As central banks raced to tame inflation by increasing interest rates last year, cross-border investment globally remained resilient. This was backed, notably, by a continued appetite for mega projects in critical and future-looking sectors such as renewable energy and semiconductors.
Yet greenfield foreign direct investment (FDI) into Europe fell during 2023, totalling 5482 projects, according to fDi Markets — a 24% drop on 2022. Overall, Europe’s share of the global FDI pie shrank in 2023, accounting for roughly 29% of the total projects announced in 2023 — down from roughly 36% in 2022.
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Early on in 2023, both European businesses and policymakers alike raised concerns over a future imbalance between the US and Europe’s green industrialisation due to the $369bn in subsidies offered by the US’s Inflation Reduction Act. The EU, which has a mandate to avoid market distortions across the 27-member bloc, is unable to match this.
Still, several trends remain unchanged for Europe: mega projects and renewable energy continue to draw investment, while an ever-diversifying group of global investors double down on their battery and data centres pledges on the continent.
Albeit less than in 2022, the number of projects worth more than $1bn remained relatively high at 43 recorded projects — up from a 2010s average of 11. In addition, the average capital expenditure (capex) of all projects jumped from $50.7m in 2022 to $61.9m in 2023 — the second-highest annual average on record. Total estimated capex for inbound projects in Europe in 2023 stood at roughly $339.5bn, while the 2022 figures stood at $382.9bn.
Record solar year
The lion’s share of inbound European FDI remained in the renewable energy sector, at $114bn or roughly 34% of the total estimated capex tracked.
Indeed, the biggest greenfield project recorded in Europe in 2023 was UK energy company BP’s plans to invest roughly €6.8bn in offshore wind energy projects in Germany (TSMC’s €10bn investment in Germany was first tracked at the end of 2022). In July, the company was awarded the rights to develop two offshore wind projects in the country totalling four gigawatts (GW), located in the North Sea. BP made an initial payment of €678m, equivalent to 10% of the bid amount.
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Meanwhile, foreign investment into solar soared to a record 181 projects between January and November last year — more than double the number in onshore and offshore wind combined. As a result, solar investment also oustripped wind investment in terms of capex for the first time since 2014, scoring a record $47.5bn. The increase in projects was helped notably by US tech giant Amazon’s move in November to establish 17 solar plants across Spain, which comes as part of a broader plan by Amazon to set up 24 renewable energy projects in Spain totalling more than 2.3GW.
Besides solar, two other subsectors secured record FDI in 2023: batteries and data centres. Last year, FDI into batteries jumped to $28.7bn, eclipsing the 2022 figure of $18.8bn, while FDI into data processing, hosting and related services rose to $19.5bn — 9% higher than what was tracked over the course of 2022.
Rise of data centres
According to real estate services company JLL, the core data centre markets of Frankfurt, London, Amsterdam, Paris and Dublin were expected to grow by a record 17% in 2023, with tier-two markets such as Berlin and Madrid coming to the fore.
While London, Frankfurt and Amsterdam are still the top-three destinations for data centre investments in 2023, according to fDi Markets, their numbers are far from their peak of 2015 when each city tracked a record number of projects. But while the number of projects are down, new data centre investments have been more capital intensive.
The biggest investment was London-based Virtus Data Centres’s €3bn investment in a 300-megawatt project in Brandenburg, Germany. Meanwhile, US tech giant Microsoft announced in September that it will begin construction on a £1bn data centre in North Acton, west London. Four of the data centre investments recorded in 2023 were worth more than $1bn.
Asian investors catch up with US investors
European investors have long been bigger sources of investment into Europe than investors from any other region, and 2023 was no exception. Between January and November, European investors accounted for roughly 62% of the total FDI into the continent.
However, what has stood out in the data this year is that the composition of extra-Europe investment has been changing. In absolute terms, Asian investors have been increasing their capital investments into Europe since 2020, totalling a record $62bn in 2022 and $58.2bn in 2023. Meanwhile, foreign investment from North America has consistently fallen over the past three years to $60bn.
Notably, two big-ticket Asian investments were in batteries. One was Taiwanese battery manufacturing company ProLogium’s plans to invest €5.2bn in a new battery factory and research and development centre in Dunkirk, in northern France. The other is Indian conglomerate Tata Group’s 40GW battery cell gigafactory in the UK, worth around £4bn and slated to create around 4000 jobs. It is set to become one of the largest battery cell manufacturing sites in Europe.
This is not to say that North American investors have given up on Europe: big players such as chipmaker Intel, pharmaceutical company Eli Lilly and tech behemoths including Apple and Microsoft are still making billion-dollar investments on European soil.
Two sectors that saw a significant increase were in minerals and metals. Chinese battery supplier Shanghai Putailai New Energy Technology, which produces lithium-ion battery anode materials, announced plans to invest $1.3bn in a new factory in Sweden. Meanwhile, Netherlands-based Trafigura’s mining arm announced plans to invest €300m to expand its Aguas Tenidas mine in Spain.
The semiconductor and biotechnology sectors, meanwhile, sank during 2023. Having brought in a record $40.6bn in 2021, FDI into semiconductors in Europe has been dropping since, falling to $30.5bn in 2022 and $11.5bn in 2023. Meanwhile, bolstered by a post-pandemic appetite for direct investments in bio-engineering, greenfield FDI into European biotechnology hit a record estimated sum of $7bn in 2022 yet fell by 76% in 2023 to $1.7bn.
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This article first appeared in the European Cities and Regions of the Future supplement of the February/March 2024 print edition of fDi Intelligence.