The UK is in danger of losing its status as the number one European country for inward investment. According to the latest report from Ernst & Young’s location advisory services, last year saw a 13% increase in foreign direct investment projects in the UK – from 508 in 1999 to 575 in 2000. This was a 26% share of all European inward investment.
But all this could change, according to Mark Hughes, an E&Y consultant.
‘Technology sectors are fragile and much of that sector’s investment has come from the United States,’ he said. If the US does retrench as a result of a downturn or a halt in growth, the UK will suffer, probably more so than the rest of Europe because of its US-dependence and these service sectors.’
US companies were responsible for 44% of all inward investment projects in Europe during 2000, with the UK and Ireland being particularly exposed to the US.
London remained the pre-eminent city for inward investment, but only in terms of number, not size, of projects.
At the same time Deloitte & Touche estimated that investment by US manufacturing companies grew to $42bn (#29bn) in Europe last year, despite the economic slowdown in the US during the second half of the year.
E&Y counted 827 manufacturing investment projects across Europe, with the UK up with several central and eastern European economies.
However, France remained the most popular location for manufacturing investment, suggesting decisions were based on a combination of factors, not just low cost.
Investors, according to E&Y also looked for good infrastructure, eurozone stability, skills and market access.
‘The euro is more important in the manufacturing sector, but it is difficult to assign a cause and effect to it,’ said Barry Bright, a director in E&Y’s real estate group.
There has been little sign the recent problems in the UK – crumbling railways, foot-and-mouth, train strikes – have dented the attractiveness of the UK as a European location. ‘These issues tend to be blippy,’ said Bright. ‘Any decline would be down to the nervousness of US investors.’
It is, according to Deloitte & Touche, management issues that helped maintain the UK’s position, certainly for US investors.
‘The continuing bias towards investment in the UK by US manufacturers could be attributed to familiarity with the cultural and legal environments, access to the country, research institutions and universities and more flexible labour regulations,’ argued Julian Thomas, manufacturing consultant at Deloittes.
To counter a potential drop in inward investment, the UK should ensure it has the right environment to attract high level projects.
As E&Y’s Hughes said: ‘The UK should look at the growing number of global projects – global R&D centres or HQs. These projects are high in value and are attracted to locations with highly skilled workforces, a strong knowledge base, advantageous tax regimes and good international links.’
For more information on E&Y’s report, go to www.ey.com
Deloittes’ website can be found at www.deloitte.co.uk.
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