EY: UK increases lead in European inward FDI race

The UK retained its leading position in Europe in attracting Foreign Direct Investment (FDI), securing 887 from the total 4,341 projects in the European region, a recent survey from EY finds. Especially the country’s manufacturing sector has seen a big increase in FDI. While the stability of the UK continues to be a draw card for foreign investors, the coming EU referendum has made 31% of investors skittish.

In recently released research from EY, titled ‘Another great year - but how can the UK stay ahead of the pack?’, the professional services provider investigated the FDI flowing into the UK, with particular focus on how the UK is faring. The research is based on a survey of 406 investors, 40% from the US and 30% from Europe. The decision makers questioned come from a range of industries and business sizes, with 23% larger than €1.5 billion. 

UK the place to beat
While the UK has had some difficult years, foreign investors continue to show confidence in the economic potential of the region. In 2014, FDI in the UK reached 887 projects, up 11% on 2013 and seeing the UK retain the top spot for investment in the EU region. FDI to the European region as a whole grew 10% on 2013, to 4,341 projects, with the share of projects going to the UK growing slightly to 20.4%, seeing the country pull further away from Germany – the second largest destination for investment.

Regional differences
London remains the most attractive destination for investors in the UK with 381 projects, while the rest of the UK saw the number of projects to the region increase to 344, with Yorkshire seeing a 140% increase in projects, South East England up 49% and the West Midlands up 38%. Scotland was the second most attractive location for FDI in the UK to London, accounting for 80 of the 887 FDI projects. 

The increase in projects to the UK (excluding London) now places the region back at levels last seen in 1998, and suggests that investors are looking to devolve their capital to the regions. “There are signs that the UK economy is rebalancing with global investors favouring locations outside of the capital, which is good news for the UK’s overall future performance. To maintain its position as Europe’s number one destination for inward investment, the UK must broaden its appeal outside of London,” explains Mark Gregory, EY’s Chief Economist.

UK’s industrial renaissance
Investment in the UK continues to be heavily services based, with 39% of all FDI projects in professional services, and well above the EU average of 28%. However, the UK too is seeing more and more money moving into manufacturing investment, hitting 13% of all European manufacturing FDI, while managing to secure 10% of all ‘new’ manufacturing investment (up from 6% in 2013). This level of investment sees the UK win more manufacturing projects than Germany, with 164 and 131 respectively.

With regions like the West Midlands seeing a resurgence in automotive manufacturing development, 2014 continued to see significant rises in automotive assembly projects, now up 79%. Other strong performing sectors were food (up 65%) and machinery & equipment (up 24%).

Global appeal
The UK continues to be seen as a safe place for international investors, with its “the quality of life, diversity, culture and language, the stability of the social climate, infrastructure and education, and access to the European market” seen as draw cards for investment. The US is the largest interested party, supplying 36% of all UK investment, with a market share of 29% of its total FDI spent in the UK. The next nine largest investors – including France, Germany, Japan and China – collectively accounted for 42%.

The investors surveyed indicate that they will continue to invest in the region over the coming years. The largest gains are expected in sales and marketing projects at 29% of investment, followed by manufacturing at 20%, supply chain logistics at 18% and R&D at 9%. However, the respondents also cited the referendum as a continued disruptive risk to the UK’s performance, with 31% of investors stating they would either reduce or freeze their planned investments up to 2017.

Gregory adds: “Positive perceptions of the UK as an attractive FDI location are largely held by those that already have established operations. Convincing new investors to enter the UK market has to be a high priority in the UK’s future strategy.”

Most attractive markets for foreign direct investment
Last month A.T. Kearney released a similar research on FDI, highlighting the US and China as the globe's most attractive FDI locations. The UK comes in on third spot, with Germany fifth.