- New nine-point plan reflecting views of top business leaders across Europe published as the continent faces first decline in foreign investment since pandemic.
- Actions include finding balance on regulation, boosting manufacturing and innovation, and restoring confidence in energy prices.
LONDON, 19 JUNE 2024. The EY organization is calling on European institutions and national governments to take nine actions to help attract more foreign direct investment (FDI), with the publication of the second installment of its Europe Attractiveness Survey 2024.
The action plan follows last month’s publication of the first survey’s installment that found FDI into Europe declined in 2023, falling by 4% compared with 2022, and dropping to 11% lower than in 2019, just before the COVID-19 pandemic hit. Despite hopes that FDI into Europe would bounce back post-pandemic, slow economic growth, spiraling inflation, soaring energy prices and a febrile geopolitical environment caused the first downturn in European FDI since 2020. Companies cited the regulatory burden, volatile energy prices and political instability as the top three risks impacting investment decisions.
To help address these concerns, EY teams have outlined a new set of nine recommendations based on over 500 interviews with senior business leaders to help Europe remain competitive and attractive to investors.
Julie Linn Teigland, EY EMEIA Area Managing Partner, says:
“As Europe navigates through the complexities of a post-pandemic economy, it is imperative to enhance its attractiveness for foreign direct investment.
“Our nine-point action plan is a clarion call for European institutions, national governments and businesses to join forces in creating an environment that is conducive to growth, innovation and stability. By addressing the regulatory balance, reinforcing our manufacturing sector, fostering innovation and ensuring energy confidence, Europe can send a powerful message to investors worldwide that the continent is not only open for business but is also a thriving hub for sustainable and forward-thinking investment.
“We must work together to make sure Europe is seen as the premier destination for investors seeking a resilient and dynamic market.”To boost investment, business leaders say that European governments should:
1. Find the right regulatory balance between protection and innovation
Businesses say that an increased regulatory burden is the top risk to Europe’s attractiveness over the next three years. European policymakers can alleviate these concerns by harmonizing regulation, reconsidering the pace of introducing new regulation and repealing outdated laws whenever possible.
2. Maintain manufacturing competitiveness
Policymakers should boost European manufacturing by allowing businesses to scale up to equal those in the US and Asia. They should also shore up the supply of vital components like microchips or rare-earth materials and provide infrastructure for critical public goods like electricity and data.
3. Creating a fertile environment for innovation
When asked where Europe should concentrate its efforts to maintain its competitive position in the global economy, investors placed “support high-tech industries and innovation” first. Policymakers can help Europe deliver on this by boosting the workforce equipped with digital skills, supporting the development of hardware and infrastructure, preparing to adapt the EU AI Act as the technology evolves and removing bureaucracy for small and medium-sized tech enterprises.
4. Restore confidence in energy prices and supply
Investors rank “volatile energy prices and energy supply issues” as the second biggest risk to Europe’s attractiveness over the next three years. Policymakers can help restore confidence in energy by funding and developing specific energy infrastructure such as grids and interconnectors and investing in the green energy transition.
5. Unlock private investment with a full Capital Markets Union
Access to capital is now the most important factor that determines where businesses invest. A fully integrated Capital Markets Union would allow pension and insurance funds and other institutional investors to invest across Europe at scale.
6. Unify to respond rapidly to global trade wars
Executives rank “political instability in Europe (including upcoming elections, populism and polarization)” as the equal second-biggest threat to Europe’s attractiveness. As geopolitical and global trade tensions intensify, European policymakers need to be equipped to respond rapidly and decisively. Individual Member States must be aligned on key areas, including which industries need to be protected and where the threats lie.
7. Focus on the economic benefits of sustainability
Countries’ approach to sustainability can help them secure investment: businesses rank “countries’ policy approach to climate change” as the fifth most important factor influencing where they invest. Europe is already a sustainability leader, and businesses want Europe to sustain its momentum in this area. Policymakers can help Europe retain its status by releasing funding for sustainability projects and balancing environmental regulation with ease of doing business.
8. Boost workforce productivity and promote Europe’s critical skills
The presence of a highly skilled workforce is a major factor that determines where businesses locate operations. When businesses that are planning to invest in Europe this year were asked about their motivations for doing so, “access skills” ranked second. Europe already performs well on this measure, with several initiatives in place and the EU must maintain momentum with these. It is also vital that policymakers, businesses and academic institutions continue to collaborate to identify the types of skills that businesses need in the future.
9. Balance tax competitiveness and revenue growth
Although tax is one of many factors that influence where businesses locate their operations, authorities need to avoid measures that could harm Europe’s attractiveness. Thirty-two percent of executives surveyed cite the pragmatism and flexibility of the tax authorities as one of the most important tax-related factors when choosing where to invest.
The full report can be accessed here.
