Europe is expanding. Its population is growing and the EU most recently welcomed a new member in the form of Croatia in July 2013. Free trade and movement of labour in the EU has countries waiting in the wings to join. In a study of the most promising investment locations in Europe, fDi Magazine has crowned London and Nordrhein-Westfalen in Germany winners of the European City and Region of the Future titles.

London ranked first place in the Economic Potential category for major European cities, thanks to its vast and growing market and its significant FDI attraction – particularly in the software and IT, business services, and financial services sectors. The city also ranked second in the Infrastructure category, in part due to its forthcoming Crossrail project – the largest civil engineering project in Europe – which will provide accessible, frequent and convenient rail transportation for citizens, linking Heathrow airport, the West End of the city, the financial City of London, Canary Wharf, Kent and Essex. London is also showing a clear strategy for attracting FDI.

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For European Regions of the Future, Nordrhein-Westfalen ranked first, rising six places from the previous ranking in 2012/13. The region ranked third of all European regions for Economic Potential, due to its high GDP, its inflation rate of 2.5% and its high levels of FDI. It also performed well among large European regions in the Human Capital and Lifestyle, and Infrastructure categories, ranking second and fifth in these categories, respectively.

Rising through the ranks

Helsinki emerged as a new entry in the Top 25 European cities, placing second. Finland’s capital has been receiving increased attention for its efforts to attract FDI and scored particularly well for FDI Strategy. The city highlighted its focus on three key areas to promote investment: “Research, development and innovation; growth capital and hi-tech start-ups; and transnational functions, such as sea and air links.”

The Dutch city of Eindhoven was also a new entry to the Top 25, ranking third. The city ranked first in the FDI Strategy category for all small European cities, thanks in part to its offer of incubation facilities at both the High Tech Campus in the city and the University of Technology Science Park, as well as its provision of ‘soft-landing’ services, which allow investors to establish links and develop a base in the city.

Eindhoven also scored well in the Infrastructure category, ranking fourth of all small European cities. There was a notable change in the overall cities ranking with new entries for Dutch cities – Rotterdam and Utrecht ranked 14th and 18th, respectively. There were also new entries for French and UK cities in the ranking, with Lyon ranking 15th, Grenoble 17th and Birmingham 19th.

UK and Spanish gains

UK cities performed well in the city rankings, particularly in the mid-sized, small and micro city categories. Edinburgh topped the new mid-sized European cities category, which was introduced for the 2014/15 rankings. Scoring well in FDI Strategy, the city ranked first of all mid-sized European cities, and fourth of all mid-sized European cities in the Economic Potential category.

Edinburgh faced competition from other UK cities in this mid-sized category with Liverpool, Newcastle upon Tyne, Coventry and Sheffield ranking third, fifth, sixth and seventh, respectively. Spanish cities dominated the southern European cities category, not surprisingly given that Spanish GDP grew at its fastest rate in six years in the final quarter of 2013, according to the Ministry of Economy and Finance. Seven Spanish cities ranked in the Top 10, with Barcelona placing first.

Scotland performed well in the rankings, rising three places to rank second of all European regions. The region scored particularly well in the FDI Strategy category, thanks to a range of incentives offered, including funding and business growth services provided by the Scottish Investment Bank, its Scottish Manufacturing Advisory Service and its range of research and development credits. The region also ranked fourth of all large regions in Business Friendliness and fifth of all large European regions in the Human Capital and Lifestyle category.

Copenhagen’s economic potential

Copenhagen region retained its third place ranking, performing strongly in the Economic Potential category, ranking second of all small European regions. The region also ranked second of all small regions in the Business Friendliness category, presenting a low risk to investors, with low levels of corruption and a straightforward approach to doing business. The region also has a strong FDI Strategy, ranking first of all small regions.

Amsterdam region ranked sixth overall and placed first in the Infrastructure category. Dutch regions dominated this category, boosted by their country’s developed communications and transport networks.

Regionally, the Cost Effectiveness category was predominantly made up of eastern European regions. Macedonia’s Ohrid-Struga ranked first, while Serbian regions claimed three of the overall Top 10 European places. There also featured, however, a couple of UK regions in the Cost Effectiveness category, with East Midlands and Yorkshire and Humberside proving the seventh and ninth most cost-effective large European regions. In addition, Spanish regions Andalucia and Catalonia ranked eighth and 10th of all large European regions, respectively.

Europe's strength

In the year to November 2013, fDi Markets recorded 3652 greenfield FDI projects (excluding retail) in Europe. In the same period, Europe received just over a third of global FDI, the largest of any world region. Of Europe’s FDI projects, 665 investments (18.2%) were made in the software and IT sector, compared with 14.4% in Asia. Software publishing was Europe’s largest subsector, accounting for more than half of all investment in software and IT.

On the whole, UK cities and regions performed well in fDi’s European Cities and Regions of the Future 2014/15, claiming top city and second place regionally. Yet, 2014 brings with it a contentious referendum that could see Scotland split from the UK as early as 2016. Details on Scottish currency and its EU membership remain unclear, begging the question, how will this affect Scotland’s strategy for attracting new, and even retaining current, foreign direct investment?

As a world region, Europe has been battered by recession storms in the past few years, yet there are signs of optimism, most recently with Ireland and Spain exiting their bailouts. Could we see a marked improvement in Ireland or Spain’s performance in the next rankings?

Click on the link below for a PDF version of the complete results: