Thames Valley: Reading leads the way for inward investment

Reading is the highest ranked South East location for attracting foreign direct investment (FDI), with projects up by 20% to 12 projects. This also places Reading as the seventh best performing location in the UK for FDI projects.

While investment projects across the UK were down 13% in 2018 compared to last year, the South East and Greater London experienced almost flat figures – down only two and one projects respectively on 2017. Overall, the UK remained the number one destination for foreign direct investment (FDI) in Europe in 2018, ahead of Germany and France, with 1,054 projects.

According to EY’s 2019 UK Attractiveness Survey, analysis of the FDI projects recorded in 2018 showed that the performance of the UK’s regions was very different in 2018 to that of 2017, with much greater variation across the country compared to the national picture. Alongside the South East (down 2.2%), Wales (down 6.1%) and the East Midlands (down 7%) all experienced a fall in volumes of only single digit percentages. The rest of the country saw significant declines in project volumes, particularly Yorkshire and the Humber (down 40%), the North West (down 33%), the North East (down 25%), and the West Midlands (down 14%), with Scotland also experiencing a fall in projects by 19%.

Inward investment was shared out between over 40 locations across the South East in 2018, continuing to demonstrate the fragmented nature of the Thames Valley and the South East. The largest areas for investment – aside from Reading (12 projects) – included Milton Keynes (6), Slough (5), and three projects in Brighton, Crawley and Maidenhead.

The South East saw most of its investment come from the US, representing 38% of the investment into the region. The region also secured investment from Germany (representing 7% of the investment into the region), Canada (6%), Denmark (6%) and Japan (4%).

Job creation in 2018

The number of jobs secured by investments in the South East region in 2018 is up by 26% from 2,739 to 3,678 – which marks the highest number of jobs secured in a decade.

Some of the largest investments in the South East in terms of job creation were a pharmaceutical company from Belgium locating in Slough, which created 650 jobs; a testing and servicing company from the US locating in Farnborough, which created 500 jobs; and a research and development company from France locating in Reading, which also created 500 jobs.

Digital sector continues to lead investment in the South East

Mirroring the UK picture, the digital sector continues to generate the most FDI projects for the South East. The region recorded the highest number of digital projects since 2009 (when the number of projects reached 29), with the number of projects increasing by 17% in 2018 to 27. Together, the digital and electronics & IT sectors were responsible for more than a third (38%) of the total FDI projects in the South East in 2018.

Business services and the transportation & logistics sectors were also significant drivers of FDI activity in the region, generating 10 projects each. Whilst the number of business services projects remained the same in 2018 compared to the previous year, transportation & logistics projects more than doubled to 10 from 4 projects in 2017.

Richard Baker, managing partner at EY in the Thames Valley and South, said: “It’s fantastic to see Reading listed as the seventh best location in the UK for attracting inward investment, with many other key locations in the South East attracting a large number of FDI projects. However, whilst it’s pleasing to see foreign direct investment into the region remaining steady – particularly in comparison to some other regions which have seen inward investment fall – we ideally want to see an increase in investment. This is particularly important if the region wants to realise its overall growth ambitions.

“At a time when concerns over Brexit appear to be reducing the UK’s appeal currently and are hampering its ability to attract capital, it becomes increasingly important for our region to play to its strengths. The South East prides itself on being a digital ‘hotspot’ so it’s encouraging to see foreign direct investment in digital projects continuing to rise to a record high, especially when the UK as a whole has seen its digital FDI projects fall by 10% year-on-year in 2018. The region must continue to invest in its own future – from tackling the regions’ productivity challenges to working hard to attract and retain high-skilled talent.”

Perceptions of the UK as an FDI location have weakened

The UK attracted its third-highest number of FDI projects in 20 years (1,054 projects) according to EY’s 2019 UK Attractiveness Report. However, this was a 13% drop in FDI projects compared to 2017 (1,205 projects).

The UK’s share of FDI projects secured in Europe fell very slightly from 18% in 2017 to 17% in 2018. While overall FDI into Europe fell by 4% year-on-year, ending a five-year period during which Europe’s annual project numbers increased continuously.

Brexit appears to be a significant factor behind the decline of UK FDI projects in 2018. According to the report, 15% of global investors say they have paused one or more UK projects due to Brexit (up from 8% last year), however, only 6% plan to move assets out of the UK in the future. Five per cent of investors say they have increased investment in the UK due to Brexit, down from 7% last year, and 5% have reduced investment due to Brexit compared to 6% a year ago.

Baker added: “If the trends evident in our report continue then the UK risks becoming 'Branch office Britain', an attractive market to sell to, but not one that companies will commit to manufacture or research and develop in. However, with the right policies in place, the UK could strive to become 'Interconnected Britain'.

“For this to happen, the digital opportunity must be seized, such as pioneering digital health and leading on innovative cleantech technology and applications. There is a real opportunity for our region to lead the way in this space, given our existing strengths in digital and other value-add, IP-rich activities.

“This investment in technology, infrastructure and skills could enable more remote working, less pollution and help to tackle the regions’ productivity challenges.”