20% Rise In Foreign Direct Investment In Yorkshire And Humber In 2019 And Leeds Ranked In The Top-six Cities Outside London, EY Reveals

Leeds has been ranked as the sixth best-performing city in the UK (outside of London) for attracting foreign direct investment (FDI) projects, with 20 FDI projects in the city 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.

Leeds was home to nearly 34% of all projects in Yorkshire & Humber in 2019 and it was the only town or city in the region to make the Top 10 for FDI. Within the region, Sheffield was second placed with seven projects, while Hull, York and Wakefield won two each, and Grimsby recorded one project.

The total number of FDI projects in the wider Yorkshire & Humber region (59) was up 20% on the previous year (2018: 50). This placed the region sixth in terms of total projects secured, but well above the national increase rate of 5.2%. This significantly higher rate in project increases in Yorkshire & Humber means that the region’s share of projects nationwide grew to 5.3% in 2019 from 4.7% in 2018.

Elsewhere in the region, Rotherham grew its number of projects from zero in 2018 to five in 2019, placing the city at joint 20th for number of projects alongside Crewe. Sheffield increased its number of projects from six to seven in 2019, equalling the city’s decade high set in 2015 and placing the city at joint 15th along with Sunderland. The growth of these two cities and the number of projects attracted ensures that the proportion of projects attributed to core city Leeds was only 33.9%, which is significantly lower than the proportions of investment into the leading locations of many other English regions.

The estimated number of jobs secured by investments in Yorkshire & Humber in 2019 stood at 1,504, up from 1,345 in 2018. This increase can be attributed to the growth in projects but also the increase in average size of each project. The estimated average project size in the region for 2019 was 62.7 jobs compared to 27.4 in 2018.

The leading sector generating inward investment into Yorkshire & Humber in 2019 was digital (12 projects) accounting for 20% of investment – the strongest year for digital projects in a decade. This was also the sector that accounted for the most projects in the UK as a whole. In keeping with the national trend, the second most important sector in the region was business services (9 projects).

Manufacturing – which has always been a particular strength for this region – attracted 14 projects for the second year running, representing 24% of the region’s total, significantly more than the proportion of manufacturing projects for the UK as a whole at 12%.

The two most common origins of projects into Yorkshire & Humber in 2019 were reflective of the wider national picture with the US (32%) and Germany (10%) leading the rankings. Switzerland (9%) and Denmark (7%) were recorded as the third and fourth origins of projects into the region.

Economic disparity still exists

Suzanne Robinson, EY’s Managing Partner for Yorkshire & Humber, said: “It’s fantastic to see that Yorkshire has managed to attract 20% more FDI projects in 2019 and is the sixth best-performing city in the UK outside of London in terms of foreign direct investment and that the average size of those projects has also significantly increased.

“2019 saw the strongest year in the decade for digital projects in Yorkshire & Humber. Gains in business services, finance and machinery & equipment all point to modern sectors that were also thriving in the region.

“It’s also encouraging to see towns like Rotherham and Sheffield post some impressive results with Rotherham attracting five new projects, placing it joint 20th in the UK. Sheffield also made gains, equalling the city’s decade high in 2015 and placing it at joint 15th in the UK.

“Devolution, like the deal for West Yorkshire, will help 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.

“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 adds: “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.