UK remains leading European destination for inward investment - Ernst & Young - United Kingdom

London 25 May 2011: The UK remains Europe’s top destination for foreign direct investment (FDI) with its highest number of investments since 1997, according to Ernst & Young’s annual European Attractiveness Survey out today, but needs to broaden its pool of investors to remain competitive.

The report, which analyses inward investment and the attitudes of global investors, shows that the UK attracted 728 FDI projects in 2010, up 7% on the previous year, 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 in Europe since 2007.

London by itself attracted more projects than all but France, Germany and Russia, with 289 FDI projects in 2010 up from 263 in 2009.

Foreign investors’ loyalty to UK attracts repeat business
The US was still the largest investor into the UK last year (254 projects) followed by India and Germany (44), Japan (42) and France (41). Many of these companies are repeat investors, with the UK building up a strong loyalty and reputation among those organisations that have created a firm base in the UK market.

James Close, partner at Ernst & Young, says that overall the headline figures for the UK are very positive, underlining our success in attracting investment.

“The UK has shown strong resilience in the face of adversity, pulling through the recessionary years to reinforce our position as the leading base for investment by foreign companies into Europe.

“The international business community, surveyed as part of the report, continues to cite our technology infrastructure (89%), stable social environment (87%), quality of life, culture and language (86%) as what makes the UK the most attractive investment destination in Europe. We have a loyal following of foreign investors prepared to do repeat business here and government has an important role to keep us in pole position.”

More needs to be done to woo new investors
However, Close believes that while the UK is slowly improving trade relations with the BRICs, our success at attracting investment from these countries is still below par compared with our leading position in Europe overall.

“Trade relations with India, for example, are gaining momentum (projects were up from 38 to 44 in 2010). But despite the number of projects coming into the UK from China increasing (up from 18 to 30) – the eighth most important source of FDI projects into Europe – our figures continue to disappoint compared with Germany’s stronghold on FDI,” he says.

Close adds: “We need to do more to attract high quality foreign investment; re-orientate where that investment is coming from towards the BRICs; and manage better our reputation with all overseas investors, not just those already established in the UK. These are all areas where Government has a role to play. If the UK fails to address these challenges we could start to see declining investor interest in our market relative to our competitors.”

Of the 274 global executives interviewed specifically about the attractiveness of the UK as an investment destination, three key areas to address as having an impact on future competitiveness were the level of corporation tax; the administrative burden; and the levels of personal taxation in the UK.

FDI no panacea for employment growth
The report also shows that 21,000 jobs were created last year in the UK. While this was the highest level of employment generation in Europe in 2010, it only represents one quarter of the levels achieved 13 years ago in 1997. According to Close, FDI is not a panacea to areas struggling for employment growth, as projects no longer come with a guarantee of larger job numbers, as the average number of jobs per project is decreasing – a trend that is growing across Europe.

Cleantech most likely to stimulate growth in UK in next two years
Although business and software services still lead in the UK both in terms of actual numbers of projects (285 in 2010) and investor perception – 79% of all the global executives questioned said the UK’s reputation as a leading financial services centre keeps it attractive – cleantech could dominate in the future.

19% of all respondents considered that clean technology is an important growth area for the UK market, making it the third most important sector in the eyes of investors, up from tenth in 2009. However, the success of cleantech is highly reliant on capitalizing on government’s commitment to addressing climate change. 46% of cleantech companies interviewed have no intention of expanding their operations in the UK and a further 56% said that the attractiveness of the UK has not changed in the last 12 months.

UK predicted to stay on top – but the new framework for regional support for investors has to work
Close concludes: “While we anticipate that the UK will remain the number one location in Europe for attracting investment, the extent to which leadership can be maintained may be determined by the ability of the UK to broaden its appeal both in terms of sectors and to the growing number of locations providing the investment.

“Next year will also show how regional investment is working after the RDAs have disappeared. The message to Government is that work still needs to be done to enable us to achieve the necessary economic growth and job creation that is expected from FDI.”

For more information contact Jonathan Marciano +44 (0) 20 7951 9456