As we jump from one lowest-on-record economic indicator to the next in the middle of what could be the worst year for UK plc since 1706, foreign direct investment (FDI) is not the number one priority for policy makers right now.
Furthermore, the current weaknesses in international trade – exposed by Brexit and exacerbated by the coronavirus crisis – mean that the picture for FDI is not likely to improve in the near term.
Notwithstanding a breakthrough in trade negotiations with either the European Union or the US, the UK will have to redouble its efforts in the post-COVID era to attract foreign firms to come and do business here.
The latest Attraction Survey from multinational professional services firm EY shows just how poignant this issue is.
The 2019 report, which measures FDI across the world, suggests that the UK missed out on first place in the European rankings for the first time since the survey started in 1997.
The UK was pipped to the top spot by France, which experienced 17 per cent growth in foreign investment projects year-on-year to 1197. For the UK, the figure was 1109. Germany was third with 971.
In a European market where FDI grew by less than one per cent in 2019, the UK did still outperform, with a five per cent increase year-on-year.
However, it is clear that France has taken the initiative in Europe as a result of Mr Macron’s pro-business reforms and the ongoing uncertainty in the UK around Brexit.
The EY Attractiveness Survey also reports on FDI levels by region and paints a mixed picture for foreign investment in the North East.
It says the region experienced a 17 per cent decline in FDI in 2019, falling from joint seventh place to ninth place in the UK rankings.
The report also says that Newcastle failed to rank in the top ten UK cities for FDI in 2019.
But despite the decline in the number, the actual size of projects meant that the total number of jobs created in the region by FDI increased from 646 to 710 last year.
This means that every project created an average of 35.5 jobs, up from 17.9 previously.
Better still, a record 27 per cent of projects were in the digital sector, reflecting the growing strength the region has in this increasingly significant part of the economy.
I asked two of the North East’s inward investment bosses what they thought of EY’s findings.
Guy Currey, director of Invest North East England, says: “It’s interesting to see that the EY Attractiveness rankings were on a project success basis only, comparing regions with very large populations with much smaller ones.
“If you take the size of the relative populations into consideration, the North East is actually the third best performing of the UK’s 11 regions outside London, according to the EY data.
“I think this better reflects the North East’s attractiveness to foreign direct investment.”
Invest Newcastle is also more positive about the inward investment picture in the region, having recently celebrated a record number of expansions and new investments in the financial year ending March 2020.
Director Jen Hartley says Invest Newcastle’s data shows that more than 900 jobs were created and safeguarded and 23 new businesses from outside the region chose to set up operations in Newcastle.
It’s important to stress that both Invest Newcastle and Invest North East England collect investment data by financial year, whereas the EY survey is by calendar year.
This makes comparisons between datasets difficult, but it is still worth mentioning that Invest North East’s provisional figures point toward much higher levels of FDI in the region than EY’s survey suggests.
Guy explains: “In the North East LEP area (not including Tees Valley) there were 64 FDI successes, creating 2468 new jobs in 2019/20. This is actually a slight improvement from 2018/19.”
Disparities between datasets aside, it looks as if foreign investment in the North East may be stronger than we think.
This adds to the growing domestic investment coming into the region from other parts of the UK.
Northshoring, the process of shifting work from London and the South East to Northern cities where companies can access skills and office space at a fraction of the cost, is making up a growing proportion of inward investment into the North East.
Jen says: “Northshoring is becoming pretty significant, more so than I’ve ever known it before. In fact, just about all of our big projects last year tended to be Northshoring projects.
“It does ring true what EY is saying. Across the whole of the UK, the Department for International Trade is commenting that FDI levels have been affected by discussions around Brexit and supply chain issues.
“However, domestic Northshoring is something that will continue to grow.”
The key takeaway from all of this is that, for the North East, it doesn’t matter if companies are coming from other parts of the UK or abroad. As long as they are coming here in greater numbers year-on-year, creating new industries and attracting world class talent, then the region will prosper.
From a UK point of view, however, one of our historic strengths has been our ability to attract investment from abroad and be the destination of choice for business.
Therefore, the sooner we reclaim our top spot in the European rankings, the better.