|
|
‘New Europe’ Beckons
Foreign direct investment increasingly is shifting
to the European Union’s eastern sector.
In years to come, 2004 may well be viewed by analysts of inward investment trends as the year that the map of FDI activity in Europe was fundamentally re-drawn. In May 2004, membership of the European Union (EU) leapt from 15 countries to 25, with the accession of 10 new markets (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia). Its surface area increased by a quarter, and its population by one fifth, to 450 million.
In investment terms, however, the impact of this transition has been more gradual. Since 1997, Ernst & Young’s European Investment Monitor (EIM) has recorded over 17,000 foreign direct investment (FDI) projects into Europe. Historically, the trend had been for Western European countries to attract the lion’s share of this investment. However, over the last eight years, the EIM has recorded this flow of investment shifting steadily eastward. Initially, the drift was to the mainstream central European countries of Poland, Hungary and the Czech Republic. But in the run-up to EU enlargement, the movement of projects has been further east, into Romania, Bulgaria and Russia.
FDI research specialists Oxford Intelligence took over the production of the EIM from January 2004, using the methodology developed by Ernst & Young since 1997. In the first six months of data collection activity, we witnessed a significant boom in FDI, fueled by strong growth in projects into Eastern Europe. From January to June 2004, the monitor recorded 1,432 projects, up from 1,126 for the same period in 2003, an increase of 27 percent.
Altering the Map
While the U.K. remains the largest recipient in the number of projects announced, it is the central and eastern European countries that performed exceptionally well during the first half of 2004. Hungary, Czech Republic, Poland and Russia saw a major increase in project announcements, from 156 to 283, increasing their share from 14 percent in the first half of 2003 to 20 percent in 2004.
The EU accession countries and the rest of the CEE now account for one third of all foreign investment projects into Europe. Peter Lemagnen, commercial director of Oxford Intelligence, says, “Over the short term, this trend will continue, and it would not be surprising to see these countries receiving up to 40 percent of all investment projects entering Europe within two to three years.”
Marc Lhermitte, a partner in Ernst & Young’s International Location Advisory team, agrees that 2004 would be viewed as a milestone year for FDI in Europe. “The results for 2004 show a return to substantial growth following several years of decline in inward investment,” he says, “and with one or two country exceptions, the recovery is happening in both the East and the West. But the most striking trend is the strong growth in the East. To provide some relatives, Slovakia had more projects than the Netherlands, Hungary scored more than Germany and the Czech Republic, Poland and Russia each secured more projects than Spain. If this trend is maintained, the FDI map of Europe will be fundamentally altered.”
The United States remains the largest investing country in Europe, seemingly relatively unaffected to date by the anti-U.S. sentiments that have been rife in some European countries since the outbreak of the Iraq conflict in 2003. Germany, Japan and the U.K. were the next largest outward investing countries; they also exhibited good growth in the number of investments.
From One East to Another
Looking ahead, it is likely to be in the new technology areas, driven by research and product innovation, in which “Old Europe” will continue to attract the bulk of investment. As each industrial sector or product matures, the drift eastward will increase as cost reduction increasingly becomes the main driver to maintain or increase margins for companies.
Over the medium to longer term (five to 15 years) there will be significant increases in investment into Europe as the two powerhouses of the Far East — India and China — move into a globalization phase for their indigenous companies. This will mirror the trend set by South Korea and Japan in the 1980s and 1990s in their expansion drive to gain market share in Western economies. The countries that will gain the manufacturing units of these companies are likely not only to be the newly emerged Central European countries, but also Southern Mediterranean countries such as Morocco, Egypt, Algeria and Tunisia.
For more information about Ernst and Young’s European Investment Monitor, powered by Oxford Intelligence, visit: www.eyeim.com or contact andrea.antoni@oxint.com (Tel: +44 1908 262076).
Julia Cox is founding partner of Oxford Intelligence (www.oxint.com) and a member of Site Selection’s Editorial Advisory Board.
Click here to read the Site Selection / NAI Global Industrial Location Index
|
