North West in the UK’s top three regions for foreign direct investment
The North West’s attractiveness as an investment destination has grown amid the COVID-19 pandemic, and it is now one of the UK’s top three locations for attracting inbound foreign direct investment (FDI) projects, according to EY’s latest UK Attractiveness Survey.
With 85 projects in 2020, the North West overtook the South East (72) to become the UK’s third largest FDI location, behind Greater London and Scotland. Last year’s performance was a 16% improvement on 2019 when the region secured 73 projects and meant the North West’s share of UK projects rose from 6.6% to 8.7%. By contrast, European projects were down 13% and UK projects fell by 12%.
Digital technology was the leading sector in the North West in 2020 with 19 projects (down from 23 in 2019), followed by business services with 11 (11) and machinery and equipment manufacture with seven (up from five). Projects were most likely to involve sales and service activities (43 projects, up from 37 in 2019), manufacturing (18 projects, up from 14) and research and development (nine projects, up from seven).
Manchester was the third best performing city in the UK for attracting FDI – after London and Edinburgh – with 35 projects during the year. The city was home to over 40% of all North West projects in 2020 and it was the only North West location to make the Top 10 UK cities for FDI projects. Within the region, Liverpool was second placed with eight projects (17th in the UK), while Warrington came third with six projects (18th).
Digital transformation a key driver for the North West
Stephen Church, EY’s North Markets Leader and Managing Partner for Manchester, said:
“These results mirror what I’m seeing across the North West market – business resilience, confidence in the local economy and optimism about the opportunities for future growth here.
“I’m not surprised that digital is a key driver for inward investment projects in the region – it’s a sector where we are seeing significant growth and international deals activity. 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.
“It’s great that Manchester’s inward investment figures are ahead of all other cities outside London and Edinburgh. That said, the fact that it was the only North West location to have project numbers pass double digits is something that needs to change, and it would be good to see more of an equitable distribution of investment throughout the region.
“Our research suggests the UK’s ‘levelling up’ message has landed effectively with investors, with almost two-thirds aware of the policy. There is scope to build on these foundations, with almost half of investors planning to change their supply chains in future and a fifth considering reshoring to the UK. With the manufacturing and logistics opportunities this will create likely to fall outside of London and major cities, this may be a one-off opportunity to reshape the UK’s economic geography.
“According to our survey, the key criteria investors will consider when looking outside London are the availability of the skills of the local workforce, the strength of local business networks, and access to regional grants and incentives for investment and R&D. There are signs of a shift in attention beyond London with the share of investors who say it is the UK’s most attractive destination falling from 46% in 2019 to 25% in 2020.”
UK-wide picture is positive overall too
The UK as a whole ranked second in Europe for FDI projects in 2020, expanding its share of the European FDI market. 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).
Overall, Europe saw a 13% fall in projects – from 6,412 in 2019 to 5,578 in 2020 – which helped the UK expand its market share of FDI for the second successive year, from 16.6% in 2018 and 17.3% in 2019, to 17.5% in 2020. Meanwhile, London reclaimed its status as Europe’s most attractive city for investment, overtaking Paris.
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. There were 322 digital technology FDI projects in the UK in 2020 – 33% of all UK projects – while the country remained Europe’s leading destination for digital technology investment, albeit with a smaller share of the European market and with fewer projects than 2019.
English regions close the gap on London
With 383 projects in 2020, London remained the UK’s main location for inbound FDI projects. But with UK digital projects – a key London sector – falling, this figure was 29% down on the 538 projects secured in 2019. This performance saw London’s share of the overall UK market slip from 48.5% in 2019 to 39.2% in 2020; London’s share of the UK digital market fell to 58%.
Scotland retained its position as the leading UK FDI location outside London, securing 107 projects, up 6% from 101 projects in 2019.
Most English regions held steady with only the North West and East of England (35%) registering double-digit improvements, and only London and the South East registering double-digit declines.
In total, four English regions – the North West, East of England, North East and South West – increased their project numbers, while five – London, the South East, West Midlands, Yorkshire and the Humber, and the East Midlands – saw a decline.
EY’s UK Attractiveness Survey includes analysis of 570 international investors’ perceptions of the UK as a destination for FDI. Despite London’s challenging 2020 experience, 43% of those surveyed said it is the most attractive European city for investment – up from 28% last year, when it trailed the 31% achieved by Paris. This year, just 18% of survey respondents said they favoured Paris.
Digital technology, health and wellbeing are growth areas for the UK
Alison Kay, Managing Partner for Client Services at EY UK & Ireland, said:
“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.”
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.
This 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 said:
“The UK has a very bright outlook for investment and a strong recovery, especially compared to last year. 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: the survey revealed that investors now view the UK as having the best COVID-19 recovery plan in Europe.”
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