April 2020, 49% of respondents believe Europe is at risk of becoming a less attractive investment destination amid concerns over future economic instability as a result of the pandemic. However, in the near-term, investors remain bullish, with 51% of business leaders expecting a minor decrease in the number of new projects initiated, while 11% of respondents expect no deviation from their plans in 2020.
Alongside this, 80% of leaders surveyed in April 2020 stated that government stimulus packages influence their investment decisions and will favor nations with stronger COVID-19 pandemic stimulus support measures in place.
Mapping FDI
Data reveals that 52% of FDI projects between 2015-2019 originated from countries within Europe, demonstrating FDI from Europe can be an incredible economic and transformational force for Europe. Analysis of projects in 2019 found that seven of the top ten investor countries were within Europe. Almost a quarter (23%) of projects originated from the United States.
The analysis of FDI destinations found that in 2019 France saw the largest increase in new projects up 17% YoY, with 1,197 new projects – resulting in France overtaking the UK as the most attractive destination in Europe for the first time. Despite a drop-in the number of investment projects into Germany in 2018, analysis reveals that projects into the country remain level in 2019 (2019: 971 projects, 2018: 973 projects).
However, the United Kingdom remains attractive as investment increased by 5%, closely behind France with 1,109 projects in 2019. The UK growth aligns with a reduction of investors’ Brexit concerns, as just under a quarter (24%) of respondents (vs 38% in 2018) cite Brexit uncertainties as one of their top three risks to attractiveness across Europe.
The report highlights that sectors that require a specialized workforce, such as construction, saw projects rise by 158% in 2019 (209: 124 projects, 2018: 48 projects), while the Information, Communications and Media (ICM) sector also saw a significant increase in FDI projects by 117% (2019: 241 projects, 2018: 111 projects).
Despite strong performance in the textiles and clothing sector from Western Europe, FDI projects into central and eastern European countries fell, resulting in an overall sector decline of 22%. However, the survey found that almost four in ten (37%) businesses are considering an increase in their manufacturing presence in Europe.
While data suggests that projects within the digital sector have fallen slightly (-1% YoY), 55% of organizations surveyed plan to enhance their digital customer experiences and business-to-customer interactions, while 82% expect technology adoption to accelerate in the next three years – a direct result of the COVID-19 pandemic creating new challenges and opportunities for businesses.
FDI projects and job creation in Europe – a critical crossroad
Between 2003 and 2017, FDI projects accounted for over 11m new jobs within the European Union. However, due to the COVID-19 pandemic, the report reveals a potential decline of up to 50% in the number of new jobs created following the completion of FDI projects. To safeguard against such potential downturns, governments must adapt their education and training and development systems to help make sure it can offer a workforce with the right skills in the post-COVID-19 landscape.
Data suggests that the digital and business services sectors (including professional and legal services) generated almost a quarter of new jobs (24%) in 2019. Nations such as Ireland, Poland and Portugal, which attract FDI projects focused on service-orientated, software development and R&D, are likely to see new job creation rates remain high.
While the outbreak of COVID-19 is having an impact on numerous sectors and industries, the transportation sector (including automotive and aeronautic manufactures and suppliers) is facing the biggest risk.
The sector accounted for 23% of new jobs in 2019 (down from 25% in 2018). Research shows this sector has experienced the greatest supply chain disruption and revenue losses, leading to a greater proportion of projects being delayed, downsized or cancelled than in other sectors.
