- UK records 322 inbound digital Foreign Direct Investment (FDI) projects in 2020, however, project numbers fell by 25% from 2019 (432)
- London remains the city driving the UK’s digital technology success, securing 57.8% of all digital tech FDI recorded in the UK in 2020
- EY investor survey identifies digital as one of the main drivers of UK growth in future
- Vaccine roll-out prompts investors to see the UK as having Europe’s best pandemic recovery plan, creating opportunities for growth
The UK’s attractiveness as an investment destination has proved resilient amid the COVID-19 pandemic, with the country ranking second in Europe for total inbound foreign direct investment (FDI) projects in 2020 and expanding its share of the European FDI market, according to the EY 2021 UK Attractiveness Survey which launched today.
While the UK again missed out on Europe’s top spot for FDI – for only the second year in the survey’s two-decade history – the gap was closed on 2019’s first-time leader France. In 2020, the UK secured 975 projects (down 12% from 2019’s 1,109 projects); France hosted 985 projects (down 18% from 2019’s 1,197 projects). Germany ranked third with 930 projects (down 4% from 2019’s 971). Spain remained a distant fourth with 354 projects (down 27% from 2019’s 486).
The UK performance was, once again, partly based on its success in attracting investment in digital technology projects, which have accounted for the largest share of inbound FDI projects in the UK every year since 2013. While the UK retained its leadership position for digital investment in Europe – securing 322 projects in 2020 and staying well ahead of Germany on 187 – project numbers fell by 25% from 2019 (432). This was almost double the fall in the overall European digital market (13%). London and the South East together accounted for all of the decline in digital projects into the UK in 2020.
London continues to drive the UK’s success in digital tech
London remains the city driving the UK’s success in digital technology, securing 186 projects, 57.8% of all digital tech FDI recorded in the UK in 2020, or 66.5% when London and the South East (28) are combined. The North West secured 19 digital projects, the East Midlands 12, closely followed by the West Midlands at 11.
Despite the decline in UK project numbers in 2020, the signs are that the sector remains attractive to investors. EY’s UK Attractiveness Survey includes analysis of 570 international investors’ perceptions of the UK as a destination for FDI. This survey showed that 54% of respondents identified digital as one of the main drivers of UK growth in future, up from 51% in 2020, and just 26% as recently as 2019.
Praveen Shankar, EY UK & Ireland Head of Technology, Media and Telecommunications (TMT), comments: “While the UK remains Europe’s leader in digital tech and the sector is a key strength, the UK’s European market share fell in 2020. This decline was largely due to a dip in investment in cutting edge projects in London – project numbers rose outside the capital as the pandemic pushed companies to invest in online sales platforms. Our survey offers some guidance on how the UK can best support its transformation to a digital economy, with the investors we surveyed prioritising digital infrastructure, cybersecurity, entrepreneurship, and protecting intellectual property and data. Targeted policies here could continue to differentiate the UK in the competition to attract digital FDI.”
Of the investors surveyed by EY, 48% said the Government could support the UK's transformation to a digital economy by supporting investment in digital technology and infrastructure, 40% highlighted cybersecurity investment, and 39% advocated boosting digital entrepreneurship.
Praveen Shankar continues: “High-quality digital infrastructure and innovation in the regions will accelerate opportunities to level up and grow the UK economy in years to come.”
Investors say the UK has the best COVID-19 recovery plan in Europe
A previous EY survey, carried out in autumn 2020, found the UK ranked third in Europe for post-pandemic attractiveness – behind Germany and France – and just 25% of those surveyed said they planned to invest in the UK in the following 12 months.
The latest survey implies a significant reversal in fortunes. The UK is now perceived to be Europe’s most attractive destination for investment, while 41% of survey respondents plan to invest in the UK in the next 12 months – the UK’s highest ever score on this question, up from 31% in spring 2020 and 23% in 2019.
Alison Kay, Managing Partner for Client Services at EY UK & Ireland, comments: “The UK has a very bright outlook for investment. Allowing for the fact that the investment market is still uncertain and volatile, these are encouraging findings. The UK’s vaccine programme appears to have played a key role in the change in sentiment with our survey revealing that investors now view the UK as having the best COVID-19 recovery plan in Europe.
“Given the impact of the pandemic, a shrinking FDI market, and the then-uncertain future trading relationship with the EU, the UK delivered a positive FDI performance in 2020. A relatively small decline in project numbers meant the UK far-outpaced downbeat investor forecasts too. In our autumn 2020 survey of investment attitudes, investors forecast a 30% to 45% decline in UK projects compared to 2019.
“The UK has demonstrated resilience and adaptability in attracting investment. Key sectors have changed over time, and the UK attracted the most ‘new’ projects in Europe in 2020 rather than relying on reinvestments. However, its former dominance of the FDI market has been replaced by a competitive three-way tussle with Germany and France. To regain its place as the market leader, the UK will need to build on its strengths. The investors we spoke to for this year’s survey identified digital technology and health and wellbeing as being key growth areas for the UK, and these are areas where the country already excels.
“But there is catching-up to do elsewhere. In increasingly vital areas, such as clean technology, the UK trails Europe. COP26 in Glasgow should provide some impetus to improve, while investors tell us they value green policy and regulatory certainty as well as support to develop green supply chains. There is an opportunity for holistic, targeted initiatives to attract FDI in the priority areas that should form the core of a ‘Building Back Better’ strategy: innovative research and digital technology; ‘cleantech’; and levelling-up the UK’s economy.”