Foreign investors not scared of Europe, but more selective

The ongoing euro-zone crisis hasn’t scared foreign investors away from Europe, but it has made them more selective about where in Europe they spend their money on expansions that create jobs.

Foreign direct investments flowing to Europe were up 6.3% in the first half of 2012 compared with the same period a year earlier, according to Ernst & Young research. The UK received the largest share of European FDI projects, followed by France, Spain and Germany.

Western Europe received the most projects but not the most jobs. Three out of four FDI projects went to western Europe, but the 25% that foreign companies took to central and eastern Europe created 54% of the jobs.

“The international business community realizes that the European market is too big to ignore,” the E&Y report says. Also, Europe offers foreign investors diverse and productive labour skills, a competitive innovation climate and superior infrastructure. But slowing economic growth and a higher likelihood of political instability and cumbersome regulations in emerging economies also play a part.

“Looking around the world, there are few regions or countries that offer [investors] an entirely risk-free environment,” the report stated.

The number of FDI projects going to Europe and the number of jobs they created have been increasing steadily since 2010. During the first half of 2012, FDI projects created 78,299 jobs in Europe, the second highest number halfway through the year since 2007.

Within Europe, central and eastern European countries not only tend to be more cost-competitive, several have also become a lot more business-friendly, a World Bank report suggests.

Poland, Ukraine and Serbia were among the ten countries worldwide that reformed their regulatory environment the most in the past year, according to the World Bank. Poland, which was the most improved, made it easier in the past year to register property, pay taxes, enforce contracts and resolve insolvency. Other central and eastern European countries that passed at least three regulatory reforms in the past year included Slovenia, the Slovak Republic, Hungary and the Czech Republic.

The E&Y research also concluded that:

  • Automotive components and assembly companies were the foreign investors that created the most European jobs in the first half of the year (33.1%).

  • Logistics companies such as US-based FedEx Express accounted for the largest portion of FDI projects in Europe during the first half of the year (19.4%).

  • US companies, particularly in the business services and software industries, were the largest foreign investors in Europe during the first half of the year (32.5%).

  • Companies based in BRIC countries (Brazil, Russian, India and China) accounted for 5.7% of FDI projects and 7% of job creation in Europe during the first half of the year.

  • In the first half of the year, the euro zone reported a total loss of 158,806 jobs and a total gain of 110,332 jobs.

Related CGMA Magazine content:

Europe Remains Hot Spot for Foreign Investors”: Europe is holding up as a key destination for foreign investors despite the euro-zone crisis and competition from the world’s rapid-growth economies, an Ernst & Young study suggests.

Mid-Size US Companies Continue to Look for Greener Pastures Abroad”: With the US economy still relatively sluggish, mid-size US companies are increasingly looking for opportunities to boost revenue overseas, a KPMG survey shows. Canada and Europe top their list of preferred locations, followed by China, Mexico and India.

The Most Business-Friendly Countries off the Beaten Path”: Small and mid-size companies looking for business-friendly markets overseas should check out a World Bank report that tracks regulatory reform efforts in 185 countries. Many of the top improvers are rarely found among up-and-coming economies.

Sabine Vollmer ( is a CGMA Magazine senior editor.