Manchester still top location for foreign investment outside London amid strong year for North West, EY reveals

• Manchester was the best performing UK city (outside of London) for attracting foreign direct investment projects in 2019.
• Investment in the North West grew slightly from the previous year from 70 in 2018 to 73 projects in 2019 with growth outside of the two largest cities up 28%
• An estimated 3,389 jobs were created in the North West through foreign investment.

NORTH WEST, Thursday 28 May 2020: For the fourth consecutive year, Manchester has been ranked as the best-performing city in the UK (outside of London) for attracting foreign direct investment (FDI) projects, and was home to 34 FDI projects in 2019, according to the EY 2020 UK Attractiveness Survey.

The EY report examines the performance and perceptions of the UK and its regions as destinations for FDI, and this year includes a survey of 800 international investors looking at the impact of COVID-19 on investment.

Manchester was home to 45% of all projects in the North West in 2019 and it was the only North West location to make the Top 10 for FDI. Within the region, Liverpool was second placed with eight investments (2018: eight) and ranked 14^th overall, while Crewe attracted the largest project, which created approximately 582 manufacturing jobs.

Despite Manchester taking the top spot and the region gaining three more projects than in 2018 (70), the total number of FDI projects in both Manchester and the wider North West (73) remained lower than the record 20-year high seen in 2017 (Manchester 43, North West 105).

With 73 projects, the North West came fourth in the overall ranking of all UK regions and devolved administrations, behind Greater London (538), Scotland (101) and the South East (83).

The estimated number of jobs secured by investments in the North West in 2019 stood at 3,389, which ranked third of all UK regions for declared employment, behind London (11,516) and Scotland (6,438). This marked a significant increase on the 2018 total of 1,390, as the average project size in the region grew from 19.9 jobs (2018) to 75.3 jobs (2019).

The two leading sectors in the North West in 2019 were digital (23 projects) and business services (11 projects), accounting for 45% of investment into the region. This was in-line with the UK as a whole with digital (39%) and business services (15%) accounting for the highest proportions of projects across the nation.

The most common origins of projects into the North West in 2019 was also reflective of the wider national picture with the US (34%) and Germany (12%) leading the rankings. India and Ireland were recorded as joint third with each country attributable for 7% of investment into the region.

Strong year for digital investment

Bob Ward, Managing Partner for EY in the North West, said: “It’s encouraging to see that the North West continues to attract a large amount foreign direct investment, generating nearly 3,400 jobs last year. Manchester’s inward investment figure continues at pace and place it, yet again, as the number one city outside the capital, while Liverpool continues to thrive with another eight FDI projects last year, ranking 14th overall in the UK.

“It isn’t surprising that digital projects continue to top the list. The North West has seen its strongest year in the decade in terms of digital investment and has long-since been regarded as a hub for the digital and technology industry – which just serves to highlight how the region is a fantastic example of a modern, progressive economy.

“With Manchester and Liverpool being the target for over 56% of investment, it is encouraging that the rest of the region achieved growth of 28% in FDI. However, the share of activity going to our largest cities has grown over the last decade and so we can’t be complacent and need to continue to work hard to ensure all our places can attract investment.

“The North West has made significant progress in terms of increased devolution to ensure that we have more power to invest in our towns and communities but today’s findings show us that more needs to be done to drive economic activity outside of our core cities and across the region.

“As we emerge from COVID-19 this will no doubt be at the top of the region’s agenda –  supportive policymaking around key business issues such as rates and planning, along with striking the right balance between public and private sector investment to spread the wealth for the benefit of everyone in the region.”

The UK-wide picture

The UK missed out on first place in the European rankings for total inbound foreign direct investment (FDI) projects in 2019. This is the first time the UK hasn’t occupied top spot since the survey started in 1997. The UK (1,109 projects in 2019) now sits second behind France (1,197). Germany is ranked in third place with 971 projects.

Despite losing the lead for total project numbers, 2019 was a strong year for the UK with a 5% increase in projects in a European market that grew by less than 1%. This meant the UK’s share of projects increased to 17.4%, up from 16.6% in 2018. This ends three years of declining market share for the UK since the 2016 EU referendum.

The UK performed particularly well in attracting new projects, as opposed to extensions of existing activities. There were 782 new investments in the UK in 2019 — up 7.7% from 2018. This was the highest level since 2016 and the second-highest number of new projects secured by the UK in any year over the past decade. The UK has leapfrogged last year’s leader for new projects, Germany (which secured 770 new projects), into top spot.

The research also shows that investors feel that FDI projects in the UK are well-placed to recover from the impact of COVID-19, and that the UK is likely to outperform the global market in attracting post-pandemic investment.

EY’s UK Chairman, Steve Varley, comments: “The UK performed strongly on FDI in 2019 and, importantly, is well-placed to face the challenges presented by COVID-19 and an uncertain economic environment.

“While the UK missed out on the top spot for total FDI projects in Europe, there are some encouraging signs about the positive changes taking place in the wider UK economy. The UK secured an increasing share of European research and development projects, achieved a spectacular performance in attracting FDI in the digital economy, and was ranked in first place for new projects.

“While the loss of leadership on the total number of projects may attract attention, it’s important to note that, for some time, the UK’s strategy has been to focus on the value of the FDI it attracts rather than the volume. The new projects secured reflect an extension of the investor and project base, rather than solely building on past successes.”

Better geographic balance needed

While the UK’s leading cities were generally thriving in terms of FDI in 2019, the performance of other UK regions was mixed.

Additional research for EY by the Centre For Towns, also published today, finds that the share of FDI going to the capital cities in England, Scotland and Wales and other ‘Core Cities’ in Great Britain has increased from 31% of the total in 1997 to 67% in 2019.

EY’s UK Chief Economist, Mark Gregory, says: “The UK succeeded in increasing its share of manufacturing projects in a declining European market in 2019, providing some support to towns, but has struggled to spread the benefits of FDI beyond the larger urban centres. There’s a similar and even more concerning trend in terms of digital tech investments with 83% of FDI located in the major cities and a further 10% in large towns. Digital rebalancing is a prerequisite for successful levelling up in the UK.”

London saw a surge in FDI projects, increasing by 17.5% to a decade-high of 538, representing 48.5% of all UK projects and its highest ever share. Behind Manchester, Birmingham strengthened its hold on second place outside of London, with its project count rising by 36% to 30. Bristol also performed well, up from 10 projects to 15, and Aberdeen almost doubled from eight to 15 projects. However, overall the relative performance of cities was largely unchanged with minor shifts in rankings.

Mark Gregory added: “While London’s excellent performance is to be celebrated, the failure to capture more of the benefits of FDI in the UK’s smaller places is a major concern. Geographic imbalances in FDI are increasing. The next phase of economic transformation must afford a much higher priority to achieving a better geographic balance. It is clear from our investor surveys that the government needs to place sustainability and levelling up at the heart of its infrastructure, skills and trade policies if it is to effect lasting change across the country.

“Moving towards a hi-tech economy, universities will also have crucial roles to play in developing talent and skills. This should form the basis for an expansion of their role as true civic establishments, playing a central part in their local economies and communities.”

Ian Warren, Director of Centre for Towns, says: “Whilst we welcome a small increase in FDI projects overall, we are still worried that investment is concentrating in London and our Core Cities. 81% of foreign direct investment to the UK took place in our Core Cities or within 30km of one. Our coastal towns in particular have seen their levels of investment plummet over the last two decades, and in the last two years the number of FDI projects has halved in our university towns. Equally, whilst the digital sector continues to attract inward investment, this is a sector which also concentrates very heavily in London and the south east of England. Levelling up should include the distribution of digital sector employment across the UK.”

UK pipeline resilient in turbulent times

The research suggests that the UK should remain relatively resilient in its ability to attract FDI this year, despite the impact of COVID-19. The report indicates that investor intentions towards the UK, compared to other FDI destinations in Europe, remain relatively positive when they look beyond the immediate impact of COVID-19.

Mark Gregory says: “There is no doubt that the outlook for FDI will be extremely challenging as the world tries to recover from the economic and social impact of COVID-19. Asked whether they expected to see an increase or decrease in FDI globally, following a period of recovery from the COVID-19 pandemic, a net -71% of investors responding to EY’s survey said they were anticipating a decline in global FDI. When asked the same question about investment specifically into the UK, the balance expecting a decline was -44 – still very challenging, but more positive than the overall market outlook.

“Before COVID-19 changed the picture completely, 2020 was set to be a record year for UK FDI. At the start of the year, 31% of investors said they were planning to invest in the UK in 2020 – a significant increase from 23% in last year’s survey. This was the highest positive sentiment for the UK in over a decade, and higher than the corresponding numbers for other European countries.”

Shifting geographic balance sees US investment exceed EU levels as investors look beyond Brexit

An analysis of changes in the UK’s FDI project origins over the three years since the 2016 EU Referendum shows that the UK has been able to rebalance its investments to compensate for a decline in EU originated projects, further illustrating the transition underway in the UK economy.

Meanwhile, investors appear less likely to regard Brexit as a risk factor, with just 24% of survey respondents citing it as a risk factor this year, compared to 38% last year.