Despite the UK remaining Europe’s ‘top destination’ for foreign direct investment, Germany is set to top the pile in two years.
Findings from accountancy firm Ernst & Young show that unless action is taken, the UK is set to lose its crown on the back of a slump in new projects.
The professional services firm’s annual UK Attractiveness Survey finds that, during 2011, the UK attracted 679 projects creating 30,000 jobs. This finding marks a 7 per cent decline in overall projects, with the likes of financial services investment dropping by 15 per cent.
With the UK posting a fall, Germany saw its overall inward investment rise by 15 per cent leaving the European nation two percentage points behind the UK. Further findings reveal that 2011 saw the first time that Germany secured a higher share of manufacturing projects and overtook the UK in winning investment from Japan.
The UK Attractiveness Survey also shows that the UK is dependent on a small number of countries, especially the US, Germany and India, and on sectors such as financial services.
Steve Varley, managing partner for Ernst & Young UK & Ireland, says that while the ability to win investment has been a ‘crucial’ source of pride, job creation and growth over many years, the findings must act as a wake-up call to prevent the UK from losing its lead in foreign direct investment.
He adds, ‘The UK needs to keep existing foreign direct investment sources and investors happy, while also seeking out new markets and opportunities.
‘The consistent theme coming through loud and clear from investors is that the UK needs to focus on three areas to increase its attractiveness: R&D and innovation, developing education and skills and creating a strong economic environment that balances demand, efficiency and incentives.’
When questioned on reasons to shy away from investing in the UK, less than half of major investors cited labour costs as appealing while one in six said the cost and availability of real estate was unattractive and only 53 per cent found the UK’s corporate taxation appealing.
Mark Gregory, chief economist at Ernst & Young, comments, ‘Looking to Germany, investors value its transport and logistics skills and infrastructure and its telecommunications infrastructure very highly.
‘The UK tends to attract investors based on softer criteria such as quality of life and political stability. We believe that more analysis is required to understand if more investment is required in physical facilities to reposition the UK.’
Ernst & Young’s survey tracks the ‘real’ effectiveness of the UK for foreign investors by evaluating foreign direct investments that have resulted in new facilities and/or the creation of new jobs, excluding portfolio investments, mergers and acquisitions.