2013 UK attractiveness survey

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Throughout the past decade, the UK has remained Europe’s top recipient of foreign direct investment (FDI) projects. It retained this position in 2012, securing more investments and a higher market share of projects across Europe than in 2011.

This strong performance in 2012 saw the number of projects coming to the UK rise by 2.6% to 697, the third highest number in the past ten years. And it achieved this increase against the background of the first decline since 2008 in total projects at the European level.

These figures suggest that - despite the UK’s relatively sluggish pace of recovery from the recent downturn - the Government’s efforts to enhance the country’s attractiveness in areas such as taxation, trade missions and support for SMEs are going down well with cross-border investors.

This view is borne out by our research study, which shows that overseas companies believe the UK has made advances in a number of areas over the past year. These include improvements in the country’s financial flexibility, policy regime for start-ups, and entrepreneurial culture.

"With world markets — and especially Europe — affected by economic uncertainty, the ongoing strong flow of FDI continues to have a transformational impact on the UK, helping to create and sustain a globally attractive, highly competitive and truly international economy."

Lord Green, Minister of State for Trade and Investment, UK Trade & Investment

Challenges on the horizon

However, our research also points to some emerging challenges that mean the UK has no room for complacency. While staying ahead in overall projects, the UK slipped behind Germany in 2012 for the first time in new projects from first-time investors. Germany also maintained its lead over the UK in attracting projects from emerging sources of FDI such as China.

Taken together, these findings suggest that Germany is well-placed to overtake the UK in the next few years as Europe’s number one location for FDI. Again, this view is supported by global our research among overseas investors, who rank the UK second behind Germany among Europe’s most attractive countries for FDI over the next three years.

Key strengths

The overall message is clear: the UK needs to keep working hard to sustain its leadership in European FDI, by continuing to enhance its offer to foreign investors. As the UK strives to do this, it will be able to build on a number of established strengths.

One of the most important of these is its continued position as the European destination of choice for US investors. With the US appearing to enter an economic upswing ahead of Europe, the UK needs to sustain its strong US relationship, while simultaneously building closer links with other sources of FDI, especially growth markets.

Another key strength for the UK is its lead in fast-growing business services FDI, as well as in software and financial services. While projects from the financial services industry are currently declining, overseas companies expect this to be the number one sector driving UK growth in the coming years - suggesting the UK is well-placed to capture any upturn.

In an increasingly competitive global market for FDI, the UK cannot compete for every opportunity. So it needs to define a strategy for where to focus its efforts in terms of sector, function and region. Now is the time to act, while the UK is still leading the way as Europe’s top FDI location.