The UK lost to France as the most popular European destination for foreign investors for the second year in a row, amid Brexit disruptions and the coronavirus pandemic.
In 2020, the United Kingdom obtained 975 foreign investment projects against 985 projects in France, according to the accounting firm EY.
The UK dominated foreign direct investment (FDI) in Europe for the first 18 years of the annual Foreign Investment Survey. However, the UK first lost its crown to France in 2019, as companies grappled with uncertain prospects of a UK-EU trade deal. A last-minute deal was struck on Christmas Eve 2020, just a week before the UK left the EU’s single market.
Attracting foreign investment to a “global Britain” is a key objective of the Conservative government, whose leaders have argued that leaving the EU would make the UK a more attractive destination. The government has set up an Office for Investment to attract foreign investment, but it has also facilitated intervention in foreign takeovers for national security reasons.
Evidence of the significant benefits of Brexit has so far been limited – although benchmarking has been made much more difficult by the disruption of the global pandemic.
Some experts have already detected effects of Brexit on trade, which is linked to foreign investment. Academics at Aston University in Birmingham published research last month suggesting that Brexit dropped services exports by £ 114 billion between 2016 and 2019.
EY said declining investment from countries like Japan suggested that “the UK’s appeal as an export base is much less than it was” because of Brexit. The pick-up in investment from other countries outside the United States, the EU and Japan may not be “of a magnitude to offset the decline in activity in the traditional base,” the report said.
However, the pandemic has caused a sharp drop in international investment across the world: the United Nations trade body found that global FDI fell 42% in 2020 – its lowest level in 26 years last year , according to research by Simon Evenett, Professor of International Trade at the Swiss University of St. Gallen, and Johannes Fritz of the St Gallen Endowment for Prosperity through Trade.
EY’s figures do not reflect the value of investments in the UK, but they do suggest that a further decline is possible from 2019. Figures from the Office of National Statistics showed that the value of foreign direct investment in the UK was £ 36bn in 2019, up from £ 66bn in 2018 and below the 10-year average of £ 54bn.
The UK investment project tally is down 12% from 2019, a slower drop than the 18% drop in French projects. Germany was the third most popular country, with 930 projects, and the second most popular country, Spain, was far behind, with 354 projects, with inward investment falling by more than a quarter over the course of the first year of the pandemic.
Japanese automaker Nissan’s program to modernize its Sunderland auto plant, an expansion by online retailer Amazon, and data centers by Japanese tech company NTT are examples of large foreign direct investments announced in 2020.
Alison Kay, Managing Partner of Customer Service at EY UK & Ireland, said that “the UK’s former dominance in the foreign direct investment market has been replaced by a three-way fight with Germany and France”.
However, this was overall a “positive” performance for the UK in light of “the impact of the pandemic, a shrinking foreign direct investment market and the then uncertain future trade relationship. with the EU, ”she said.
She added that the drop in inbound investment was relatively smaller than expected. Investors had forecast an average fall of 30 to 45% in UK projects in the fall compared to 2019.
The report also found that the outlook for investing in the UK may have improved due to the speed of its Covid-19 vaccine rollout relative to its rivals, Kay said. A survey of 570 international investors found the UK to be considered the most attractive place to invest in Europe, a quick turnaround from the fall when it was lagging behind France and Germany.