Paris has beaten London as the most attractive European city for investors for the first time in more than a decade, as Brexit fears begin to taint the UK capital, an Ernst & Young (EY) report said.
The French city was ranked No. 1 for foreign direct investment (FDI) by 37 percent of businesses in the EY Attractiveness Survey Europe, which was published yesterday.
Britain’s departure from the EU and the election of French President Emmanuel Macron were among the reasons Paris bumped London for the first time since the EY survey began in 2003. London came in second, followed by Berlin and Frankfurt.
The report, based on a survey of 502 companies and data from EY and International Business Machines Corp, showed that FDI in Europe grew 10 percent last year, its lowest since 2013.
While the UK topped the league tables with 1,205 of the 6,653 new FDI projects, the number was only 6 percent higher than in 2016, showing a slowdown in growth. France won 31 percent more investments last year and projects in Turkey increased 66 percent.
“We’ve worked tirelessly to get London out of the doldrums of the ’90s and into the top spot as the best city in the world for business,” London First chief executive Jasmine Whitbread said. “This must be a rallying cry for us all to redouble our efforts and keep our capital at the top of the global charts.”
Brexit was one of four main risks affecting investor sentiment in Europe last year, the report said., adding that he biggest concerns were geopolitical instability, such as the US’ tariffs on steel and aluminum from the region, and a rise in populist feeling.
The UK, Germany and France were the most attractive countries overall for foreign investment, the report said.
One key Brexit-related impact was a decrease in the number of companies setting up or relocating their headquarters to the UK last year. In 2016, 51 percent of new headquarters in Europe were placed in Britain, while only 26 percent of businesses picked the country for their top hub last year.
A number of businesses are looking to move their headquarters and offices elsewhere in the EU in response to the UK’s decision to leave the single market and the customs union after Brexit. Faced with the prospect of regulatory divergences and tariffs, businesses are trying to shore up their bases on both sides of the Channel to avoid being caught out.
While the Netherlands has been chosen by a number of entities as their post-Brexit base, including the European Medicines Agency, investment inflows fell 17 percent last year. One factor might be rising wages, which averaged 34.80 euros (US$41.09) per hour last year.
While wages are also rising in some Central European and Eastern European economies, they are still far lower at 9.40 euros in Poland and 11.30 euros in the Czech Republic, Eurostat data showed.
The average hourly wage in the UK last year was 25.70 euros, Eurostat said.
With “protracted Brexit negotiations between the UK and mainland Europe, governments in Europe need to remember that it’s the relative attraction of the whole that keeps investment momentum,” EY area managing partner for Europe, the Middle East, India and Africa Andy Baldwin said.
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