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Foreign investment drops as BRICS start to look elsewhere

19/06/2012

By Daniel Hunter

The UK remains Europe’s top destination for foreign direct investment (FDI) but will lose its crown to Germany within two years unless action is taken, according to Ernst & Young’s annual UK Attractiveness Survey.

The report, which analyses inward investment and the attitudes of global investors, shows that the UK attracted 679 projects in 2011 creating nearly 30,000 jobs.

However, the UK suffered a 7% decline in overall projects, with financial services investment, a traditional source of FDI, dropping by 15%. In contrast, 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. Germany also swept up investment from the BRIC countries, winning twice as many FDI projects from Chinese businesses.

UK must maintain its strengths while finding new ones

The report demonstrates how dependent the UK is on a small number of countries, especially the US, and sectors, such as financial services, for the majority of its projects. Germany’s growth illustrates the importance of two way trade and strong domestic demand, in driving investor choice and shows how linked success in attracting inward investment is to wider economic performance.

The 500 decision makers surveyed as part of the report called for greater focus on supporting R&D and innovation, developing education and skills, and improving attractiveness via incentives, taxation and attention to real estate and labour costs.

“The ability to win investment has been a crucial source of pride, job-creation and growth over many years and is now more important than ever. These findings must act as a wakeup call to prevent the UK losing its lead in foreign direct investment," Ernst & Young UK & Ireland managing partner Steve Varley said.

“The UK... continued on page two >

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