Sinead Munnelly, Partner in Ernst & Young Ireland’s Transaction Advisory Service Group said today: “Ireland’s inward investment growth continues to increase to levels we haven’t seen since the year 2000 which is mainly driven by our two most important international partners, the US and the UK.  This growth proves yet again that Ireland is still an attractive place to do business for companies that are looking to extend their global reach”.

The UK has consolidated its position as the most attractive destination for inward investment in Europe, as the number of projects announced in 2006 showed a strong increase of over 30% (686 compared to 559 in 2005), according to the latest annual Ernst & Young European Investment Monitor (EIM).

The report shows that overall Europe continues to improve its amount of inward investment, with projects up by over 15% from 3,066 in 2005 to 3,531 in 2006, with Western European countries being the principal beneficiaries. Germany, Spain, Switzerland and Italy all showed major increases.  Despite having previously threatened to overtake the UK as the most popular destination in Europe, investment to France grew modestly in 2006 with its overall % share declining.

Nigel Wilcock, Regional Development Director at Ernst & Young comments: “The rise in Western Europe has been driven by an increase in investment projects from the US into Europe - up 22% from 813 in 2005 to 990 in 2006 - as well as a major hike in the number of projects originating from the UK, Switzerland and India.  Germany, the second most active country in terms of investment origin, is increasingly focused on Eastern Europe.

“Although Europe as a whole is becoming increasingly reliant on service-related sectors, such as software and business services, more traditional industries - for example Machinery & Equipment and Automotive - still managed to attract 227 and 226 new projects respectively.”

US and Indian investment boost UK performance

Although the relative levels of US investment have dropped to the UK and the rest of Europe from close to 50% of overall project numbers in 2000 to nearer 30% by 2006, that decline now appears to have stabilised. Nearly 300 US projects last year helped the UK to increase its market share in projects won across Europe from 18% in 2005, to 19% this year. 

India is now the second most important source for inward investment into the UK with over half of all projects announced by Indian companies into Europe in the period.  Indian investment overall into Europe increased by 66% in 2006 and by 53% into the UK. 

Mark Otty, Managing Partner, Northern Europe, Middle East, India and Africa, Ernst & Young, says: “Indian companies are winning clients from domestic Western European competitors by investing in sales and customer support offices and also software development centres close to their European customers as a means to drive growth.

“This is actually good news for the UK because not only from an Indian perspective is there a cultural affinity with London and the South East, but the City is at the heart of the European service sector economy.”

Nigel Wilcock explains: “It is too early to say whether this increase is a ‘one-off’ for the UK - but our overall market share is stabilising after a long period of relative decline. Not only is there the increasing investment from the US and new interest from India, the UK’s appeal in attracting software and business services projects remains strong. London is still the preferred destination for headquarter investments.”

London dominates

Service sector projects continue to favour Western European locations but are increasingly skewed towards the major urban centres. Investment continues to concentrate on London and other premier European cities. Since EIM began the share of UK investment coming to London and the South East of England has steadily increased from under 30% in 1997 to well over 50% in 2006. 

This concentration of investment in the capital city is more marked in the UK than in any other Western European location, reflecting the dominance of the services sector. By contrast Paris only secured 19% of the projects into France, Madrid 29% of Spanish bound investment, whilst Stockholm receives 42% of projects into Sweden and Dublin half of the investment into Ireland. 

Nigel adds, “London and the South East have really benefited from this upsurge in activity announcing more projects – 250 – than every European country in its entirety except France.  At some point, however, regional policy will have to look at whether the extension of this long term trend is inevitable and indeed desirable.”

Other regions of the UK that did well in 2006 in terms of attracting investment included the North West – up 25% from 32 projects in 2005 to 40 in 2006.  Scotland was up 90% from 33 projects in 2005 to 63 in 2006.  Scotland regained the top spot as the most attractive region in the UK outside London and the South East.

EU accession countries winning the Eastern battle

Whilst the apparent losers in Eastern Europe were countries like Poland, Hungary, Russia and the Czech Republic, whose project numbers all declined in 2006, the anticipated admission of Romania and Bulgaria to the EU in 2007 was a major driver for new investment to those countries. Romania, which attracted only 18 projects when the EIM research began in 1997, announced 140 in 2006 and achieved 7^th ranking in the overall European list.

Nigel Wilcock concludes: “Manufacturing had a tough year across Europe in terms of new investment projects being announced.  Whether or not this is the beginning of a long-term slow down in Central and Eastern European investment activity in manufacturing remains to be seen.  But companies seeking a lower cost base do now appear to more likely to consider China and India as well other Asian hot spots.”

The evidence from the Ernst & Young Country Attractiveness Survey which is closely linked to EIM would support this.  Over 800 Executives polled for the research in March 2007 said they were increasingly likely to look outside Europe for production operations and call centre functions partly because of rising employment costs in Eastern Europe.”

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