Foreign Direct Investment is a major component of delivering growth helping to drive GDP, foster innovation, enhance productivity and create jobs. A new report however finds that the success rate in attracting inward investment varies significantly across the country. London tops the list in terms of attractiveness, by a distance, with all London boroughs scoring above the national median, while outside the capital, Cambridge, Birmingham, Leeds, Bristol and Oxford lead the way.
The UK has in recent years seen strong Foreign Direct Investment (FDI) activity. According to the UK Trade and Investment (UKTI), 2014/15 was a record year for the country, both in terms of FDI (passed £1 trillion mark) and the number of jobs created (85,000 new jobs). In addition to fuelling economic growth, these investments also helped secure over £13 billion in commitments for funding infrastructure and regeneration projects.
The FDI is not however dispersed evenly across the UK, finds a new report by Grant Thornton. In the study, titled ‘Turning up the volume The Business Location Index’, the business advisory considers a range of factors that determine the attractiveness of a location in terms of Foreign Direct Investment (FDI). To determine the score of cities and regions, the researchers assessed among others Economic Scale (the number of local businesses), Scale of Workforce (size and quality of the local labour market), productivity (with higher productivity garnering more interest), Transport & Connectivity (quality of transportation network) and Innovation (the quality of creative and R&D capacity in a region).
The consultancy’s analysis shows that the capital takes in the majority of all investment. One metric the advisors investigate is the distribution of foreign-owned businesses in England, unravelling that of the 23,000 foreign-owned businesses, around 40% are located in London. Within London, the majority of foreign-owned businesses are located in Central London, with the City of London and Westminster alone accounting for over 5,000 businesses. The capital is followed by the South East at 20%, with the East of England, West Midlands and North West together accounting for almost a quarter of businesses. The North East sees the least foreign ownership, at 2% of the total.
Top 25 most attractive locations
The research further identifies the best performing local authority districts across England, based on their overall attractiveness score. London locations dominate the top 25, with 13 spots. Westminster is well in the lead with a score of 165, followed distantly by Camden with 144. Tower Hamlets, Islington and Southwark, all in London, close the top 5. Cambridge, comes in at number six, before another London entrant, Lambeth, which is found on seventh spot. South Cambridgeshire takes the number eight spot, with London’s Hillingdon and Hammersmith and Fulham completing the top ten.
London boroughs all score above the UK average of the 324 local authority districts in England. The top 25, besides Cambridge and South Cambridgeshire, contains a range of other regions benefiting from strong FDI attractiveness, including Birmingham (#12), Leeds (#13), Manchester (#16), Bristol (#20), Oxfordshire (#21) and Reading (#22) leading the way.
Other attractive locations for foreign investors are to be found along the main transport routes out of London. To the north these include Milton Keynes and parts of Hertfordshire and Buckinghamshire. To the west, along the Thames Valley, they include Berkshire and Wiltshire & Swindon, while along the M3 they include parts of Surrey and Hampshire. To the south Crawley, Brighton and Hove and parts of West Sussex also perform well.
Quality versus cost
Investors, while interested in getting the best quality, are also considerate of price. The research therefore investigates the relative cost for enjoying the quality of the different regions. The different regions are considered against three criteria, bringing together data on business rateable value (per square meter), average house prices and average earnings. The data is subsequently aggregated and mapped versus quality.
The analysis finds that there are only 21 English districts (7%) that provide high-quality at low-cost. The majority of these locations are in the East Midlands and Yorkshire & Humber, with the major cities of Sheffield, Nottingham (and Rushcliffe) and Leicester (and North West Leicestershire) falling within their boundaries. London falls within the high-quality high-cost region, as does much of the South East and East of England. In total more than 140 English districts (43%) fall into this category. The South West and North West regions are also well represented and are among the more affordable locations in the category. The cities of Manchester, Birmingham, Bristol, Leeds, Liverpool, Newcastle upon Tyne and Derby all offer high-quality at a relatively high price, but considerably more affordable than London – according to the report.
The low-cost low-quality regions are predominantly the East Midlands, West Midlands, North West and North East, with coastal and rural areas not highly representable on the ranking. The low-quality high-cost areas account for 23 English districts (7%), and are mainly areas that fringe London. In the East of England they include parts of Essex and Hertfordshire, while in the South East they comprise parts of Kent and West Sussex.