Investment in and the EU Debora Revoltella Director Economics Department Dublin April 10, 2017 20/04/2017 1
Real investment: IE v EU country groupings Real investment (2008 = 100) 180 160 140 120 100 80 60 40 IE Core Cohesion Periphery Source: EIB, based on Eurostat National Accounts 20/04/2017 European Investment Bank Group 2
Real investment: Sector-level IE Real GFCF by institutional sector (4Q 2008 = 100) EU28 65.00 65.00 45.00 45.00 25.00 25.00 5.00 5.00-15.001Q05 3Q06 1Q08 3Q09 1Q11 3Q12 1Q14 3Q15-15.001Q05 3Q06 1Q08 3Q09 1Q11 3Q12 1Q14 3Q15-35.00-35.00 Financial corporations Government HH NFC Total Financial corporations Government HH NFC Total Note: Includes 2016 revisions Source: EIB, based on Eurostat Sectoral Accounts 20/04/2017 European Investment Bank Group 3
Real investment by asset IE Real GFCF by asset class (1Q 2008 = 100) EU28 100 100 80 80 60 60 40 40 20 20 0 0-20 -20 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16-40 -40 IPP Other structures Other Dwellings Machinery & Equipment Total IPP Other structures Other Dwellings Machinery & Equipment Total Source: EIB, based on National Accounts and Eurostat 20/04/2017 European Investment Bank Group 4
Infrastructure investment Infrastructure investment in per cent of GDP 3.5 3.5 3 3 2.5 2.5 % of GDP 2 1.5 % of GDP 2 1.5 1 1 0.5 0.5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Government Corporate PPP Non-PPP Proejct Utilities Transport Communication Education Health Source: EIB, based on Eurostat National Accounts 20/04/2017 European Investment Bank Group 5
EIB Investment Survey (EIBIS) Annual survey commenced 2Q 2016 Some 12,500 firms surveyed across EU28 (of which 400 in ) NFCs with 5+ employees operating in manufacturing, services, construction & infrastructure Qualitative and quantitative information on: firm characteristics and performance Investment needs and constraints past investment activities and future focus sources of finance Representative of the economy (firms weighted by value-added) 20/04/2017 European Investment Bank Group 6
The share of Irish firms investing is already high and, on balance, these expect to mildly expand investment Investment cycle 0.350 Low investment expanding High investment expanding 0.300 Construction 0.250 0.200 CY ES 0.150 Services HR HU CZ Medium/Large 0.100 IT GR UK FR AT SI 0.050 SK EU DE BE SE LU FI PT PL RO BG NL IE 0.000 Manufacturing MT DK EE -0.050 LV Micro/Small Infrastructure -0.100 LT -0.150 Low investment contracting High investment contracting 0.600 0.650 0.700 0.750 0.800 0.850 0.900 0.950 1.000 This graphs plots the average share of firms that invested in the previous financial year (x-axis) against the net difference between those intending to expand and those expecting to contract investment in coming year. 20/04/2017 European Investment Bank Group 7
Share of Irish firms investment into intangibles highest in the EU, with machinery further crowded out by property 12% 1 8% 6% 4% Investment into intangibles 10 8 Investment areas Organisation/ business processes Training of employees Software, data, IT, website R&D 2% EL ES IT SK DE HU PT AT CZ EU18 SI DK UK NL US FI FR BE IE SE Source: INTAN invest EU Manufacturing Construction Services Infrastructure Micro/Small Medium/Large Machinery and equipment Land, business buildings and infrastructure **The blue bars indicate the proportion of firms who have invested in the last financial year. A firm is considered to have invested if it spent at least EUR 500 per employee on investment activities. Investment intensity is the median investment per employee of investing firms. Q. In the last financial year, how much did your business invest in each of the following with the intention of maintaining or increasing your company s future earnings? 20/04/2017 European Investment Bank Group 8
Share of firms operating at or above capacity Share of firms at or above full capacity 10 10 8 8 % % Luxembourg Malta Austria Estonia Romania Denmark Portugal Poland Germany Netherlands UK Cyprus Hungary Czech Rep Bulgaria Croatia Slovakia Belgium Italy Slovenia Sweden Spain Finland Greece Latvia France Lithuania Manufacturing Construction Services Infrastructure Micro/Small Medium/Large At or above capacity EU average Full capacity is the maximum capacity attainable under normal conditions e.g., company s general practices regarding the utilization of machines and equipment, overtime, work shifts, holidays etc. Q. In the last financial year, was your company operating above or at maximum capacity attainable under normal circumstances? 9
Perceived investment gap Quality of capital stock State-of-the-art machinery & equipment Perceived investment gap by country 10 8 % Germany Austria Hungary Malta Slovenia Italy Spain Netherlands Luxembourg Estonia Latvia Belgium Denmark Croatia Slovakia Portugal Finland Czech Rep Romania Sweden France Lithuania UK Poland Bulgaria Base: All firms Q. What proportion, if any, of your machinery and equipment, including ICT, would you say is state-of-the-art? Data not shown for Greece and Cyprus, as the Greek translation may have influenced interpretation of the question. This will be addressed in the next round of interviews. Energy efficient building stock Cyprus Lithuania Slovenia Greece Croatia Latvia Hungary Denmark Romania Estonia Poland Slovakia Bulgaria Spain Czech Rep Germany UK Portugal France Malta Sweden Luxembourg Netherlands Finland Belgium Italy Austria Too much About the right amount Too little Don t know Q. Looking back at your investment over the last 3 years, was it too much, too little, or about the right amount to ensure the success of your business going forward? % Malta Spain Austria Germany Italy Slovakia Hungary Croatia Netherlands Slovenia Bulgaria Denmark Belgium Latvia UK Romania Estonia Luxembourg Sweden Portugal Czech Rep France Finland Poland Lithuania Base: All firms Q. What proportion, if any, of your commercial building stock satisfies high or highest energy efficiency standards? Data not shown for Greece and Cyprus, as the Greek translation may have influenced interpretation of the question. This will be addressed in the next round of interviews. 20/04/2017 European Investment Bank Group 10
Investment focus over coming three years Future investment priorities by country Irish firms future investment priorities by sector 10 10 8 8 Croatia Romania Denmark Slovakia Netherlands Cyprus Czech Rep Poland UK Germany Austria Latvia Greece Lithuania Sweden Bulgaria Spain Hungary Estonia Luxembourg Italy Slovenia Belgium Malta Finland Portugal France EU Manufacturing Construction Services Infrastructure Micro/Small Medium/Large Capacity expansion Replacement New products/services No investment planned Q. Looking ahead to the next 3 years, which of the following is your investment priority (a) replacing existing buildings, machinery, equipment, IT (b) expanding capacity for existing products/services (c) developing or introducing new products, processes, services? 11
Technology: Investment to modernise stock Investment in new products, processes or services that are new to the company, new to the country or new to the global market? 10 8 CZ DK FI IT SK ES UK HR PL IE SE CY BE HU NL PT DE FR MT LU LV LT RO BG EL SI AT EE Did not invest in new products New to the company New to the country New to the global market Base: All firms that invested in the last financial year (excluding don t know/refused responses) Q. Were the new products, process or services (a) new to the company; (b) new to the country; (c) new to the global market? 20/04/2017 European Investment Bank Group 12
Long-term barriers to investment: uncertainty & skilled labour Long-term barriers to investment Long-term barriers by investment sufficiency Uncertainty about the future Uncertainty about the future Availability of finance Availability of external finance Adequate transport infrastructure Adequate transport infrastructure Business regulations Business regulations Labour market regulations Access to digital infrastructure Energy costs Availability of staff with right skills Demand for products or services 8 10 Labour market regulations Access to digital infrastructure Energy costs Availability of staff with right skills Demand for products or services 8 10 A major obstacle A minor obstacle Firms that invested sufficiently Firms that invested too little Q. Thinking about your investment activities in, to what extent is each of the following an obstacle? Is a major obstacle, a minor obstacle or not an obstacle at all? 20/04/2017 European Investment Bank Group 13
Very high reliance on internal finance Type of financing used for investment 10 10 Bank loan 8 8 Other bank finance Bonds Equity Leasing Factoring Loans from family/friends EU Manufacturing Construction Services Infrastructure External Internal Intra-group Q. Approximately what proportion of your investment in the last financial year was financed by each of the following? Micro/Small Medium/Large EU Manufacturing Construction Services Infrastructure SME Large Grants Other Q. Approximately what proportion of your external finance does each of the following represent? 20/04/2017 European Investment Bank Group 14
Access to finance: a story of two worlds Share of investing firms that are happy to rely excl. on internal funds 3 25% 15% 1 high availability of internal sources; low external barriers LU SE Internally financed vs. financially constrained CZ FI EE FR DK BE AT DE PL UK ES SK NL IT LV SL High availability of internal sources; high external barriers 5% little availability of little availability of internal sources; low internal sources; high external barriers external barriers 2% 4% 6% 8% 1 12% 14% 16% 18% Share of investing firms that are external finance constrained RO LT IE MT CY BG HR HU EL PT Base: All firms Finance constrained firms include: those that invested which dissatisfied with the amount of finance obtained (received less), firms that sought external finance but did not receive it (rejected) and those who did not seek external finance because they thought borrowing costs would be too high (too expensive) or they would be turned down (discouraged) Firms happy to use internal funds are those that invested using exclusively internal funds and who stated that they did not seek any external finance because they were satisfied with their internal funds. 20/04/2017 European Investment Bank Group 15
Financially constrained firms Share of financially constrained firms Satisfaction with external finance Amount obtained 15% Cost of finance 1 Maturity 5% Collateral Type of finance Portugal Cyprus Greece Malta Bulgaria Croatia Hungary Romania Lithuania Slovenia Latvia Italy Netherlands Slovakia Spain Austria Belgium Germany UK Denmark Estonia France Poland Finland Czech Rep Luxembourg Sweden Rejected Received less Too expensive Discouraged Base: All firms; Finance constrained firms include: those dissatisfied with the amount of finance obtained (received less), firms that sought external finance but did not receive it (rejected) and those who did not seek external finance because they thought borrowing costs would be too high (too expensive) or they would be turned down (discouraged) 8 10 Very satisfied Fairly satisfied Neither Fairly dissatisfied Very dissatisfied Q. How satisfied or dissatisfied are you with? 20/04/2017 European Investment Bank Group 16
Brexit Expected effect of outcome of Brexit referendum on investment activities 10 8 positive negative no impact Don't know/refused Q. How do you expect the outcome of the UK referendum on EU membership to affect your investment activities in the coming year? 20/04/2017 European Investment Bank Group 17
Summary Survey findings for Investment continues to recover, though data and accounting particularities related to multinationals blur the picture. Infrastructure investment severely hit and continued to suffer through 2015, with the impact of fiscal constraints on public sector capital investment driving; High private sector propensity to invest ongoing, with rotation toward catchup in construction and services; elevated share of smaller firms not investing; Main barriers to investment are uncertainty, lack of skills, energy costs, and digital infrastructure; external finance a limiting factor for firms that underinvested. Polarised world of financing needs, with a high share of firms relying on internal finance, including intra-group, and most of the remainder on banking, with an elevated share of firms experiencing constraints, especially smaller and younger firms; cost and collateral requirements are important. 20/04/2017 European Investment Bank Group 18
19 Thank you!
Annex 20/04/2017 European Investment Bank Group 20
Investment purpose in 2015 Purpose of investment in last financial year by country Purpose of investment in last financial year by sector 10 8 10 8 Slovakia Croatia Spain Bulgaria Romania Czech Rep Malta Greece Sweden UK Latvia Belgium Hungary Netherlands Italy Austria Denmark Poland Cyprus Lithuania Germany Portugal Slovenia Finland Luxembourg France Estonia EU Manufacturing Construction Services Infrastructure Micro/Small Medium/Large Capacity expansion Replacement New products/services Other Q. What proportion of total investment was for (a) replacing existing buildings, machinery, equipment, IT (b) expanding capacity for existing products/services (c) developing or introducing new products, processes, services? Base: All firms who invested in the last financial year (excluding don t know/refused responses) 21
External finance 0.5 Satisfaction with external finance Amount obtained Cost of finance Maturity Collateral 0.45 0.4 0.35 0.3 0.25 0.2 0.15 Type of finance 8 10 0.1 0.05 0 Very satisfied Fairly satisfied Neither Fairly dissatisfied Very dissatisfied Received Less Rejected Too Expensive Discouraged Q. How satisfied or dissatisfied are you with? Base: All firms; Finance constrained firms include: those dissatisfied with the amount of finance obtained (received less), firms that sought external finance but did not receive it (rejected) and those who did not seek external finance because they thought borrowing costs would be too high (too expensive) or they would be turned down (discouraged) 20/04/2017 European Investment Bank Group 22
On average, Irish firms are more productive than their EU counterparts Index (100 = median TFP for the EU in 2006-2008) Distribution of firm-level TFP in 130 120 110 100 90 80 70 2006-2008 2009-2011 2012-2014 p10 p50 p90 mean Productivity Average firm-level TFP growth is falling in IE but the growth rate is higher than in the EU 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0-0.5-1 EU IE Core Periphery Cohesion 2006-2008 2009-2011 2012-2014 Note: Core: AT BE DE DK FI FR SE UK; Periphery: EL ES IE IT PT SI; Cohesion: BG CZ EE HU PL RO SK. Source: ECON calculations based on the Bureau Van Dijk s Orbis database.