Foreign Direct Investment in Europe

As we examine our future prospects for international business investment in US communities, it is important to examine what is happening elsewhere around the world. A recent review examines these trends in Europe.

As the world debated the coming war with Iraq earlier this year, discussions often noted the distinction between "Old Europe" and "New Europe" and the apparent political differences. It is also a worthwhile comparison to make when examining economic matters.

Statistical evidence and expert analysis indicate that Europe's economic capitals that are attracting the most interest from outside investors continue to be those in the "Old Europe." However, many within "New Europe" are making dramatic moves, and they appear to be gaining an ever-increasing piece of the action. "The big shift you're seeing is a shift eastward to those joining the European Union in 2004," observes Mark Ambler, director of the New Europe Program at PricewaterhouseCoopers in London. "But it's important to get that in perspective. It's still a relatively small proportion of total foreign direct investment, by virtue of them being relatively small economies."

The latest statistics from the Organization for Economic Cooperation and Development (OECD) add further detail. FDI into OECD countries (including those outside of Europe) was down 20 percent in 2002, following steep declines the year before. FDI into OECD countries totaled $490 billion in 2002, down from $615 billion in 2001, and about one-third of the total recorded in 2000. Expect more declines in 2003, the OECD warns.

Though Europe's figures are down, they're "not down as dramatically as in the U.S.," Laudicina observes. Indeed, OECD figures show FDI plummeting from $131 billion to $30 billion in the United States last year. This, Laudicina says, can be explained by the fact that much of what goes into FDI figures are mergers and acquisitions (M&A), and the United States was the biggest beneficiary of the M&A boom that has more recently gone bust. The M&A slowdown also hit hard in the United Kingdom, which has seen its share of FDI drop more dramatically than in the rest of Europe.

But take the United Kingdom out of Europe's picture and things don't look nearly as bleak. Some countries are down, but some are moving up. Luxembourg was on a significant upward trend in 2002, as were Ireland, Finland, the Czech Republic, and the Slovak Republic. Germany reported healthy gains, while the numbers were relatively steady in Italy and Switzerland, and down just a bit in France.

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