The recently released Ernst & Young European Investment Monitor shows that the number of inward investment projects into the UK declined in 2002 by 5% (388 to 369) although it remains the largest market for inward investment by some way with 19% of the total.
France is the second largest market with 13%. It too declined slightly. Some countries in Western Europe saw a far more dramatic decline. Finland and Italy saw the biggest decreases in numbers of projects from 2001. Investment in Italy fell off by 44% whilst Finland saw a 33% drop. The only EU country to show a marked increased was Portugal, where investment grew by 23%.
London retained it’s top ranking as the preferred regional destination for investment in Europe with 125 projects in 2002 an increase of 33% on 2001. Paris overtook Catalonia to take second spot with 64.
Elsewhere in the UK it was a mixed picture. The South West and Wales did much better in 2002 than 2001 with 59 projects (up from 29) whilst the picture in the Midlands (down from 66 in 2001 to 44 in 2002) and Scotland (down from 36 to 25) was less rosy.
The UK share of inward investment in the software sector grew from 29% to 36% in 2002 driven principally by London. However, in the pharmaceutical sector, France (19%) overtook the UK (17%) as the leading recipient of inward investment. In the automotive components sector, the Czech Republic leapfrogged both France and the UK to take top slot with 18% of the total.
In terms of types of investment, manufacturing remains the single largest activity with 46% of all projects, increasing from 41% in 2001. This increase offsets the declines in R&D and sales and marketing. The UK has (just) overtaken France as the most favoured destination. Manufacturing projects into the UK increased by 14%, whilst those to France declined 18%.
The report noted that one important change in the last few years has been the shift of investment outside the EU. Since 2000, the share of inward investment to non-EU countries has risen from 20% to 32%.
‘Having a stable economy with low costs and flexible working practices is the reason why so much investment over the last few years has moved to destinations like the Czech Republic and is picking up in Russia and Turkey. This is reflected in the appearance of cities like St Petersburg and Istanbul in the top 20 investment destinations for the first time,’ according to Barry Bright, who heads up the Location Advisory team for Ernst & Young in the UK.
The US remains the top investor into Europe with 33% of all projects, a decline of 16% since 2001 when it comprised 37% of all investments, and a cumulative fall of 37% from 2000 when it was 44% of the total. There was a particular decline in large-scale projects.
Much of the gap left by absent US investors was filled in by increased investment into Europe from the Far East: China, Japan and South Korea and intra European: France, Germany and Italy. Noticeably, investment from the latter tended to be with countries outside the EU rather than with other member states.
Only 20 large-scale projects (over 1,000 jobs created) were identified in 2002, a dramatic decline from 36 in 2001 and 45 in 2000. Eleven of these were in Central and Eastern Europe. The shift in emphasis to smaller-scale projects resulted in only 242,000 jobs being created in 2002 compared to 340,000 in 2001, a decline of 29%.
Investment in 2003 has followed similar patterns. Whilst stock markets since the end of April have seen a ‘Baghdad bounce’ there have certainly been fears in certain European countries that future US investment decisions might be conditioned by support or otherwise by their countries for operations in the Middle East.
Bright believes that ‘US businessmen are hard headed when it comes to investment decisions. I have seen no evidence that they will feel any differently about setting up operations in France or Germany or for that matter in the UK or Spain.’