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As Scotland marks big year...

Third of foreign investments under review amid Covid crisis

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More than a third of foreign investors are reviewing their investment plans in the light of the Covid-19 crisis which is causing widespread damage and uncertainty across the economy.

Figures from accountancy firm EY reveal that 35% of investors are undecided about whether to go ahead with planned projects, although only 3% have so far cancelled and 6% say they will increase their investment.

The situation in mainland Europe is worse with 66% planning to decrease investment and 23% pausing it, against 17% and 15% respectively for the UK.

EY’s annual attractiveness survey shows there is likely to be a fall in global investment as economies struggle to recover from the severe impact of the virus, which is expected to make competition for these investments even tougher.

Mark Gregory, the firm’s chief economist, said 71% of investors responding to EY’s survey were anticipating a decline in global FDI – 44% in the UK.

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“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,” he said.

“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.”

The figures for 2019 show that for the seventh consecutive year Scotland was the most attractive location in the UK outside of London for inward investment, enjoying a 7.4% increase in the number of projects secured, from 94 in 2018 to 101 last year.

However, the data, including impressive figures for the number of jobs created, is likely to be regarded mainly as of historic value and not necessarily a pointer to the future, with Covid-19 causing devastation in some industries and creating a number of unknowns.

Manufacturing, which shared the top spot with sales and marketing with 32 FDI projects in 2019, is taking a tumble. A new survey due out tomorrow (Friday) will show orders and output in Scottish manufacturing falling sharply, jobs likely to be reduced and investment in training cut.

A survey by the Scottish Property Federation published earlier this week predicted a “grim” outlook for investment in commercial real estate.

Robin Blacklock, chairman of the SPF, said the survey revealed “clear market failure, and he warned that when attempts are made to rebuild the economy there is a “very real risk that our investment community will  simply not be there.”

Investment intentions will depend, like much else, on how quickly the coronavirus is brought under control, allowing the economy to recover..

While events have been cancelled and venues closed for most of the year, former director of the WHO cancer programme Professor Karol Sikora, believes that life will be “virtually back to normal” by August, or perhaps even sooner. 

He received scornful comments when he predicted that the lockdown would be eased mid-May.  

He tweeted today: ‘I think by August things will be virtually back to normal, perhaps sooner. We should still prepare for the worst, but hope for the best!’

He added: ‘Some laughed at my prediction at the end of March that we would start edging back to normality around the second week in May – it was right!’

Influence of Brexit and origin of FDI

For the UK as a whole, EY’s analysis of changes in the origins of FDI projects 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 under way in the UK economy.

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.

The number of EU-originated FDI projects in the UK continued to decline to 340 in 2019, albeit at a slower pace than before, and is now 17% below its 2016 peak.

As the EU’s share of total FDI projects in the UK falls, other countries have filled the gap. US FDI projects in the UK have increased to 376 (up 9% from the previous year), surpassing the highest ever total from the EU (340 in 2016).

Meanwhile investment from countries like Turkey and Israel has grown rapidly, by 350% and 143% respectively.

For the first time Russia entered the top ten sources of FDI projects for Scotland, this reflected an increase in the number of Russian FDI projects across the UK.

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The US extended its lead as the biggest single source of FDI, accounting for 35% of inward investment into Scotland (an increase of 1% from 2018).

Making up the rest of the top five (in descending order) were France, Germany, Japan and Norway. Scotland secured more projects from Norway than any other part of the UK (seven of 15).

Scotland’s three largest cities all experienced an increase in FDI projects in 2019. Glasgow was Scotland’s most attractive city for inward investment (third in UK, excluding London), seeing a 21% increase compared to 2018.

Edinburgh was second in Scotland (fourth in UK, excluding London), seeing a 10% increase compared to 2018. Aberdeen was third in Scotland (seventh in UK), enjoying an 88% increase compared to 2018.

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