In the 2020 pandemic year, many borders were closed and people had to stay at home.

So it is no wonder that companies felt little inclination to invest outside of their home countries.

But the situation will recover in 2021, reports the consulting firm Ernst & Young (EY) in its annual study on foreign direct investments.

The current year could still bring slight declines in Europe, but the picture is brightening noticeably - especially in Germany.

Here, the projects of foreign direct investment fell by only 4 percent in the past year, significantly less than with the European frontrunner France and the follower Great Britain, which both faced double-digit declines.

Christian Schubert

Business correspondent in Paris.

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    EY specialist Bernhard Lorentz expects an increase in investments in Germany in 2021, because the willingness to invest in the industry is increasing. The German automotive industry is in a good position as a leading industry: "The automotive location Germany has been able to hold its own in the past few years and also in the difficult year of the pandemic and has already made great strides in converting to electromobility," he reports. Thanks to demand from China, the mechanical engineering and chemical industries also recovered. The pharmaceutical industry, which grew last year as one of the few branches of the economy, could expect the upturn to continue.

    The uncertainty in the supply chains, which is particularly highlighted by the lack of chips, for example, could lead investors to prefer projects in their geographical vicinity in the future. "Many European corporations are faced with the challenge of reducing their dependency on products and intermediate products from countries such as China, India or South Korea, but also from the USA." Europe could benefit from this, even if no boom is expected, because investments are being brought back the cost increases. In a survey of 550 decision-makers from international companies in March and April of this year on the planned changes in the supply chains, the dominant objective was to "reduce the dependence of our supply chain on individual dominant countries of origin".The criterion of supplier reliability is likely to gain new weight.

    Strongest slump since measurements began

    The strong expansion of investment aid planned by the European Union could also provide a boost.

    When asked whether Europe will become more attractive as an investment location in the next three years, 47 percent respond with a “slight” improvement and 15 percent with a “significant” increase.

    However, 48 percent of the surveyed decision-makers believe that Great Britain will offer the best measures for attracting investment in the post-pandemic period, followed by Germany (36 percent) and France (30 percent).

    More than last year, companies are concerned about growing protectionism, from which Europe could particularly suffer.

    Across Europe, the number of investment projects fell by 13 percent last year. This is the sharpest drop since measurements began in 2004, and it also outstrips the declines after the financial crisis of 2009. But given the circumstances, the losses are manageable. Many experts had expected a gloomy picture. The level of direct investment that European countries received from foreign investors last year was roughly the same as in 2015 and 2016.

    Because the front runner France and the runner-up Great Britain recorded double-digit declines, Germany, with its almost achieved stability, remains in third place, but is approaching the front runners.

    Other countries even recorded increases, Turkey by around 18 percent and Poland by 10 percent, with Eastern Europe losing significantly more than Western Europe overall.

    "We will continue the investment-friendly policy"

    In Germany, the most important investment projects by foreign investors included projects by Google, Amazon and UPS. This showed, among other things, how online trading and the corresponding logistics are increasing. A Biogen investment project in Munich highlights the growing importance of the pharmaceutical and biotech sectors. Broken down by country, the United States was the largest investor in Germany last year, followed by China, which gained significant market share with a plus of 17 percent. Investments from Great Britain, however, collapsed by 44 percent due to Brexit. When looking at the number of jobs created by investments in Germany, France ranks second after the United States.

    Last year, France was Europe's most attractive investment destination for the second year in a row. "That highlights the fact that our competitiveness has improved significantly," said French Foreign Trade Minister Franck Riester in an interview with the FAZ. As announced, the French government will reduce corporation tax to 25 percent in 2022. Riester is also pleased that France attracted major manufacturing projects last year despite the pandemic. The dismantling of industry, from which France suffered for a long time, was over.The state administration has proven itself through the rapid disbursement of the pandemic aid. Many investors have also settled beyond the big metropolises, which ensures a better balance between town and country in France.