The report, Catalyzing Competitiveness: Where Investment Happens and Why, argues that productive investment has become one of the defining measures of economic competitiveness, with companies increasingly choosing locations based on operating costs, productivity and the speed at which projects can be delivered, rather than historical industrial centres or geographical advantages.

Net productive investment

In this context, the Iberian Peninsula has gained prominence for its abundant supply of low-cost renewable energy, making it particularly appealing to electricity-intensive manufacturing industries.

According to the report, Portugal represents one of Europe’s strongest investment recovery stories following the eurozone sovereign debt crisis. In 2024, the country’s net productive investment reached 4.6 percent of gross domestic product (GDP), while Spain recorded a rate of more than 2 percent of GDP.

However, Germany’s equivalent investment rate stood at around 0.2 percent of GDP during the same period by comparison, underscoring the widening gap between Europe’s traditional industrial powerhouse and emerging investment destinations.

These findings suggest that several energy-intensive industrial projects are already being redirected towards the Iberian Peninsula and the Nordic countries, reflecting a shift in the EU’s industrial geography as manufacturers seek regions offering more competitive energy costs.

Furthermore, the MGI warns that Europe is facing a structural annual investment shortfall of approximately €800 billion, a gap that threatens the continent’s long-term growth prospects and international competitiveness.

Cost competitiveness

The report also identifies an increasing divergence among the world’s major economies.

As Europe continues to struggle with insufficient productive investment, the United States is expanding domestic manufacturing capacity to reduce reliance on overseas supply chains, while China increases capacity at a pace roughly three times faster than the combined rate of the US and EU.

However, cost competitiveness remains another significant challenge. According to the analysis, manufacturing in Europe or the United States costs, on average, at least 50 percent more than in the economies currently attracting the largest share of global investment.

This disparity is even greater in research and development, where costs can be around 300 percent higher due to lengthier administrative procedures and slower times to bring new products to market.

Among the main factors undermining Europe’s competitiveness, the institute highlights elevated energy and raw material costs, together with substantial differences in public investment support programmes that can vary by as much as eightfold across regions.

The MGI recommends a combination of measures, including greater automation and wider adoption of artificial intelligence, streamlined regulatory and administrative procedures, improved access to affordable clean energy, faster product development cycles, reinforced investment in innovation, and increased specialisation in strategic sectors such as semiconductors, biotechnology and AI infrastructure to narrow the competitiveness gap.

This report concludes that productivity improvements of around 30 percent, paired with lower equipment, energy and material costs and faster project execution, could reduce Europe’s current cost disadvantage by between 30 percent and 80 percent, significantly strengthening the region’s position in global industrial investment.