South East: Foreign investment is up - and Reading is top location

The South East (excluding London) recorded 73 foreign direct investment (FDI) projects in 2016; of which 74% were first-time investments in the region from international investors. This represents an 11% increase on 2015 when 66 FDI projects located in the region, following a decline of 10% on 2014.

According to EY’s latest annual Attractiveness Report, in 2016 the majority of UK regions saw an increase in projects, with just four seeing a decline when compared with the previous year: Wales, North East, North West and the South West. However, investors predict a decline in the UK’s future attractiveness as a destination for foreign investment.

Although Reading was the top location for attracting inward investment into the South East, with nine of the region’s 73 projects, no one city or town dominates and the projects are widely spread across the region. Slough was the second most attractive location with five projects, Oxford followed with four, and both Southampton and Guildford secured three projects. The geographic profile of the region’s FDI projects contrasts strongly with the North West where the main city of Manchester secured 52% of the region’s total projects.   

Richard Baker, managing partner at EY across the Thames Valley and South said: “2016 was something of a comeback year for inward investment into the South East, with the region attracting an increase of 11% more FDI projects than in 2015 – a decline of 10% on 2014.

“The Thames Valley attracted over a half (58%) of South East projects. This is reflective of the key strengths of the region (which includes Berkshire, Buckinghamshire, Oxfordshire and parts of Hampshire and Surrey) such as the existing business community, the mix of IP-rich, high value-add sectors and the universities, as well as international connectivity with Heathrow and proximity to London.  

“However, the fragmented nature of the Thames Valley, and indeed wider South East, in terms of the spread of economic activity, business communities and public sector bodies can serve to dilute the brand and proposition for investors. In addition, to maintain the region’s attractiveness, we need to address the challenges of skills, housing and congestion on our roads and rail systems.”

In the South East, strong growth came from two sectors in particular – financial & business services and manufacturing – with 26 and 22 projects respectively. The pharmaceuticals and life-sciences sector was the third largest provider of projects in 2016, which was unusual compared to other English regions.

The majority of investment in the South East originated from the US, with the number of US investments increasing by 18% to 26 projects recorded in 2016. Last year also represented a year when Irish projects increased significantly – six projects were recorded in 2016 compared to only a single project in 2015.  All the FDI secured in the South East was generated from 23 different countries across the globe.

Brexit impact

55% of all FDI projects in the South East region were announced before the EU Referendum vote in June 2016, with 45% announced after this date.

Global investors had mixed views when asked about the future attractiveness of the UK. 32% of respondents, surveyed between March and April 2017, say they expect the UK’s attractiveness to FDI to improve over the coming three years, while 31% expect it to decline. Both figures are significantly worse than recorded long-term averages of 53% and 8% respectively. In fact, since March 2016 the share of investors with a negative view of the UK’s medium term prospects for FDI have almost doubled.

Baker commented: “The research suggests that the EU Referendum vote and its aftermath may be having an influence on global perceptions of the UK’s medium to long-term attractiveness. Western European investors are twice as negative as Asian and North American investors.

“Decisions on the majority of investments made in 2016 would have been made up to three years ago, which helps to explain the UK’s solid performance last year, but signs of a slowdown are on the horizon.”