Marc Lhermitte's Page

Investors regard Europe as a relatively safe place to invest during the world's economic crisis, according to a survey of countries' attractiveness to investors published in June 09 by Ernst & Young.

But the survey suggests that during the downturn investors are opting for western Europe rather than central and eastern Europe. Western Europe received 70% of the new projects in 2008, according to Marc Lhermitte, a partner at Ernst & Young who co-ordinated the survey. “Europe is seen as the safe, less risky, place to do things in the world,” he said, adding: “China and India are taking a step back.”

He said that the EU's efforts to stimulate economic recovery had passed largely unremarked, but national recovery plans – particularly in France and Germany – did have an impact.

Presenting the results at the World Investment Conference in La Baule, France today (4 June), Lhermitte highlighted a difference in attitude at a moment of economic uncertainty. The structural difficulties that might deter investors during times of economic expansion were less serious. So, for example, three-quarters of investors interviewed about France said they felt reassured by the government's interventionism. That attitude might change when the economy picked up, Lhermitte said.

Ernst & Young interviewed 809 global investors during February. The survey analyses both inward investment over the past 12 months and investors' plans for the short to medium term.

In 2008, the UK was the most attractive European location for foreign direct investment (FDI), as it was in 2007. France, Germany and Spain, in that order, made up the top four destinations, as they have done since 1997.

Most of the investment comes either from elsewhere in Europe (51%) or from the US (25%). The emerging economies of Brazil, Russia, India and China accounted for only 6% of investment in Europe, but projects from China and India have increased – to the particular benefit of the UK.

London was the most attractive destination for FDI, with 262 projects, ahead of Paris (222) and Madrid (80). But the survey suggests that investors expect “the next Google or Microsoft” to emerge in Shanghai or Mumbai rather than in Europe or the US.

Lhermitte said one bright spot for Europe in the survey was the interest in renewable energies – principally in Germany.

The survey identified a 19% increase in FDI projects in the machinery and equipment sector, which Ernst & Young attributed to an increase in projects for wind turbines, solar components and fuel cells.

Lhermitte said that FDI into the renewables industries had created 6,000 jobs in 2008.

The Czech Republic and Slovakia, which had previously been hotspots for FDI, suffered because of the reduced demand from the carmaking and electronics sectors.

The UK, France and Spain, had suffered from reduced investment in IT outsourcing, financial and business services.

Overall, inward investment in Europe was flat in 2008, with 3,718 investments announced, six more than in 2007. The number of jobs created was down by 16%, reversing what had previously been a five-year upward trend. But Lhermitte warned that most of the investment decisions for 2008 had been made many months earlier, before the economic downturn struck. The story for investment in 2009 would be much bleaker, he warned.

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