UK first? Improving northern access to foreign direct investment

Securing foreign direct investment (FDI) has been a key element of subnational economic development strategy over successive decades. It has brought significant benefit to the north of England, supporting the growth of key businesses and creating and protecting jobs. However, the overall environment for securing inward investment is difficult.

The numbers of new projects supported by FDI are largely holding up a high level around London and the South East, but other parts of the UK have experienced a decline, in many cases significantly. Between 2010 and 2011, FDI decreased by an average of 34.5 per cent across the three northern regions. On the positive side, the North West and North East finished in the top five among UK regions in terms of jobs created or protected by FDI, reflecting the jobs-rich quality of economic investments outside London and South East.

The FDI system has undergone rapid and drastic changes over recent years, following the closure of the regional development agencies and the handing of national responsibility for FDI to UK Trade and Investment (UKTI). While the research identifies some improvements from this reform, such as removing a counterproductive competitiveness between regions, in other respects the changes have produced weaker outcomes, especially outside London and the South East. The report identifies a series of key issues:

• national targets that focus too narrowly on the number of FDI projects secured, on a short one-year timeframe
• great variability in the capacity of local-level organisations to develop and sustain the intelligence and relationships required to attract and retain overseas investors, and to support the national system to do the same
• a diminished regional FDI infrastructure, with many local enterprise partnerships (which replaced the larger regional development agencies) being too poorly resourced or too geographically small to maintain strong local and regional representation nationally and internationally.

In response to these challenges within a system that is in a state of transition, the report recommends that:

• national FDI targets are revised to place greater emphasis on significant, sustainable, long-term investments and investors which are mroe likely to generate jobs growth and expand their investments in the future
• any new resources for the FDI system in general should be weighted towards reinforcing regional and local capacity
• stronger collaboration is developed at a wider scale, to represent the north of England and fill a strategic gap between the national and local levels.

This report expands on the commentary and recommendations of the final report of the Northern Economic Futures Commission.