London had a solid year for foreign direct investment (FDI) projects in 2018, down only 0.2% (one project) year-on year compared to a fall for the UK overall of 13% (1,205 to 1,054 projects), according to EY’s 2019 UK Attractiveness Report. As a result, London secured a strong increase in its UK FDI project share, increasing from 38% in 2017 to 43% in 2018, the city’s largest share of projects since 2013.
An analysis of new FDI projects, which excludes projects relating to the expansion of current facilities, shows London’s position appears stronger still. New projects recorded in 2018 increased by 22 projects (6%) year-on-year, this led to an increased UK market share of 53% from 48%. In addition, London secured almost seven times the number of new projects than the next closest UK region which was Scotland.
US continues to be biggest foreign investor in London
In common with the UK overall, the US was the origin of most FDI projects into London. The US generated 38% of London investment in 2018, compared to 32% of total UK FDI. US investment into London increased by 49 projects (40% year-on-year) in 2018, with the increase boosted by US digital investment, which was up 30% on 2017.
London secured its second largest share of FDI from India with 6% of projects (India represented just 4.5% of total UK investment). France, Australia and Canada all secured 5% of projects in joint 3rd place. The result was that Germany, despite being the second largest origin of projects into the UK as a whole (with 7% project share) was in 6th position in London with 3% of all projects. Chinese investment was down by 23 projects on 2017 numbers (a fall of 68%) which represented a very sharp decline against the backdrop of a 26% fall in Chinese FDI projects into Europe.
Digital continues to be leading FDI sector in London
The leading sector generating FDI in London in 2018 was digital with 202 projects, down from 214 in 2017. Digital accounted for 44% of all London projects in 2018, compared with 27% in the UK overall.
Caroline Artis, London Senior Partner, EY says: “Despite the UK appearing to lose some of its attractiveness to foreign investors in 2018, London has remained resilient in the face of a number of challenges. The continued strength of London’s digital sector is encouraging to see, as is the fact that the investors rank the city highly as the next city likely to produce a global tech giant.
“However, London must continue to invest in its own future and further improve transport infrastructure and skills, while attracting and retaining high-skilled talent.”
Laura Citron, CEO of London & Partners says: “London is a truly global city, making it a great location to setup or expand an international business. It’s encouraging to see that London’s strengths in financial services and technology have helped to drive further inward investment. While Brexit has created some uncertainty, the fundamental strengths of London such as favourable time zones, world class talent and access to global markets is continuing to attract businesses and entrepreneurs from all over the world.”
London most likely European city to produce next tech giant according to investors
In the perception part of the report, when 450 global investors were asked which global city was most likely to produce the next technology giant, London came fourth with 14% – the highest position of any European city. San Francisco was first with 25%, followed by Shanghai (23%) and Beijing (18%) in second and third. Tokyo (13%), New York (12%) and Berlin (9%) came fifth, sixth and seventh respectively.
Perceptions of the UK as an FDI location have weakened
According to EY’s 2019 UK Attractiveness Report, the UK attracted its third-highest number of FDI projects in 20 years (1,054 projects). However, this was a 13% drop in FDI projects compared to 2017 (1,205 projects).
The UK’s share of FDI projects secured in Europe fell very slightly from 18% in 2017 to 17% in 2018. While overall FDI into Europe fell by 4% year-on-year, ending a five-year period during which Europe’s annual project numbers increased continuously.
Brexit appears to be a significant factor behind the decline of UK FDI projects in 2018. According to the report, 15% of global investors say they have paused one or more UK projects due to Brexit (up from 8% last year), however, only 6% plan to move assets out of the UK in the future. Five per cent of investors say they have increased investment in the UK due to Brexit, down from 7% last year, and 5% have reduced investment due to Brexit compared to 6% a year ago.
Caroline Artis concludes: “If the trends evident in our report continue then the UK risks becoming “Branch office Britain”, an attractive market to sell to, but not one that companies will commit to manufacture or research and develop in. However, with the right policies in place, the UK could strive to become “Interconnected Britain”.
“For this to happen, the digital opportunity must be seized to pioneer digital health and lead in innovative cleantech technology and applications. There is a real opportunity for London to lead the way in this space, given our existing strengths in digital and other value-add, IP-rich activities.
“High speed fibre must be used to connect disconnected towns, enabling more remote working, less commuting, less pollution and more local engagement. This investment in technology, infrastructure and skills would not only help tackle the London’s productivity challenges but create better paid, more rewarding jobs.”
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