Techdrives FDIrebound

Global investors are bullish on Europe’s post-pandemic recovery and plan to ramp up regional activities at a rate not seen for more than a decade, according to EY’s latest Attractiveness Survey published June 7. The digital economy and

countries with tech-savvy workforces are tipped to drive European growth, while protectionism and trade policies have risen to become the biggest threats to its investment appeal. Of the 550 business leaders

surveyed worldwide, 40% plan to establish or expand European operations over the coming year. In the two years prior, that figure was 27%. “Appetite to invest in Europe is at its highest level since the financial crisis,” the report states. Other findings that point to a

recovery in foreign direct investment (FDI) are 62% of respondents believing Europe’s attractiveness will improve over the next three years, and 58% saying Covid-19 hasn’t negatively impacted their European investment programmes for 2021. The pandemic has caused just 4% to substantially reduce their plans for this year. The research, conducted in

March and April 2021, “indicates that FDI may rebound quickly to previous levels,” but the report also attributes investors’ spike in appetite to pent-up demand after a year of lockdowns and uncertainty. “The data cannot be interpreted as a glowing endorsement of Europe’s long-termattractiveness,” it warns. The greatest threats to the

region’s appeal over the next three years stem from government actions. Protectionism has risen to become the biggest risk, followed by uncertainties over trade policy, tariffs and the evolution of legislation on digital services. Some 20% believe the EU without the UK is a main risk.


UKR&Dtax cuts a ‘costly failure’

The UK’s annual £7.3bn research and development (R&D) tax credit scheme is failing to stimulate significant business spending, according to a report from the Centre for Business Research at the University of Cambridge Judge Business School. Aggregate business expenditure

on R&D in the UK, as a percentage of national income and net of subsidies, is estimated to be 10–15% lower than before the R&D tax credits were introduced in 2000. The report, published on May 25, also questioned the UK government’s claims that every £1 of R&D tax credits generates between £1.40 and £1.70 of additional R&D spending. “The theory behind R&D tax

credits, namely that a reduction in the cost of R&D will lead to an additional increase in a company’s R&D expenditure, is flawed,” the report’s author David Connell wrote. Former UK business secretary

Skills wanted: 92% of respondents said workforce tech skills are important in determining where they invest

During site selection, political

and regulatory stability is the most common prerequisite followed by the strength of local labour markets. Some 92% of respondents cite a workforce with tech skills as an important determinant of where they invest. “It shows that companies aremoving to put tech as one of the most important players of the future. Weall knew that already, but we probably didn’t estimate that figure would be that high,” Julie Teigland, EY’s managing partner for Europe, the Middle East, India and Africa, told fDi. The report notes that “many businesses analyse which universities create graduates with broader technology skills, and factor this into their location decisions.” Sustainability is another vital

ingredient in a country’s attractiveness, with 90% of respondents describing it as important for their investment strategy. It follows that the sectors tipped to drive Europe’s growth in the coming years are those connected to the digital economy (such as IT, telecoms and media), followed by cleantech and renewables.■ DANIELLEMYLES

Greg Clark wrote in a foreword to the study that this “makes a powerful case for looking again at R&D tax credits and the patent box”.■ ALEXIRWIN-HUNT

UKworsens itsinequality

Research has revealed that foreign investment byUKcompanies is stealing jobs from the country’s most disadvantaged regions, adding firepower to public pushback against offshoring and outsourcing. This contrasts with the results of a

separate study on the US which found thatemployment in lower-income areas benefits most fromoutward greenfield investment. The two studies have prompted calls for FDI policymaking on both sides of the Atlantic to focus more on the effects of outbound investment. Despite drawing criticism,

academic research consistently shows that outbound FDI has no impact – and sometimes even a positive impact – on national job numbers. Improved productivity and competitiveness leads firms to reinvest and create more knowledge-based jobs in their country of origin.■ DANIELLEMYLES June/July 2021



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