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Boost to foreign investment as overseas groups back region's key sectors during pandemic

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The success of key business sectors in the East of England during Covid such as logistics and R &D helped boost the number of foreign direct investment projects in the region to 54 last year, up from 40 in 2019, and the largest increase of any UK region, according to the EY 2021 UK Attractiveness Survey.

Overseas investors were attracted to key sectors in the region including digital tech (which saw 12 projects in 2020 in the East, up from seven previously), transport and logistics (10 projects, up from seven), and agri-food (eight projects, up from one) and particularly to Cambridge and Peterborough. The 35 per cent increase in overseas-backed projects in the East was the region’s second best performance in a decade and came as the the UK as a whole saw a 12 per cent fall in projects to 975 in 2020 from 1,109 previously.

Cambridge-based FDI projects increased to 12 from 10. Meanwhile, the need to boost capacity for online commerce during Covid may have been behind a surge in overseas-backed projects in Peterborough to ten, from just one previously. FDI projects in the region were most likely to involve sales and service activities, logistics and R&D.

Stuart Wilkinson, office managing partner at EY in the East of England, said: “The East of England has a diverse regional economy, and some of its sectors have seen an impact from global economic and business shifts linked to Brexit and the pandemic. With increasing focus on sectors and activities in which the East of England excels – including logistics and research – the region is one of the best positioned to thrive in a changing economy. It’s not a surprise that the region is much more attractive to investors than it was just two years ago.”

Life sciences a key sector

The UK’s life sciences sector – including pharmaceuticals and medical technology companies – enjoyed a strong performance, with projects in the sector bucking the overall national trend and growing from 2019 to 2020. There were 47 FDI life sciences projects in the UK in 2020, a 62% increase from the 29 projects in 2019. Health and wellbeing were seen as key to the UK’s future economy.

The strength of the life sciences sector is mirrored by the growth of (R&D activities in the UK in recent years. The sector achieved a 12% market share and 114 projects, up 12% from 2019’s 102 projects, and placing the UK just behind market-leading France’s 115 projects. As a mark of the UK’s progress, France attracted almost double the number of R&D projects than the UK as recently as 2018 (144 projects to 74).

Stuart Wilkinson adds: “The life sciences sector is going to be increasingly important for the UK economy and the region is at the forefront of that, particularly the knowledge cluster around Cambridge.”

Resilient performance for UK

The region’s strong performance is set against a backdrop of resilience for the UK’s attractiveness as an investment destination amid the COVID-19 pandemic, with the country ranking second in Europe for total inbound FDI projects in 2020 and expanding its share of the European FDI market.

While the UK again missed out on Europe’s top spot for FDI – for only the second year in the survey’s two-decade history – the gap was closed on 2019’s first-time leader France. In 2020, the UK secured 975 projects (down 12% from 2019’s 1,109 projects); France hosted 985 projects (down 18% from 2019’s 1,197 projects). Germany ranked third with 930 projects (down 4% from 2019’s 971). Spain remained a distant fourth with 354 projects (down 27% from 2019’s 486).

Overall, Europe saw a 13% fall in projects – from 6,412 in 2019 to 5,578 in 2020 – which helped the UK expand its market share of FDI for the second successive year, from 16.6% in 2018 and 17.3% in 2019, to 17.5% in 2020. Meanwhile, London reclaimed its status as Europe’s most attractive city for investment, overtaking Paris.

EY’s UK Attractiveness Survey includes analysis of 570 international investors’ perceptions of the UK as a destination for FDI. This latest survey found the UK is now perceived to be Europe’s most attractive destination for investment, while 41% of survey respondents plan to invest in the UK in the next 12 months – the UK’s highest ever score on this question, up from 31% in spring 2020 and 23% in 2019.

Trailing on clean tech

Alison Kay, managing partner for Client Services at EY UK & Ireland, added: “Given the impact of the pandemic, a shrinking FDI market, and the then-uncertain future trading relationship with the EU, the UK delivered a positive FDI performance in 2020. A relatively small decline in project numbers meant the UK far-outpaced downbeat investor forecasts too. In our autumn 2020 survey of investment attitudes, investors forecast a 30% to 45% decline in UK projects compared to 2019.

“The UK has demonstrated resilience and adaptability in attracting investment. Key sectors have changed over time, and the UK attracted the most ‘new’ projects in Europe in 2020 rather than relying on reinvestments. However, its former dominance of the FDI market has been replaced by a competitive three-way tussle with Germany and France. To regain its place as the market leader, the UK will need to build on its strengths. The investors we spoke to for this year’s survey identified digital technology and health and wellbeing as being key growth areas for the UK, and these are areas where the country already excels.

“However, in increasingly vital areas, such as clean technology, the UK trails Europe. COP26 in Glasgow should provide some impetus to improve, while investors tell us they value green policy and regulatory certainty as well as support to develop green supply chains. There is an opportunity for holistic, targeted initiatives to attract FDI in the priority areas that should form the core of a ‘Building Back Better’ strategy: innovative research and digital technology; ‘cleantech’; and levelling-up the UK’s economy.”

Stuart Wilkinson added: “Our research suggests the UK’s ‘levelling up’ message has landed effectively with investors, with almost two-thirds aware of the policy. There is scope to build on these foundations, with almost half of investors planning to change their supply chains in future and a fifth considering reshoring to the UK. With the manufacturing and logistics opportunities this will create, likely to fall outside of London and major cities, this may be a one-off opportunity to reshape the UK’s economic geography.”

Last Updated ( Tuesday, 08 June 2021 08:41 )