London’s grip on foreign investment harms UK

Geraint Talfan Davies says Wales continues to suffer from a structural imbalance with south-east England

Last week, when one of the four big accountancy firms, Ernst and Young, published its annual survey of the attractiveness of the UK for foreign direct investment (FDI) it was understandable that the media in Wales and Scotland should have focused primarily on the performance of their respective countries. Much less attention was paid to the deeper message of the report that imbalances across the UK are getting worse not better.

Scotland and Wales were both able to concentrate on the good news: that Scotland was second only to the London area in the number of projects attracted, while Wales turned in its best performance for five years. Scottish politicians made much of the figures to buttress their beliefs in independence or the union. The Scottish performance on FDI – at 11 per cent of the UK total – was respectably above its 8.4 per cent population share, but Wales – at 4 per cent – was still below its 5 per cent population share.  Both were behind the North West of England when FDI is measured in jobs.

The most startling figure is that London scooped 45 per cent of projects attracted to the UK, with the wider south east taking another 8 per cent, despite a year on year decline of 4 per cent in London. The wider south east dropped by 34 per cent. So London and the south east of England, with 30 per cent of the UK population, are still attracting more than half of all foreign direct investment despite a year on year decline.

The bigger losers have been the English regions. This was Ernst and Young’s verdict:

“These sparkling performances in 2012 by Scotland, Wales and Northern Ireland were in stark contrast to most of the English regions, which are now represented by a series of local enterprise partnerships in inward investment promotion, rather than the now-defunct Regional Development Agencies. Of the improved performers in 2012 among the English regions — the West Midlands, North West, North East and Yorkshire — none recorded a higher number of projects than in 2010. In fact, a comparison between the numbers of FDI projects in the English regions (excluding London) in 2010 and 2012 shows a decline of 24 per cent.

‘When reinvestments in existing projects are stripped out, the position on new projects is even more pronounced. In 2012, the English regions as a whole outside London secured their smallest total of new investment projects on record, at just 122. Comparing 2009 — the last year before the announcement of the closure of the RDAs — with 2012, new projects secured by the English regions have declined by 40 per cent.”

But there is no room for Welsh schadenfreude at this performance by the English regions, since the deeper question for us is why was our own performance on FDI not a lot better than our population share, at a time when the competitiveness of the English regions has been at its lowest?

FDI Projects into the UK regions and UK market share of projects, 2012


Projects 2012



% change on 2011









South East




West Midlands




North West








Northern Ireland




North East








East of England




East Midlands




South West




Source: Ernst and Young’s European Investment Monitor, 2013

Ernst and Young described the performance of the devolved territories as ‘sparkling’, with Scotland (76 projects) up by 49 per cent, Northern Ireland (29 projects) up by 71 per cent and Wales, (31 projects) up by a seemingly spectacular 244 per cent.  But Wales’s scale of increase, while still performing below its population share, just demonstrates how poorly we performed in the previous year. Northern Ireland, matched the Welsh share, despite having half our population. There is no room for complacency on this front, either in Wales or the UK.

The disproportionate predominance of London is a cause of great concern to Ernst and Young – and on two counts: first, its dominance is greater than that of any other city amongst our top competitor countries; second, its impact on the UK’s overall performance. The report says:

“Looking at the number of new projects attracted in 2012 by leading regions in each country, London secured the highest proportion (60 per cent) of the national total of any of the top eight destinations for new investments. In contrast, Germany’s leading destination for new projects — Dusseldorf — attracted only 16 per cent of new FDI projects in that country. Indeed, the position of London is now so pronounced that if the UK were to be considered without London, it would be placed joint third alongside Spain in attracting new investment, with 183 new investment projects secured.

“Taken together, the findings on the declining performance of the English regions outside London — especially in attracting new projects — raise further doubts over the UK’s ability to retain its lead in European FDI. It appears that the abolition of the RDAs may be starting to undermine not only the regions in which they operated, but also the UK’s ability to sustain its overall leading position for inward investment — can the UK remain a leader when London is so dominant in projects into England?”

Another reason why this is concerning for the authors of the report is that Germany has been creeping up on the UK’s leading performance in FDI, and seems set to overtake us. While the number of projects won by the UK has remained relatively stable since 2006 – at around 700 projects a year – in the same period Germany has more than doubled the number of projects it wins annually.  2012 was the first year in which the UK slipped behind Germany in new projects as opposed to reinvestments from existing investors, as well as being the first year in which Germany outperformed the UK in attracting sales and marketing investments, a traditional area of UK leadership. Ernst and Young put this down primarily to Germany’s high skills levels.

Of particular concern to Wales must be the fact that the UK is failing to attract manufacturing projects. The lead destination for manufacturing projects is now Russia, followed by Germany and Serbia.

Asked to look ahead over the next three years, 52 per cent of investors worldwide see Germany as the most attractive location, with 33 per cent putting the UK second. Asian investors put Germany even further ahead. But when asked which regions of the UK might be most attractive for new investment, although London and the south east of England lead with 62 per cent of investors, Scotland, Wales and the north west and south west of England are all on a par at 4 per cent. Further evidence that there is lot more to do on this front.

Geraint Talfan Davies is chair of the IWA

17 thoughts on “London’s grip on foreign investment harms UK

  1. It’s obvious that one’s proximity to London doesn’t necessarily correlate with foreign investment levels since NI and Scotland which are further away are doing better. Clearly, we need faster links to London.

  2. Looking at the Ernst and Young report they state that the SNP run Scottish government “appears to be giving Scotland the lead over areas of the UK outside of London”. Might be a lesson there for Wales. What lead is the Labour run government in Wales providing? It would seem not much as Scotland’s job creation as a result of FDI was six times….yes six times that of Wales in 2011: Wales – 1090; Scotland – 5,926. Scotland was at the top of the league table for employment from FDI projects, while Wales languished close to the bottom.

  3. Truly bewildered by the headline to this article as anyone who understands the commercial world will know that the ultimate decision is in the hands of overseas investors and they make choices upon a detailed due diligence investigations which includes many variables such as market access and opportunities, availability of skills and required resources, transport, incentives, politics (regional and national), taxation amongst many other considerations and including the education for senor management’s children…. To many overseas ‘captains’ of commerce and Industry’ it’s all about location, location and South East wins hands down most of the time as they have and can provide what most invertors need!?

  4. It is strange Mr Priotic that when I visit various economic blogs/forums, you can hear many English voices complaining about the centralization of most things in or around London. You on the other hand accept this unquestioningly. I find it strange that you haven’t chosen to make your home there rather than choosing Anglesea as your place of abode since according to you it (London) seems to be the center of human civilization.

  5. Truly fail to understand your logic Dave and other than having an inappropriate personal dig aimed at myself you have completely missed the point that I intended to raise…

    Yes, I have a strong cultural bond with England and I’m also very proud to be part of the larger British society which under my definition includes Wales.

    For the record, I do not worship any UK region including the SE of England above all else but do believe that investment imbalance as I pointed out earlier is down to investors choices and for some of the reasons I have outlined.

    Regions outside the SE and including the Welsh principality must find a way to become more attractive if ever this imbalance is ever going to change…

    Judging by your comments it appears to me that you favour Governmental intervention perhaps on par with the Welsh Assembly Government’s attempts’ to make us all bilingual, to have us all worship the Y Fro culture and language to the detriment of the economy and other key elements that generate wealth, prosperity, cultural diversity and so on!?

  6. JP. What you stated what correct,however FACTS that are ‘off message’ in Wales tend the be rubbished,and the writer subjected to all manner of insults. The UK is clearly in competition with Germany and ANY investing coming here (UK) is to be applauded,and if in London so be it,however this doesn’t meet the world view of David and his ilk. it would be interesting to see these investment figures spread over say 5 years to get a real picture,but the 2012 performance for wales seems to be on alarming poor performance. I can well understand why London/SE gets a large chunk of inward money as its a dynamic area,with a ‘world class’ clear/publicist,whereas our leader is unknown,and quite frankly very average. if the work wont come to wales then our people are going to have to travel where it is,as the best are already doing. What do we HAVE that would encourage people to come HERE,rather than elsewhere in UK?. WLB must be a great advert!!!

  7. I think the idea that companies invest in London because it’s such a lovely place seems a bit naive. London has the power to attract business because it is the centre of political and financial power and has the strings to pull to its own advantage. Money follows power and it isn’t a coincidence that, even in a small way, Cardiff is now one of the very few areas in Wales that enjoys an above average UK wide income level.

    I also think that the idea that Cardiff should try harder to compete with London is a non-starter. We have a population of just under 350,000 compared with 8.2 million. The Cardiff City economic region offers a population of about 1.6 milion which puts us in a similar situation to Birmingham that has a population of approximately 1 million.

    Where I agree with Jacques is that we now have to think seriously about where we want to be in the global economy. But in pursuing this aim, we should consider what we can offer that London cannot. Economic alternatives have already emerged in that both Birmingham and Cardiff airports are seeking to promote themselves as alternative long-haul destinations to London. And if I remember correctly, there was discussion a few years back of developing Cardiff as a centre for the Alternative Investment Market. The example of Admiral Insurance shows that alternative business models can be successful outside London. However, we also need to decide what we want out of the global economy and not just what global investors want from us. This is a political issue which is only just beginning to be debated in the Welsh media, almost 15 years after devolution,but its one that needs to dominate our discussions for the next few decades to come.

    For me, one of the most important factors in Cardiff, and indeed Wales, being a destination for investment is the quality of life it can offer. Given the cost of living in London, Cardiff can offer a better quality of life for much less outlay. Who would want to sacrifice that in order to imitate the South-East of England?

  8. More foreign investors directly lead to reduced magnitude of power to take decisions at the domestic level. Foreign investors hold the reigns of the country’s industry and commerce such that it favours them and their bottom-line. Foreign capital or caption might even worsen U.K.’s economic condition.

  9. Rhobat B Jones,

    I agree with most of what you have to say but you seem to be making the same mistake that many of the contributors to this blog make and that is to equate Cardiff with Wales. And we surely in Wales don’t want to go down the same route as they have done in England/UK level which was to create a monstrosity ie London at the expense of most everywhere else. There are serious concerns being raised now amongst many in England regarding London’s total domination. Lets not make the same mistake here in Wales.

  10. As I have implied before Wales has a huge and self inflicted problem to make itself attractive to the foreign or for that matter any investment. Not long after the partial devolution the Welsh Assembly Government effectively handed the responsibility for the national affairs to the Welsh Language Board. Ever since the only priority for the WAG was and still is to create a ‘bilingual nation’.

    The results of this folly are now coming to fruit and we have seen substantial economic decline, disproportionate growth of public sector for the benefit of Welsh speakers and the erosion of educational standards in Wales and this can’t be and must not be allowed to continue.

    Wales needs to be freed from the Y Fro shackles and people in Wales must be given freedom of choices to live their lives through either of the two languages as anything else is social engineering and this fact has not gone unnoticed in the wider global world that does affect investment choices.

    Coming back to the SE dominance as the wealth creator in the UK is not going to change and no UK Government would ever dare to attempt to change this in the private sector, but we have seen Governmental intervention in the public sector over the last two to three decades to offset the SE dominance.

    NHS admin was transferred to Leeds, DVLA created in Swansea, Birth / death national records centre went to Southport and even Bank of England created a Cardiff based office and so on…

    So as the other contributors have stated Wales needs a USP to make itself more attractive to investors but before that the WAG must give Welsh people the freedom of opting out of the Y Fro stranglehold on this ‘nation’!?

  11. Martha

    There’s no denying the power of capital but there’s no going back on the fact that we now live in a globalised market. All the more reason why our under-powered state needs to be clear about what we expect from these investments; otherwise we’ll end up giving away something for nothing.


    You’re right, of course. Neither Cardiff nor South-East Wales is the nation and my apologies for conflating too many arguments at once.

    However I am aware of the effort that will be required just to regenerate the Cardiff City region. We’ve already seen the Severn Barrage rejected for containing too little detail and the work that will have to be done before the Energy and Climate Change Committee will re-consider it.

    I am also very ignorant of what the other regions are looking for in terms of economic development and would be grateful if someone could point me in the right direction. But I am clear that Wales needs a thriving Cardiff City region and to be connected to it, both via the infrastructure of roads, railways and communications as well as economically.

  12. “So as the other contributors have stated Wales needs a USP to make itself more attractive to investors but before that the WAG must give Welsh people the freedom of opting out of the Y Fro stranglehold on this ‘nation’!?”


    Would the abandonment of minority language promotion policies in the North East of England positively impact on that region’s structural economic weakness relative to the rest of the UK?

    Would the adoption of minority language promotion policies in Catalonia negatively impact on that region’s structural economic strength relative to the rest of Spain?

  13. Jacques

    I find there are too many jumps in you reasoning to make it possible to engage with your point of view though I believe you’re addressing important themes. For example, I don’t believe that you’ve implied that Wales has a huge self-iniflicted problem; it’s your stated point of view.

    The idea that a democratically elected body handed responsibilty for governing the country to the Welsh Language Board is just laughable. There were many other policies developed and implemented in that time.

    I don’t know whether your use of the word “folly” is to the passing of government to the WLB or to the idea of building a bilingual nation; perhaps you coule clarify.

    As for your view that ‘Y Fro’ is strangling the nation, it does echo the view of the Report on Education back in 1847. The predominant culture in Wales is “British Welsh” not the Fro and you will see that culture at work on an everyday basis in Cardiff Bay. You also seem to confuse being bilingual with membership of Y Fro culture. I am fluent in both languages but Y Fro simply doesn’t represent my view of the world. That doesn’t mean I’m “strangled” simply because fellow citizens belong to a different culture from me.

    You repeat the point about having a USP but ignore the issue of what do we want from investment. Jobs at any cost? I know of very few people in Wales who support that point of view. Attracting investment is about negotiation and having the right fit between the economic and social needs of its people and the investment opportunity on offer. Striking that balance is precisely what the role of government is.

  14. Rhobat Bryn Jones, It’s difficult within IWA’s comments section to express any argument fully and properly and if you want to read background to my view point please see: (All factual, evidence based and fully researched).

    Find it strange that you use ‘democracy’ in the same breath as you talk about the Welsh Government when it’s an open secret that the Welsh public never had a say in the ‘bilingual nation’ concept, especially who it is for and for whose benefit and at what cost to the ‘nation’!?

  15. I agree that there is a limit on what one can say in a comments page. I often have to edit myself extensively to prevent me from competing with St Paul’s Letter to the Corinthians.

    I use the word democratic about the Welsh Government because they were elected to office by the population to represent them in the decision-making process.

    With regard to the issue of a bilingual nation, there are certain principles that underpin our democracy. The first is that majorities cannot use their numerical strength to oppress minorities. Democracy is not majority tyranny but rather majority will. The vehicle of that political will is expressed through the rule of law so that majority will may prevail without disregarding the rights of minorities.

    It is also the case that in a democracy, we do not require our citizens to be invisible or silent. It is only recently in historical terms that the Welsh speaking citizen has been legally recognised, as is proper. That the Welsh speaker was stateless in his or her own language for so long is a scandal of which we have yet to hear rhe full story as to how this situation was allowed to persist.

    I have not read all the political parties’ manifestos but I would be very surprised if there was no reference to a bilingual nation in any of them. On the contrary, I should imagine that all of the main parties made reference to it. So that when you vote at the ballot box, you vote for the manifesto of that party.

    There is no more cost making provision for the Welsh language as there is making provision for the English language which costs a lot more as the number of speakers is significantly higher. But as with all cost outlay, there is a return. A country that accepts it has two languages and recognises the value of both is a country at ease with itself, and helps to develop better relationships between the two linguistic traditions.

  16. Rhobat Bryn Jones says: ‘There is no more cost making provision for the Welsh language as there is making provision for the English language which costs a lot more as the number of speakers is significantly higher.’

    If you have one language anywhere making provision for a second language IS an additional cost. In the case of Wales, where English is understood and used by all, the cost of making provision for the Welsh language, which is understood by a minority, and used by an even smaller minority, is significant in a struggling economy.

  17. Colin Miles

    You make my point for me. It is the perspective of the English speaker only that sees the norm as being English and the “addition” of the Welsh language as being a nuisance. The mistake in your assumption is that because English is the language of the majority, there is no cost involved. English language education, according to your assumption, costs nothing. When retail staff are trained to provide a service for English speaking customers, the training costs nothing. When English language only signs are erected, the signs cost nothing to produce. Produce a biliingual sign and suddenly the costs go through the roof. Your argument is groundless because it’s based on a false assumption.

    The cost of English language provision in Wales needs to be quantified on an equal basis so that we can like-for-like comparisons can be drawn and English only speakers can see just how much of a burden they can be to the taxpayer. Maybe then we can see whether the money spent on English language provision is a good investment and worth the money that is spent on it.

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