According to EY’s 2019 UK Attractiveness Report the UK has retained its position as the number one destination for Foreign Direct Investment (“FDI”) projects in Europe while Northern Ireland has recorded a 74% year-on-year increase in FDI projects. Although the report may seem, on the surface, indicative of the UK’s robust ability to still attract investment despite the overwhelming uncertainty of Brexit, there are some key caveats to an optimistic outlook. There was a 13% decline in the number of projects the UK attracted this year compared to 2017, and the surge in Northern Ireland activity can be somewhat explained by the large increase in numbers of projects from the United States and Republic of Ireland. Additionally, 2018’s market share of 17% of European projects secured by the EU is the lowest the UK has achieved over the past 20 years. Hot on the UK’s heels in terms of numbers of projects are France and Germany, although the latter also experienced a fall in FDI projects last year.
So what does this mean? There has been a decline in total FDI projects in Europe, bringing to a close a prosperous 5-year period where total numbers of FDI projects in Europe had increased year on year. “It is perhaps surprising that FDI project flows into Europe are not under more pressure” suggests the report. In tandem with their FDI findings, EY conducted a Europe-wide survey of investor trends and, yes, you guessed it, Brexit topped with bill with 38% of investors stating that Brexit was the main risk that affected the attractiveness of Europe in the next three years. Taking a commanding 33% of the votes was “political instability in the EU”. Factors which are not affecting the attractiveness of Europe, however, are “a limited innovation capacity in Europe” nor a “lack of financing”.
Another section of the survey asked investors to name their top three countries for FDI in Europe. Germany topped the charts, up by 3% to 69% (a 20% lead on France, its nearest challenger) while the UK remained in third place, falling from 52% to 46%.
In case we all needed reminding, Brexit has and continues to play a huge and important role in UK investment plans. Whilst 70% of investors surveyed stated that Brexit had not altered their investment plans, it is hard to ignore the 15% (an increase of 7 percentage points since last year) who answered: “yes, have put investment in UK on hold”. This goes some way to explaining the 13% decline in UK projects. Further analysis shows us that Asian investors in particular have exhibited the most negative outlook following the referendum result. The fall in UK projects from China from 74 to 26 correlates with the Investors survey too; the EY reports that 13% of Asian Investors have reduced their investment and a further 14% have put it on hold.
Whilst these results do show the impact of Brexit on foreign investment in the UK, it needs to be considered in a global context. Investors will continue to look at the long-term prospects for the UK and how business-friendly it will be in the next 5 to 10 years, and there have been some positive moves. The UK is still a world leader in superfast connectivity and the government's ambition of a 5G covered nation by 2027 has been met positively. Furthermore, this year the UK was named the most attractive M&A destination by Global Executives, moving ahead of the United States. “The UK still offers a great deal for businesses looking for innovation and resilient growth,” writes Steve Ivermee of EY and it should be noted that trends develop over decades not two to three years. “Uncertainty” remains the word of the day and clarification of our relationship with Europe is paramount if we are ever to return to pre-referendum heights.