- The region recorded 40 FDI projects in 2019, 23 were new to the region, representing an 11% increase, when compared to 2018
- Declared employment creation from Foreign Direct Investment projects in the East of England stood at 117.4 jobs per project, more than double the UK average of 51.4 jobs per project
- Investors perceive the UK to be resilient compared to European peers as Brexit fades as an influence on investment decisions
The past four years have been significant for the region, with 116 new FDI projects secured, more than in the previous six years combined. However, this performance was against a backdrop of a more general rise in FDI project investment across the UK, which meant that despite this increase the East of England recorded a slight decrease in its market share from 3.2% in 2018 to 2.9% in 2019, when compared to other UK regions.
The annual EY report examines the performance and perceptions of the UK and its regions as destinations for FDI, and this year includes a survey of 800 international investors looking at the impact of COVID-19 on investment.
The UK recorded 1,109 projects in 2019, (new and expansion of existing) behind France (1,197). Germany completed the top three (971). The first time the UK hasn’t occupied top spot since the survey started in 1997.
The UK surged ahead in digital tech, attracting 432 projects (an increase of 114 – 36% – on the previous year) and attracting a 30% share of all European projects. The UK grew four times faster than the European average in this sector, securing more projects than France and Germany combined.
Although the number of new – as opposed to extended – projects in the East of England (23) remained the same as in 2018, a highlight for the region was in the number of jobs created, per project. Despite not all projects declaring employment, those that did revealed an average of 117 jobs per project, more than double the national average of 51 jobs per project. This resulted in an estimated nearly 3,000 jobs being created in 2019 as a result of FDI across the East of England.
Among those projects creating jobs in the region was an investment by a US business, resulting in approximately 2,000 jobs as part of a new FDI project, a logistics provider creating an estimated 118 new jobs, and a technology company creating an estimated 100 jobs as part of an expansion of its existing FDI project in the region.
Stuart Wilkinson, Office Managing Partner at EY in the East of England (pictured), said: “The news that FDI projects are having a positive impact on job creation in the region is a welcome boost, considering the challenges that have faced some businesses since 2016, due to economic uncertainty, post the EU referendum. Whilst the US remains the region’s most common originator of FDI, with a 32% share, having seen an increase of six projects in 2019, it’s crucial to the region’s ongoing sustainability that investment continues to come from elsewhere, including outside of Europe.”
The report found that unlike the UK overall, where Germany was the second largest origin for FDI, the East of England’s top three origins were Canada (8%) and Japan and UAE, in joint third (7%). This compared with UK figures for these locations of 3% and 1.3% respectively.
Cambridge retained its top spot as the leading city for FDI in the East of England, representing 25% of the total investment in the region. Among other towns in the region that have benefited from an increase in FDI in 2019 are Milton Keynes, six projects, Bedford, two projects (+2), Harwich, two projects (+1), Southend-on-Sea, one project (+1), Norwich, three projects (+1), Ipswich, one project (+1) and Ely, one project (+1).
Wilkinson added: “Cambridge was again the leading city for FDI in the East of England, due to the concentration of industry in the area, particularly in the digital technology sector, which represented the highest sector for FDI projects in the region, alongside transport and logistics. These sectors accounted for 35% of the total FDI market share, testament to the region’s existing capabilities and ongoing expertise in these industries. The report also revealed that transport logistics had its strongest year in a decade where FDI projects were concerned. The third biggest sector for FDI was electronics & IT, alongside machinery & equipment, which both had their highest figures in a decade, accounting for eight projects combined.”
The East of England recorded an uptick in Back Office (+6) and Headquarter (+2) activities, although there was a decline from 2018 in logistics (-1) and sales and marketing (-3) in 2019. Despite the decline in sales and marketing activities, this remained a key FDI activity sector for the region in the last 12 months, accounting for 11 projects (27.5%). And, in line with the strong year for transport manufacture, the region recorded a higher proportion of manufacturing activities (17.5%) than the UK average (11.9%), although a slight reduction on 2018 levels (19.4%).
The UK-wide picture
The UK missed out on first place in the European rankings for total inbound foreign direct investment (FDI) projects in 2019. This is the first time the UK hasn’t occupied top spot since the survey started in 1997. The UK (1,109 projects in 2019) now sits second behind France (1,197). Germany is ranked in third place with 971 projects.
Despite losing the lead for total project numbers, 2019 was a strong year for the UK with a 5% increase in projects in a European market that grew by less than 1%. This meant the UK’s share of projects increased to 17.4%, up from 16.6% in 2018. This ends three years of declining market share for the UK since the 2016 EU referendum.
The UK performed particularly well in attracting new projects, as opposed to extensions of existing activities. There were 782 new investments in the UK in 2019 — up 7.7% from 2018. This was the highest level since 2016 and the second-highest number of new projects secured by the UK in any year over the past decade. The UK has leapfrogged last year’s leader for new projects, Germany (which secured 770 new projects), into top spot.
The research also shows that investors feel that FDI projects in the UK are well-placed to recover from the impact of COVID-19, and that the UK is likely to outperform the global market in attracting post-pandemic investment.
EY’s UK Chairman, Steve Varley, comments: “The UK performed strongly on FDI in 2019 and, importantly, is well-placed to face the challenges presented by COVID-19 and an uncertain economic environment.
“While the UK missed out on the top spot for total FDI projects in Europe, there are some encouraging signs about the positive changes taking place in the wider UK economy. The UK secured an increasing share of European research and development projects, achieved a spectacular performance in attracting FDI in the digital economy, and was ranked in first place for new projects.
“While the loss of leadership on the total number of projects may attract attention, it’s important to note that, for some time, the UK’s strategy has been to focus on the value of the FDI it attracts rather than the volume. The new projects secured reflect an extension of the investor and project base, rather than solely building on past successes.”
Better geographic balance needed
While the UK’s leading cities were generally thriving in terms of FDI in 2019, the performance of other UK regions was mixed.
“Additional research for EY by the Centre For Towns, also published today, finds that the share of FDI going to the capital cities in England, Scotland and Wales and other ‘Core Cities’ in Great Britain has increased from 31% of the total in 1997 to 67% in 2019.
“During this period, every other place type identified by the Centre For Towns has seen its share of FDI fall. The most severe share losses were in medium-sized towns, with a fall from 20% of FDI in 1997 to 6% in 2019, and coastal towns, where the decline was from 8% to 1% over the same period.”
Ian Warren, Director of Centre For Towns, said: "Whilst we welcome a small increase in FDI projects overall, we are still worried that investment is concentrating in London and our Core Cities. 81% of foreign direct investment to the UK took place in our Core Cities or within 30km of one. Our coastal towns in particular have seen their levels of investment plummet over the last two decades, and in the last two years the number of FDI projects has halved in our university towns. Equally, whilst the digital sector continues to attract inward investment, this is a sector which also concentrates very heavily in London and the south east of England. Levelling up should include the distribution of digital sector employment across the UK."
UK pipeline resilient in turbulent times
The research suggests that the UK should remain relatively resilient in its ability to attract FDI this year, despite the impact of COVID-19. The report indicates that investor intentions towards the UK, compared to other FDI destinations in Europe, remain relatively positive when they look beyond the immediate impact of COVID-19.
EY’s UK Chief Economist Mark Gregory said: “There is no doubt that the outlook for FDI will be extremely challenging as the world tries to recover from the economic and social impact of COVID-19. Asked whether they expected to see an increase or decrease in FDI globally, following a period of recovery from the COVID-19 pandemic, a net -71% of investors responding to EY’s survey said they were anticipating a decline in global FDI. When asked the same question about investment specifically into the UK, the balance expecting a decline was -44 – still very challenging, but more positive than the overall market outlook.
“Before COVID-19 changed the picture completely, 2020 was set to be a record year for UK FDI. At the start of the year, 31% of investors said they were planning to invest in the UK in 2020 – a significant increase from 23% in last year’s survey. This was the highest positive sentiment for the UK in over a decade, and higher than the corresponding numbers for other European countries.”
Shifting geographic balance sees US investment exceed EU levels as investors look beyond Brexit
An analysis of changes in the UK’s FDI project origins over the three years since the 2016 EU Referendum shows that the UK has been able to rebalance its investments to compensate for a decline in EU originated projects, further illustrating the transition underway in the UK economy.
Meanwhile, investors appear less likely to regard Brexit as a risk factor, with just 24% of survey respondents citing it as a risk factor this year, compared to 38% last year.
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About the EY Attractiveness Report
EY’s Attractiveness Surveys analyse the attractiveness of a particular region or country as an investment destination. The surveys are designed to help businesses make investment decisions and governments remove barriers to growth. A two-step methodology analyses both the reality and perception of FDI in the country or region.
The evaluation of the reality of FDI in the UK is based on the EY European Investment Monitor (EIM), the proprietary EY database, produced in collaboration with OCO.
We define the attractiveness of a location as a combination of image, investors’ confidence and the perception of a country’s or area’s ability to provide the most competitive benefits for FDI.
We have adapted our regular investor survey this year, to provide more insight into the impact of COVID-19 on the perceptions and aspirations of investors into the UK and Europe as a whole.
European field research was conducted by the CSA Institute in January and February 2020 via telephone interviews, based on a representative panel of 504 international decision-makers.
A second perception survey for Europe was conducted from 15 April to 29 April to reflect decision-makers’ perception changes due to the COVID-19 crisis. This online survey was led by Euromoney, based on a representative panel of 113 international decision-makers.
A final perception survey for the UK was conducted by Longitude from 10 April to 30 April to reflect decision-makers’ perception changes due to the COVID-19 crisis. The survey was conducted by telephone and email and based on a representative panel of 200 international decision-makers.