Top destinations for foreign direct investment

Western Europe overtook China to become the top destination for foreign direct investment last year, a recent study by EY shows.

Foreign direct investment in Europe saw a 36% year-on-year rise, to a new record high of $305 billion last year, when 43 European countries created 185,583 new jobs due to FDI, a 12% advance from 2013.

Western Europe became the top destination for investment last year, attracting 50% of FDI, up from 45% in 2013.

North American investment was up to 39% from 31%, pushing the region up to second place, while China saw a 6% decline in FDI projects, to 38% of global FDI, according to the survey of 808 decision-makers.

FDI flows decelerated to the lowest level since 2009 last year, when they fell to $1.2 trillion, 8% down from 2013.

FDI Flows for 2014

Top destinations for FDI have seen less money overall. Source: EY

The decrease in FDI would have been worse had it not been for the $130 billion sale of Vodafone of its stake in US mobile firm Verizon.

The fall in FDI was due to the weakness in the global economy, uncertainty about policy and geopolitical risks.

Flows to emerging markets were below potential, with sanctions on Russia cutting investment and the fall in commodity prices depressing investment in raw material production in Brazil.

The slower flows to emerging markets partly explain the rise in investment to Europe. Besides, lower energy prices, the weaker euro and quantitative easing “have added impetus to Europe’s investment appeal,” Marc Lhermitte, EY’s Head of International Location Advisory Services and author of the report, notes in a press release.

More than half (52%) of FDI projects and 30% of the jobs created by investments into Europe were taken by the top three destinations: the UK, Germany and France.

The rest of the countries in the top 10 by projects were: Spain, Belgium, the Netherlands, Poland, Russia, Turkey and Ireland.

In terms of the most jobs created out of FDI, the top countries were: the UK, Russia, Poland, France, Germany, Romania, Spain, Turkey, Slovakia and Ireland.

About 50% of investors have ranked Western Europe as the world’s most attractive FDI destination for the second year in a row.

The number of investors who believe that Europe’s attractiveness will improve in the next three years was up five percentage points to 59% of investors this year – a rise of 21 percentage points since 2012.

But the appeal of Europe is uneven. Northern and Western Europe have taken the crown, while the appeal of Central and Eastern Europe (CEE), a region that was rated more attractive than Western Europe and North America in 2008, has fallen by 14 percentage points to 28% since then.

The attractiveness of Southern Europe fell too, undermined by labour market rigidities, fiscal problems and recessions.

North America has overtaken China as the second most attractive destination for FDI, with 39% of investors’ preferences, up eight percentage points compared to a low of 21% in 2012.

China was down six percentage points, to 38%.

When looking at the most attractive European cities for FDI, London has remained the undisputed leader, with 52% saying it is an attractive destination.

The UK capital was followed by Paris, Berlin, Frankfurt, Amsterdam, Brussels, Munich, Barcelona, Prague and Madrid.