The UK lost to France as the most popular European destination for foreign investors for the second year in a row, amid the Brexit halt and the coronavirus pandemic.
During 2020, the UK secured 975 internal investment projects compared to 985 projects in France, according to accounting firm EY.
The UK had 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 when companies faced uncertain prospects for a UK-EU trade deal. A last-minute deal was reached on Christmas Eve 2020, just a week before the UK’s exit from the EU single market.
Attracting foreign investment to a “global Britain” is a key goal of the Conservative government, whose leaders argued that exiting the EU would make the UK a more attractive destination. The government has created an Investment Office to attract domestic investment, but it has also facilitated intervention in foreign acquisitions for national security reasons.
Until now, the evidence of significant benefits from Brexit has been limited, although comparative analysis has become much more difficult due to the interruption of the global pandemic.
Some experts have already detected the effects of Brexit on trade, which is linked to foreign investment. Academics at Aston University in Birmingham released research last month suggesting that Brexit caused service exports to fall £ 114 billion between 2016 and 2019.
EY said the decline in investment from countries like Japan suggests that “the UK’s attractiveness as an export base is much less than it was” due to Brexit. The spikes in investment from other countries outside the US, the EU and Japan may not be “of a scale to compensate for the lower activity on the traditional base,” according to the report.
However, the pandemic caused a big drop in international investment around 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 investigate by Simon Evenett, professor of international trade at the University of St Gallen in Switzerland, and Johannes Fritz, of the St Gallen Endowment for Prosperity through Trade.
The EY figures do not capture the value of UK investments, but suggest that further decline is possible from 2019. Figures from the Office for National Statistics showed that the value of foreign direct investment in the UK was £ 36bn in 2019, down from £ 66bn in 2018 and below the 10-year average of £ 54bn.
The UK investment project count decreased 12% compared to 2019, a slower decline than the 18% drop for French projects. Germany was the third most popular country, with 930 projects, and the next most popular country, Spain, lagged far behind, with 354 projects, with a reduction in domestic investment of more than a quarter in the first year of the pandemic.
Examples of large foreign direct investments announced in 2020 were Japanese automaker Nissan’s program to upgrade its Sunderland car factory, an expansion of online retailer Amazon, and the data centers of Japanese technology company NTT.
Alison Kay, Managing Partner Customer Service at EY UK & Ireland, said the “former dominance of the UK foreign direct investment market has been replaced by a competitive three-way fight with Germany and France.”
However, it was overall a “positive” performance from the UK when viewed in light of the “impact of the pandemic, a shrinking foreign direct investment market and the then uncertain future trade relationship with the EU,” he said.
He added that the decline in foreign investment was relatively less than expected. Investors in the fall had forecast an average decline of 30% to 45% in UK projects compared to 2019.
The report also found that the outlook for UK investment may have improved thanks to the speed of its launch of the Covid-19 vaccine compared to its rivals, Kay said. A survey of 570 international investors found that the UK was seen as the most attractive investment location in Europe, a rapid change from the autumn when it lagged behind France and Germany.
George is Digismak’s reported cum editor with 13 years of experience in Journalism