Destination UK: sustaining success in the new economy

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The good news is that foreign direct investment (FDI) rebounded in 2010 after the reduction in projects recorded in the recessionary year of 2009. Staying at the head of the pack of competing European economies, the UK was the leading recipient of company investments for the 13th year in a row — with a 19.38% share of investment and recording its highest number of investments since 1997 when the European Investment Monitor began.

The UK attracted 728 FDI projects in 2010, up 7% on 2009, compared with 562 projects in France and 560 in Germany — whose projects rose by 34%, bolstered by its position as the number one location for Chinese investment. This means that since 2004, the UK has been selected as the location of choice for approximately one in five of all investment announcements across Europe. Indeed London alone secured more FDI projects in 2010 than the majority of the European countries, apart from France, Germany and Russia.

The US was once again the largest investor into the UK last year with 254 projects. The UK also secured more projects from Japan, France, India, Australia, Ireland and Sweden than any other European nation. 46% of those investors based in the UK stated they expect to increase investment in the future showing the UK has developed a loyal base of investors to build on.

Looking ahead however and perhaps more significantly is the UK’s below par performance with the BRIC countries. Germany as the leading recipient of Chinese investment together with its overall improved performance in attracting FDI has become the leading challenger to the UK and is cited by most companies surveyed as the main competitor to the UK.

In our view...
The UK has shown strong resilience in the face of adversity, pulling through the recessionary years to reinforce its position as the leading base for investment across Europe. Whilst trade relations with India, for example, are gaining momentum, the number of projects coming into the UK from China — the eighth most important source of FDI projects into Europe — remains disappointing. With the BRIC countries unfettered by the high household and government indebtedness of the developed world, and showing potential growth rates (8.5% a year from 2010-2020 for China with India close behind at 7.9%) — these rapid growth markets are where the real future growth prospects lie. We must focus more now on grasping this opportunity to improve the quality of foreign investment from the BRICs. The Government’s approach to taking a holistic approach to tax reform is a great step to positioning the UK competitively in the global marketplace, and the emphasis on commercial diplomacy has the potential to realise benefits.

In terms of improving the UK brand and our reputation with all overseas visitors, the 2012 Olympics will no doubt become a positive contributory factor. The impact of regeneration particularly around infrastructure and communication could stimulate further investment by companies — a favourable outcome reported by a number of previous host countries. The onset of the low carbon economy and the emergence of cleantech provide the UK with a significant opportunity to stay ahead. Yet with 46% of cleantech companies surveyed having no intention of expanding their operations in the UK and a further 56% saying that the attractiveness of the UK has not changed in the last 12 months, there is a long way to go to see if the low carbon agenda can kick start a renaissance in UK manufacturing and lead to a wider distribution of investment projects.

One thing is clear: in an increasingly complex global economy, UK Government and business need to work together on this shared agenda for growth and continue to build the UK’s reputation as investors’ first choice destination for investment.

 

James CloseJames Close
Partner,
Government Services
Francis SmallFrancis Small
Partner,
Head of International Markets

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