EY Attractiveness Survey Austria 2021

A record in foreign direct investments in Austria – against the European trend.

5,578investment projects from foreign investors were announced throughout Europe in 2020, which was 13 percent less than the previous year. The last time we experienced such a drop in investments was 2009. But due to lockdown and severe restrictions that affected private and business life, some analysts had expected an even bigger decrease in investments. Several medium-sized national economies such as Poland, Turkey, Austria and Switzerland, however, could actually attract more investments from foreign businesses than in 2019. The number of foreign direct investments in Austria rose a further ten percent in 2020 – against the European trend. 76 new projects meant a new record; in 2019 there were 69 projects.

The main driver of this increase was investments from Germany, where there was an increase of 34 new projects, which was an increase of 42 percent. German companies are responsible for almost every other foreign investment in Austria of late. The number of investments from the United States and China, however, went down significantly compared to the previous year.

These findings come from the 19th EY Attractiveness Survey of business consulting agency EY, which looks every year at the attractiveness of Europe as a business location and actual investment projects from foreign businesses.

Success for Austria’s business location policy

Gunther Reimoser, Country Managing Partner at EY Austria, considers the overall slight decrease of investments into Europe a sign of great trust in the competitiveness of the various national economies: “The Covid pandemic sent Europe into freeze mode in spring 2020. It led to massive austerity measures and halted numerous investment projects. But in the second half of the year the economy went back into gear in many places and the situation improved significantly for investments. In the end, the decrease in investments was considerably less than initially feared.”

Reimoser believes that the high increase in foreign investments in Austria was the driving force for a further economic upswing: “We consider this increase against the European trend an acknowledgment of the Austrian business location policy – the attractiveness of Austria has gone up considerably during the last

© EY/Stefan Seelig

The automotive sector came to a halt due to the Covid pandemic, which caused a decrease of 35 percent in investments among these businesses.

year. The Covid crisis caused – temporarily – a full stop in spring 2020 but not among investments. Now we need to capitalise on this boom to kickstart the Austrian economy.”

The situation is very good for a new start: “The business location keeps attracting investments, the number of infections is currently quite low and Austria is a trailblazer in easing the economic Covid restrictions step-by-step. All of these are good signs to quickly give the economy the right impetus and to create new jobs through investments, and in turn stimulate employment,” Reimoser says.

Record investments in Austria in 2020

German businesses were once again the most relevant investors in Austria; they increased their investments by 42 percent compared to 2019. Direct investments from the United States, however, went down by 15 percent. There were seven projects from Switzerland, one more than the previous year. Businesses from other major European economies such as France, Italy, Great Britain and Spain seem to have hardly any interest in investing in Austria. The number of Chinese investments shrunk massively: down to one from ten.

Austrian businesses are holding back

Looking in the other direction, there was a clear downward trend: investments from Austrian companies abroad had already gone down in 2019 by almost a quarter to 107 projects. In 2020, this figure dropped down to 74. The number of Austrian investments in Central and Eastern European countries went down from 39 to 29; in 2018 the CEE region had seen 63 investments from Austria. In Western Europe, however, EY counted two more projects in 2020: 70 after 68 in 2019. “In 2020, Austrian companies invested more in Germany with 31 projects, followed by France with twelve projects and Great Britain with eight,” Reimoser says.

Expected increase

Last year, businesses from the automotive and the mechanical engineering sector reduced their investments across Europe significantly by 35 and 21 percent respectively. “Classic industrial companies had to slow down their investments massively in 2020. There was a huge drop in turnover in the manufacturing trade and thus temporarily great uncertainty,” Reimoser says. “Pharmaceutical businesses, however, expanded their capacities considerably

Voestalpine, Austria‘s only crude steel producer, is considered a global pioneer in environmental protection and decarbonisation. With its own „Greentec Steel“ and...

– their investments in Europe went up by 62 percent. We expect this boom to continue throughout 2021.” Wholesalers and retailers invested almost as much as the year before and the chemical sector slightly less (minus five percent).

Reimoser expects an increase in investments in 2021 as the willingness to do so is rising once more in the industrial sector. Germany’s automotive sector held its ground over the last few years and also during the difficult year of the pandemic. Switching to e-mobility has already taken a big step forward.” Mechanical engineering and the chemical industry are also recovering, mainly due to demand in China. The outlook in the pharmaceutical sector remains very positive, of course.

Restructuring the supply chains and increased nearshoring has become a hot topic among many businesses. “Many European corporations face the challenge of reducing their dependency on products and pre-products from countries such as China, India, South Korea but also the United States. Reimoser does not see a general trend towards nearshoring though, as “this would lead to significantly increased costs and lower competitiveness for companies.” He does believe, however, that there will be a new focus on reliability, planning ability and foremost sustainability.

... an electrolysis plant for the production of green hydrogen operated on the site in Linz with partners including Verbund, Siemens and Austrian Power Grid.

role in investments than it is doing now,” Reimoser underlines. “The EU’s Green Deal has set the path and recent rulings, such as the one from Germany’s Federal Court or the ruling against Shell in Den Haag, have highlighted the urgency of the issue once more to everyone: There is no way around a green restructuring of our economy. The European industrial sector does not only have all opportunities but also the responsibility to be a trailblazer in this regard.”

Some business models such as steel, chemicals and mobility will undergo a deep-lying transformation in the years to come. “The key to being ready for the future is new technologies in a lot of sectors – more than ever. And you need to heavily invest in them now. The main drivers are going to be increasing cost efficiency and the risk of falling foul of environmental regulations.” Sustainability will determine the settlement decisions of investors more than ever, Reimoser says. “All long-term industrial investments that are being made now have to be made in a CO2-neutral way, otherwise they won’t come good.” This realisation is becoming the norm and will fundamentally change investment activities, Reimoser says.

Boost for digitisation

The number of investment projects in software and IT services went down across Europe by 14 percent to 1,046 during the past year. Still, the IT sector is leading the way once more: No other sector has launched as many investment projects.

Reimoser believes that there will be another increase in the importance of IT-related investments in the medium run: “The pandemic had brutally laid bare any issues in the field of digitisation: Those who relied on analogue communication and business models – both businesses and public authorities – got into major problems during the pandemic. Businesses with digital business models however, received a massive boost,” says Reimoser. “The promotion of digitisation and digital know-how in education, training and further education has been a high priority for a while. But the pandemic showed that there is still a massive and urgent need for action. In the years to come we will see a huge increase in digitisation investments. Furthermore, the availability of human resources with the corresponding technological skills will be an important factor that determines where businesses will invest.” ◆