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Power Up: UK inward investment

by Ian Stewart
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    2 minute read 01 March 2019

    Power Up: UK inward investment Key drivers of foreign investment and its value to the UK economy

    2 minute read 01 March 2019
    • Ian Stewart United States
    • Ian Stewart United States
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    Inward investment makes a significant contribution to the UK economy – beyond job creation and wages through to productivity gains and fostering innovation, research and development. With the uncertainty surrounding the future UK-EU relationship weighing on investment decisions, this report explores the key factors influencing the UK’s continued attractiveness to global businesses.

    Key findings

    The UK inward investment landscape

    The UK has long been one of the world’s top performers at attracting foreign direct investment (FDI). Over the last ten years, the UK has consistently ranked second only to the United States globally, in terms of the number of inward investment projects and third, behind only the US and China, in terms of capital investment.

    The world’s largest companies and where they choose to be

    As of 2018, 57% of the global Fortune 500 companies with a European HQ base it in the UK (114 out of 201). This is far above the UK’s nearest European competitors compares to 14% in Germany, 7% in Switzerland and the Netherlands and Belgium with 5%.

    In 2013, we analysed the Top 250 Fortune 500 companies according to their choice of European headquarter location.

    The number of European HQs in UK regional cities has dramatically increased. Now, a quarter of the European HQs in the UK are based outside of London, spread around various locations, compared to only 4% in 2013.

    The value of foreign investment to the UK economy

    Countries across the world compete fiercely for FDI because of the strong correlation between FDI and economic growth – with investment often creating many new jobs and local ‘ecosystems’ of smaller businesses.

    Our research explores the links between FDI and productivity gains and the added technology transfer that domestic companies benefit from.

    Recommendations for continued UK success

    Brexit poses a number of challenges for businesses with operations in the UK. And whilst these tend to be quite specific to an organisation – issues related to supply chain, people and systems and processes featured regularly in conversations with business leaders. Having said that, the UK’s key strengths - its scale of market, stable, pro-business environment, deep talent pool and favourable regulatory and tax environment - shone through in our interviews with leaders of foreign-owned businesses.

    We recognise three key focus areas to ensure the UK sets a course for future growth and prosperity:

    • A ready supply of domestic and foreign skills

      Companies come to hire talent (and lots of it). The focus for the UK should be on a ready supply of the skills foreign and domestic businesses need. Overall, investors stressed the important of a broader, more diverse UK economy. They want to see a strategy for growth for UK-wide cities.

    • World-class digital infrastructure

      Foreign investors will welcome the UK Government’s ambition to give the majority of the country 5G coverage by 2027, having stressed the importance of digital infrastructure for the UK to keep speed with other markets. Added to this crucial digital infrastructure, the UK needs to continue to invest in its transport and broader infrastructure. It is important that transport plans are joined up around regional and national visions, so that the potential of investment is realised.

    •  

    • Focus: from government and business

      The government’s industrial strategy, includes pledges to invest in innovation and infrastructure and reach sector deals with companies in key industries. We believe there is more business can do, both feeding into policy development and beyond, to assist in identifying what Britain needs to do to remain competitive. Government needs to provide clarity on policy direction to ensure the UK continues to be perceived as an open, pro-business market.

    Topics in this article

    United Kingdom (UK)

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    Ian Stewart

    Ian Stewart

    Chief UK Economist | UK1A

    Ian is a partner and chief economist at Deloitte Consulting UK where he advises clients on macroeconomics and financial markets developments. Ian devised and runs Deloitte's quarterly survey of chief financial officers, writes the Monday Briefing and comments on the economic scene in the media. Before joining Deloitte Ian spent 12 years as chief economist for Europe at the US investment bank, Merrill Lynch in London.

    • istewart@deloitte.co.uk
    • +44 20 7007 9386

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