South East: Digital tech attracts most foreign investment

Digital tech generated the largest number of Foreign Direct Investment (‘FDI’) projects across the South East (36) in 2019, according to the EY 2020 UK Attractiveness Survey.

The region’s 2019 figure for digital FDI projects was higher than the national average, behind London (289), but well ahead of the next highest region, the North West (23). This has helped the South East to retain its place in the top three UK regions for total FDI projects, despite a 6.7% decrease in projects from last year.

The annual 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.

The UK missed out on first place in the European rankings for total inbound FDI projects in 2019, for the first time 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 939 projects.

The UK surged ahead in digital tech, attracting 432 projects (an increase of 114 – 36% – on the previous year) and attracting a 30% share of all European projects. The UK grew four times faster than the European average in this sector, securing more projects than France and Germany combined.

The digital tech sector accounted for 36 projects (43.4%) in the South East. This was ahead of the UK average of 39%. It also exceeded other sectors in the region, with the top five being completed by Agri-foods, six projects (+6 from 2018), Machinery & Equipment, six projects (+3), Pharmaceuticals, six projects (+1) and Business Services, which saw a decline to five projects (-5).

Despite a slight dip in the number of projects overall in the South East to 83 in 2019, from 89 in 2018, the region declared its highest estimated employment figures from FDI projects in a decade. Of the FDI projects that did declare job creation figures, significant projects for employment were seen in Slough (an estimated 213 jobs), Reading (an estimated 100 jobs) and Swindon (an estimated 100 jobs). Total jobs declared were 2,161 in the South East, at an average of 50.3 jobs per project.

The US remained the most common origin for projects in the South East, with a 36% share of the market, compared to a 34% average for the rest of the UK. This was followed by Germany (10%) and Canada (6%).

Among the region’s other towns that have benefitted from an increase in FDI in 2019, are Reading, 14 projects (+2 from 2018), Swindon, three projects (+3), the first time the town has reported FDI in a decade, Guildford, two projects (+2), Basingstoke, three projects (+1), Bracknell, three projects (+1), Oxford, three projects (+1), Staines, two projects (+1) and Didcot, two projects (+1).

Richard Baker, managing partner at EY in the South East, said: “The Thames Valley is known as the Silicon Valley of Europe, so it comes as no surprise that the digital tech sector makes up such a large proportion of FDI investment in the wider region and also compares favourably with the rest of the UK.

“Overall, the South East has a number of locations that attract FDI projects. This is a positive reflection of a more even distribution of investment across the region. Although, Reading is ranked 9^th among UK cities for the number of FDI projects, it only accounts for 17% of projects in the region, meaning that many more towns and cities across the South East are realising investment opportunities from overseas businesses.

“However, continued growth will depend on the region’s ability to attract the right skills, and create an environment of grown your own, through existing links with businesses and universities. Infrastructure investment is also crucial in ensuring the region remains an attractive proposition for FDI investment.”

The UK overall

The UK overall 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.