UK foreign direct investment crown at risk

By Michael Millar

Date: Wednesday 20 Jun 2012

The UK could be overtaken by Germany within two years as Europe's leading destination for inward investment, according to new research.

Accountants Ernst & Young found that the UK attracted 7% fewer investment projects in the past year, with financial services investment dropping by 15%.

Its annual UK Attractiveness Survey, which analyses inward investment and the attitudes of global investors, showed that the UK attracted 679 projects in 2011 creating nearly 30,000 jobs.

In contrast to the drop in UK projects, Germany’s share of overall inward investment rose by 15%, leaving it only 2% behind the UK.

For the first time in 15 years Germany secured a higher share of manufacturing projects and overtook the UK in securing investment from Japan.

It also swept up investment from the BRIC countries, winning twice as many FDI projects from Chinese businesses.

The report recognised that to a certain extent Germany was benefitting from its position as the eurozone's most stable economy during the financial crisis.

However, it warned that the UK was dependent on a small number of countries, especially the US, and sectors, such as financial services, for the majority of its projects.

Germany’s growth illustrated the importance of two way trade and strong domestic demand, in driving investor choice and showed how linked success in attracting inward investment is to wider economic performance, the study said.

"The consistent theme coming through loud and clear from investors is that the UK needs to focus on three areas to increase its attractiveness: R&D and innovation, developing education and skills and creating a strong economic environment that balances demand, efficiency and incentives," said UK & Ireland managing partner Steve Varley.

Investors also cited qualms about UK labour costs, the price of property, and the tax regime.

But they praised its quality of life, culture and language, stable political environment and infrastructure.

They were also bullish about economic recovery, with 86% of investors saying they were confident the UK would overcome its economic challenges – higher than for other European country except for Germany.

But the research again laid bare the two speed economy in the UK, with London and the South securing 60% of foreign investment.

All other English regions saw double-digit declines in projects with Wales suffering the biggest slump.

Its share of overall UK projects fell to 1.3%, compared to a high of 9% eight years ago.

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