New EIB Investment Survey highlights investment gaps and obstacles amid recovery
- The investment recovery is strengthening in Europe. 84% of European firms reported having invested in the previous financial year. Going forward, more firms expect to expand their investment activities than to scale them back.
- Firms consider only some 44% of their machinery and equipment to be “state-of-art”. Global competition and technological advancement call for a quick action.
- But most firms say uncertainty (69% of firms), lack of skilled labour (68% of firms) and the business and the regulatory environment are their top concerns.
- Access to finance is a concern for Europe’s younger, smaller, innovative firms and firms active in those countries more affected by the economic downturn.
In a survey published today, 12,500 firms (comprising the whole range from small SMEs with more than 5 employees to larger corporates) across the EU 28 have been interviewed to assess what they consider are their prime investment needs and the obstacles to investment they face. The first EIB Group Survey on Investment and Investment Finance (EIBIS) is a unique survey covering the EU corporate sector and its attitude towards investment and investment finance activities. Today’s report will be repeated every year by EIB Group economists.
Representing every EU member state and fully comparable among countries, this is an invaluable European instrument to monitor business investment at the EU level.
Survey results, as well as a EU wide cross-country analysis and country based publications are available at www.eib.org/eibis
Andrew McDowell, EIB Vice President, said “We know how important the corporate sector is for Europe’s economic recovery – not least in providing jobs to its citizens. With that in mind, the EIB Group Survey on Investment and Investment Finance is a unique diagnostic tool. Its gives us some cause for optimism with regard to Europe’s economic recovery. We are seeing a determination in Europe’s corporate sector to invest and to invest more. That suggests slowly but surely signs of a recovery and awareness of what needs to be done to stay competitive among firms themselves, such as through investment in innovation and more up-to-date equipment. But we must also listen carefully to the concerns of European firms which include uncertainty and the business and regulatory environment. The Investment Plan for Europe rightly places a great deal of emphasis on creating the right conditions for investment. This survey underlines the need for member States as well as the EU institutions to act on this urgently.”
He added, “We can take heart that our support is paying off, although we still have a long way to go – the Investment Plan is helping to improve the investment climate while corporates have been taking full advantage of the investments available under the first phase of the European Fund for Strategic Investments, with EUR 34bn approved so far that will mobilise a total of 184bn in new investment, evidence of the acute market demand for instruments that support innovation and competitiveness. Lending under EFSI is an important part of overall EIB Group lending which reached EUR 84bn in 2016, mobilising EUR 280bn in total investment.”
Debora Revoltella, Chief Economist of the EIB said “While business investment is recovering throughout Europe, a protracted period of underinvestment has left a backlog. This survey tells us firms are concerned about the quality of their capital stock in the face of strong global competition and rapid technological advances. A strong focus on innovation and the diffusion of new technologies is crucial. Moreover, firms are concerned about a lack of adequate skills, which calls for appropriate policies to address the skills mismatch. This is particularly relevant in view of policy calls for more inclusive growth.”
Investment by European firms is recovering, and set to recover further. 84% of firms are saying they recently invested. The share of SMEs investing is smaller than the share of large firms investing. SMEs also exhibit a lower investment intensity.
- Looking forward one year, more firms expected to increase their investment activities than expected to scale back investment.
- The corporate investment recovery is being driven by a need to become more competitive. Having underinvested during the crisis, firms are now seeing a need to catch up technologically to ensure future success.
- On balance, some 15% of firms tended to consider that their investment over the past three years was too low to ensure their success going forward.
- This reported investment gap does not appear to be linked to the amount of spare capacity firms have – the quantity of machinery, equipment, buildings, etc. is not the problem.
- There is substantial potential to catch-up with the technological frontier: firms consider only 44% of their machinery and equipment to be “state-of-the art”; and only 40% of their building stock as satisfying high energy efficiency standards.
- The great majority of investment (about 70%) is aimed at replacing out-dated or worn-out machinery, equipment, buildings and IT, or at introducing new products or processes.
- Lack of skilled labour is the second most serious constraint on investment (reported by 67% of firms). This constraint is particularly severe for some countries with high levels of employment, but also for many Central and Eastern European countries that have experienced significant outward migration. The mismatch between needs and available skills seems too high for firms to deal it by themselves via internal trainings. In fact, this calls for a more focused action in terms of European policy for skills development, possibly addressing vocational training.
- Business regulation, labour market regulation and high energy costs are the next most severe barriers to investment, reported by 58%, 55% and 51% of firms, respectively.
The share of finance-constrained firms is higher among SMEs than among larger firms. Young firms tend also to be constrained and they are also those generating more jobs. Targeted actions supporting young and innovative firms are crucial.
The EIB Group Survey on Investment and Investment Finance (EIBIS) will improve our understanding of the needs, opportunities and constraints faced by European businesses. It will be used to inform policy dialogue and policy-making on the drivers and barriers to investment and to refine the support to investment provided by the EIB Group, for example in the context of the Investment Plan for Europe and by identifying key sectors in need of particular attention such as education and youth entrepreneurship and start-ups.
Furthermore, it is designed to build up a store of publically available enterprise data to enable the analysis of investment and business environment trends over time.
Overall, it shows the need for continues policy action to support investment, with a focus on enhancing European competitiveness.