Derby and Nottingham attracted lowest levels of Foreign Direct Investment (FDI) in four years despite ranking 13th and 18th respectively in the Top-20 best performing locations in the UK for Foreign Direct Investment (FDI) projects in 2019, according to the EY 2020 UK Attractiveness Survey launched today.
In the East Midlands, Derby attracted the most inward investment with eight projects. Nottingham secured the second most with six projects. Elsewhere in the region, Chesterfield and Lincoln both had three projects each, Coalville and Corby had two and Northampton had one. In addition, Donington, Groveport, Kegworth, Ketton and Melton Mowbray all received investment for the first time with one project each.
In total, the region secured 39 FDI projects in 2019 – down by one year-one-year. Whilst this figure is lower than the region’s 2017 peak (43 projects), the region recorded its highest total for new projects (as opposed to extensions of existing projects) in a decade.
The EY report examines the performance and perceptions of Europe, 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.
Like all other UK regions, the East Midlands saw the largest proportion of its investment (36%) come from the US. The second largest proportion of investment (8% each) came from Canada, Italy and the Netherlands.
Investment in the East Midlands led by argi-food, digital and transport manufacture
The agri-food sector was responsible for the largest number of projects (seven) in the East Midlands for a second year running. This is in contrast to other UK regions where the digital sector was the most prevalent.
The digital sector – joint with transport manufacture – was responsible for the second highest number of projects at five projects each. This represented the highest number of digital projects this decade.
EY’s Managing Partner in the Midlands, Simon O’Neill, comments: “It’s great to see Derby and Nottingham had a strong year for FDI in 2019 and that the East Midlands overall had a record year for new investments.
“When looking at the investments in more detail, it’s clear that whilst manufacturing is considered the backbone of the region digital is continuing to grow in strength. However, we must ensure this digital success continues to be shared equally across East Midlands as the region’s local economy continues to transform.”
Biggest projects for job creation
The biggest investment in terms of job creation was a logistics project in Kegworth which created an estimated 500 jobs. In addition, a manufacturing project in Derby and a textile and clothing project in Lutterworth created an estimated 300 and 200 jobs respectively.
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.
However, the picture remains more balanced in the East Midlands then in many other UK regions. In 2019, ‘Large Towns’ attracted 39% of all FDI projects in the East Midlands, whilst 21% went to ‘Medium Towns’ and 15% to the region’s ‘Core City’ Nottingham.
Ian Warren, Director of Centre For Towns, says: “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.”
EY’s Chief Economist, Mark Gregory, comments: “The UK succeeded in increasing its share of manufacturing projects in a declining European market in 2019, providing some support to towns, but has struggled to spread the benefits of FDI beyond the larger urban centres. There’s a similar and even more concerning trend in terms of digital tech investments with 83% of FDI located in the major cities and a further 10% in large towns. Digital rebalancing is a prerequisite for successful levelling up in the UK.”
London saw a surge in FDI projects, increasing by 17.5% to a decade-high of 538, representing 48.5% of all UK projects and its highest ever share. However, overall the relative performance of cities (excluding London) was largely unchanged with minor shifts in rankings.
Mark adds: “While London’s excellent performance is to be celebrated, the failure to capture more of the benefits of FDI in the UK’s smaller places is a major concern. Geographic imbalances in FDI are increasing. The next phase of economic transformation must afford a much higher priority to achieving a better geographic balance. It is clear from our investor surveys that the government needs to place sustainability and levelling up at the heart of its infrastructure, skills and trade policies if it is to effect lasting change across the country.
“Moving towards a hi-tech economy, universities will also have crucial roles to play in developing talent and skills. This should form the basis for an expansion of their role as true civic establishments, playing a central part in their local economies and communities.”
The UK-wide picture overall
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 projects in 2019). 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 UK extends its European leadership in Digital tech and surges in R&D, evidencing ongoing transformation
The UK’s strong 2019 performance was underpinned by digital tech and research and development (R&D) projects.
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.
The digital tech sector has accounted for the largest number of projects in the UK in every year since 2013.
According to the report, R&D projects in the UK grew by 38% to 102, and now represent almost a fifth of the European market (18.6% – up 12.2% in 2018).
Investment 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.
Mark continues: “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.
“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.
Simon concludes: “Looking ahead, it’s vital that sustainable growth and ‘levelling up’ the UK economy continue to be at the heart of economic policymaking. Skills and infrastructure investment must support this objective. The report shows that FDI, especially in terms of digital investment, is still concentrated in London and the UK’s major cities. A concerted effort is required in order to spread the digital success story to the rest of the country.”