While the turbulence and uncertainty caused by the COVID-19 pandemic resulted in foreign direct investment (FDI) in Europe falling by 13% in 2020, 40% of respondents plan to establish or expand operations in Europe in the next 12 months, compared with 27% at the start of the COVID-19 pandemic, according to the annual EY Europe Attractiveness Survey.
The EY Europe Attractiveness Survey is based on qualitative research conducted in March and April 2021 with 550 international decision-makers – from companies across a range of industries and headquartered around the globe, from small and medium-sized enterprises (SMEs) to multinationals – and quantitative analysis of FDI projects announced in Europe in 2020. The survey finds that for the first time, France, the UK and Germany are virtually tied as Europe’s most attractive investment destinations, attracting 985, 975 and 930 projects respectively, owing to investment in Germany falling less precipitously than in France and the UK, as a result of the COVID-19 pandemic.
Critical ingredients for investors
Four key factors emerge from the survey as critical when investors decide where to invest:
1. Skills: The new role of technology triggered by the COVID-19 pandemic – in customer experience, more automated production lines and back offices, and “phygital” (physical and digital) work environments – means revamping Europe’s digital skills base is imperative. Eighty-two percent of respondents say the availability of a workforce with technology skills and 75% say countries with a 5G rollout plan are important factors in their choice of location.
2. Sustainability: Environmental sustainability will influence investors’ location decisions with 90% of respondents saying it is important to their investment strategy and 85% already consider Europe a “green leader”.
3. Stimulus: Foreign investors noted that national and European recovery plans are aimed at the long-term and deep-rooted transformation of economies and societies. Businesses also expect governments to provide short-term economic stimulus and help restart the European economy.
4. Simplification: Tax stability, transparency and harmonization are crucial as those doing business in Europe face a perfect storm of agreed changes and upcoming challenges. For example, standardized corporate tax rates will impact location strategies for investors as well as new digital business and environmental regulation and tax, which are to be defined.
Julie Teigland, EY EMEIA Area Managing Partner, says: “Business leaders around the globe are being propelled toward a paradigm shift, expedited by the COVID-19 pandemic. Success is beginning to be defined differently. The corporate world is entering the era of purpose-led growth, growth that is sustainable and delivers value that will benefit all stakeholders. FDI is one of the most impactful drivers of positive change in countries and for societies.
“Most of our respondents agree on the elements that will inform their future investments: skills, sustainability, stimulus and simplification. The fact that business leaders are making investment decisions with shared objectives is heartening and shows discussions shifting towards purposeful growth. More than ever, businesses are considering broader society, including the environment, in their strategies and are building trust among stakeholders as a result. It is this shift in focus that will enable Europe to thrive over the longer term.”