Confidence in UK among foreign investors rises

An index of foreign investor sentiment has shown that the UK is becoming an increasingly attractive destination for their funds. Britain is now the fourth most attractive investment centre in the world, according to the study from Kearney.

For two consecutive years, the UK had hovered at fifth place, when it came to the places foreign direct investors (FDIs) most fancied sinking capital into. Amid rampant inflation, the political uncertainty wrought by Brexit, and the country’s lacklustre attempts to deal with the Covid-19 pandemic, Britain had long languished behind Germany as a potential place for the super-wealthy to kick off new projects.

But with inflation easing (though still climbing), an election on the horizon heralding a change in government, and Germany’s own new administration mishandling a swathe of internal and international crises, investors have had a change of heart in 2024. According to Kearney’s latest annual FDI Confidence Index, the UK is now sitting pretty as the fourth most attractive destination in the world – with the level of perceived confidence in the nation having grown by more than 100 index points.

An FDI is an investment in the form of a controlling ownership in a business, in real estate or in productive assets such as factories in one country by an entity based in another country. The Kearney FDI Confidence Index is a survey of global business executives that ranks markets that are likely to attract the most investment in the next three years. The 2024 edition was constructed using primary data from a proprietary survey of senior executives of the world’s leading corporations, conducted in January 2024. Respondents included C-level executives and regional and business leaders from more than 30 countries – each from companies with annual revenues of $500 million or more.

Amid a wider rebound in the market – the cumulative value of FDIs around the world had fallen steeply in the years before the pandemic – the UK is not the only leading market to be enjoying a hot-streak right now. While the US took top spot for the 12th consecutive year, as the fastest growing in the G7, Canada also made a strong showing, maintaining its second-place rank and forming part of the top five markets for the same period of time. And China jumped from 7th position to 3rd, possibly thanks to its loosening of capital controls for FDIs in Shanghai and Beijing.

At the same time, FDI sentiment seems to have been buoyed by AI and the impact of technology. A notable 72% of investors say they are making significant or moderate use of AI in their business operations. They anticipate their businesses will use AI for customer service and chatbots, automation of manual processes, and supply chain enhancement. Further, 63% of investors say their organisation will make significant or moderate increases in AI usage to guide their investment decisions. With economies like the UK, US and China holding leading positions in the development of AI uses, this may also be making them more attractive to FDIs.

“Investor enthusiasm for AI and technology innovation is reflected throughout our 2024 Index results,” commented report co-author Terry Toland, manager at Kearney’s Global Business Policy Council. “Investors not only view the AI capabilities of destination markets as important when deciding where to invest but are also leveraging the technology directly to inform and enhance the investment decision-making process.”

Despite overall optimism on the state of FDI however, investors are still wary about mounting risks in the global operating environment, not least of which is the geopolitical turbulence that has been growing in various regions of the world. Indeed, investors anticipate continued geopolitical tensions in 2024. Eighty-five percent believe an increase in geopolitical tensions will affect investment decisions, with some firms deciding to nearshore as a result. Investors also anticipate that a more restrictive business regulatory environment in both developed and emerging markets is likely to pose risks in the year ahead – and countries will need to consider how to avert this if they expect to retain their capital injections.

Fellow co-author Erik R. Peterson, partner and managing director of Kearney’s Global Business Policy Council, pointed to mounting regulatory complexity as a potential risk for investors to watch: citing the “rise of industrial policies and trade restrictions could lead to a more heavy-handed regulatory environment across markets that investors will need to address.” He added, that regulations on emerging technologies, “especially AI”, may have “profound implications for businesses and investors alike.”