4 minute read 19 Nov 2020
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Brave new world: How COVID-19 has reshaped the outlook for FDI

Authors
Mark Gregory

EY UK Chief Economist

Committed to using economics to drive informed decision-making in the public and private sectors. Helping rebalance the UK economy. LinkedIn Top Voice. Sports mad. Loyal supporter of Stoke City FC.

Alison Kay

EY UK&I Managing Partner for Client Service

Focused on delivering long-term value through purpose for clients. Diversity and inclusion ambassador. Happiest when spending time with family and friends. Loves to be near the ocean.

4 minute read 19 Nov 2020

UK foreign direct investment (FDI) attractiveness dips amid COVID-19 but remains resilient as investor priorities shift

In brief
  • 30-45% fewer FDI projects expected in the UK in 2020 than in 2019
  • 25% of overseas investors are planning investment projects in the UK in next 12 months – down from 31% in April
  • A country’s ability to handle future crises and their track record with COVID-19 are top factors in investor decision-making

When we published the EY UK Attractiveness Survey 2020  in May, we were in the middle of lockdown. While investor sentiment toward the UK was resilient at the time, there was a huge amount of uncertainty around the outlook for FDI. As a result, we decided to update our findings in the autumn. This report presents our latest assessment of the immediate and longer-term outlook for UK FDI based on a survey of investors undertaken in September 2020, reflecting our desire to encourage an open exchange of information and insight between business leaders, investors and policymakers on how to enhance the UK’s economic performance.

 

Download the report for the latest UK Attractiveness Survey findings – November 2020

 

The results are reasonably encouraging. Investors remain convinced of the UK’s resilience and future potential with 25% planning to invest over the coming year, a strong result by historical standards albeit down from 31% in the summer survey. But the FDI market will be smaller than in the past for some time and investors expect Europe to be a strong competitor to the UK.

Our survey results are unequivocal: COVID-19 has changed the economic landscape forever, and there is no going back. At the sector level, investor interest in digital technology and health and well-being has soared, while the attractiveness of cleantech has grown significantly across Europe, as changed lifestyles during the pandemic have increased awareness of climate and sustainability issues.

The crisis has accelerated pre-existing trends with two-thirds of our survey respondents indicating they are working to reshape their supply chains. Regionalization, reducing dependence on one source of supply, and nearshoring are all driving this shift. Most interestingly for the UK, 32% of manufacturers indicated they are likely to reshore activities to the UK — a significant increase compared to our previous research, creating a potentially unique opportunity to generate new economic activity outside of the UK’s major cities.

The UK must move quickly to articulate its vision for the future economy, especially around the shift to net zero and the infrastructure investment plan. Investors are willing to make significant long-term commitments to the UK but require a clear, long-term policy framework to assist their decision-making and risk assessment.

Investors also provided a clear steer on the policies that they will be looking for to support their future investments. The ability of a country to withstand future shocks, its cost competitiveness and the quality of its infrastructure were afforded the highest priority. The signs are that investors will generally be more demanding in future. Unlike in previous surveys, a much larger range of policy options were identified as important by investors. A joined-up offer across the whole of government will be required to provide the comprehensive package investors are seeking.

Notwithstanding the current challenges, the good news is that the UK has the opportunity to build on its proven strengths to exploit the opportunities that will arise as the world emerges from the pandemic. In this report, we suggest a set of policy steps to help to achieve this, as the UK develops its new post-EU economic identity. We at EY look forward to supporting and participating in that renewal.

Percentage of investors planning FDI projects in the next 12 months

25%

down from 31% in April

Summary

The UK’s attractiveness as a destination for FDI remains comparatively strong despite COVID-19. With strengths in key areas like digital technology, research and development, and manufacturing, there is more than a solid base for the UK to build a future FDI strategy on. These factors, combined with a growing interest in ‘reshoring’, present post-pandemic opportunities for the UK to meet investor needs and accelerate its levelling-up agenda. In this report, we suggest a set of policy steps to help to achieve this, as the UK develops its new post-EU economic identity. 

About this article

Authors
Mark Gregory

EY UK Chief Economist

Committed to using economics to drive informed decision-making in the public and private sectors. Helping rebalance the UK economy. LinkedIn Top Voice. Sports mad. Loyal supporter of Stoke City FC.

Alison Kay

EY UK&I Managing Partner for Client Service

Focused on delivering long-term value through purpose for clients. Diversity and inclusion ambassador. Happiest when spending time with family and friends. Loves to be near the ocean.