UK’s inflows of foreign direct investment lagging behind global average by 18%

Publications that covered this story include CityAM, Daily Mail and the Metro. It was also discussed on BBC R4. All on 6 February.
  • Brexit uncertainty could potentially deter inward investment

The amount of foreign direct investment (FDI) attracted by the UK is lagging behind the global average by 18%, according to our research.

Total inflows of FDI accounted for 1.8% of UK’s GDP last year (some USD 50.4 billion worth). This compares to the world figure of 2.2% of total GDP.

Countries are keen to win FDI because it helps power economic growth. As well as boosting job creation and tax revenues, it can act as a spur to competitiveness and productivity through knowledge transfer or investment in improved processes, technologies or infrastructure.

Uncertainty following the UK’s Brexit referendum could deter multinational businesses and other foreign investors from investing in the country in the future.

Our study looked at FDI inflows last year in 45 major economies around the world, measuring how successful they have been in attracting FDI as a percentage of their GDP.

The USA, China and Brazil attracted the most FDI in absolute terms – at USD 379billion, USD 250billion and USD 75billion respectively in 2015.

The research shows that the BRICS economies are easily outperforming the G7 in attracting FDI, with total inflows of FDI accounting for 2.3% of the total BRIC nations’ GDP last year. This figure compares to 1.7% of GDP for the G7.

Emerging economies are seen as providing better growth opportunities for multinational businesses than the more mature economies of the G7, such as the UK.

In addition, the shift towards locating manufacturing facilities in emerging economies rather than in western countries continues as multinational companies seek locations with low labour costs, availability of resources and favourable business climates.

Colin Jones, partner in our London office, says: “While BRICS economies are continuing to attract significant amounts of FDI despite the slowdown in emerging markets, the UK and other G7 economies are falling behind.”

“Inbound investment by foreign businesses is a sign of confidence in an economy, providing a boost to business growth, job creation and developments in areas such as innovation and infrastructure.”

“Focusing on fostering an environment that encourages foreign investment is key if the UK is to compete on the global stage, particularly in the wake of the Brexit referendum result.”

“The UK could benefit from making itself a more attractive location for foreign investment. One way to do this would be to consider whether planned reductions in corporation tax rates could be even more ambitious – this is an option to which the government may have to give increasing thought.”

Of the G7, Japan and Italy saw the lowest performance with 0% and 0.7% respectively. Germany was also well below the average with just 1.4% (USD 46billion in total). Overall, Europe saw FDI worth 2% of total GDP, slightly below the global average of 2.2% of total GDP.

ASEAN economies (Association of South East Asian Nations) outperformed even the BRIC nations in terms of FDI as a share of their economies, attracting FDI worth 5.3% of GDP.

Malta saw the highest FDI as a share of GDP in the study at 25.8% (USD 2.5billion in total), as the island continues to take advantage of its location at the crossroads of Europe, Africa and the Middle East to become an international centre for banking and attract substantial inflows of capital.

Inflows of Foreign Direct Investment (2015, USD$)

Rank Country 2015 FDI inflows (USD $)
1 USA             379,400,000,000
2 China             249,900,000,000
3 Netherlands             101,900,000,000
BRICS               93,900,000,000
G7               82,800,000,000
4 Brazil               75,100,000,000
5 Singapore               65,300,000,000
6 Canada               55,700,000,000
7 UK               50,400,000,000
8 Germany               46,200,000,000
9 India               44,000,000,000
10 Australia               38,600,000,000
11 France               35,000,000,000
12 Mexico               32,100,000,000
World               29,300,000,000
13 Spain               25,300,000,000
14 Indonesia               20,100,000,000
Europe               19,100,000,000
15 Poland               14,100,000,000
16 Italy               13,000,000,000
ASEAN               13,000,000,000
17 Argentina               12,000,000,000
18 Vietnam               11,800,000,000
19 Israel               11,500,000,000
20 UAE               11,000,000,000
21 Malaysia               11,000,000,000
22 Thailand                  9,000,000,000
23 Peru                  7,800,000,000
24 Egypt                  6,900,000,000
25 Russia                  6,500,000,000
26 Philippines                  5,500,000,000
27 Romania                  4,300,000,000
28 Austria                  4,300,000,000
29 Bangladesh                  3,400,000,000
30 Nigeria                  3,100,000,000
31 Malta                  2,500,000,000
32 Czech Republic                  2,500,000,000
33 Bulgaria                  1,900,000,000
34 Cambodia                  1,700,000,000
35 Denmark                  1,700,000,000
36 Uruguay                  1,400,000,000
37 Guatemala                  1,200,000,000
38 Slovakia                  1,200,000,000
39 Pakistan                     1,000,000,000
40 Jamaica                     900,000,000
41 Portugal                     600,000,000
42 Croatia                     200,000,000
43 Japan                    -41,000,000
44 New Zealand                   -100,000,000

Inflows of Foreign Direct Investment as a percentage of Gross Domestic Product

Rank Country % of GDP
1 Malta 25.8%
2 Singapore 22.3%
3 Netherlands 13.8%
4 Cambodia 9.4%
5 Jamaica 6.7%
6 Vietnam 6.2%
ASEAN 5.3%
7 Brazil 4.2%
8 Peru 4.1%
9 Israel 3.9%
10 Bulgaria 3.8%
11 Malaysia 3.7%
12 Canada 3.6%
13 UAE 3.2%
14 Australia 3.2%
15 Poland 3.0%
16 Mexico 2.8%
17 Uruguay 2.5%
18 Romania 2.4%
19 Indonesia 2.3%
BRICs 2.3%
20 Thailand 2.3%
21 China 2.3%
World 2.2%
22 USA 2.1%
23 Spain 2.1%
24 India 2.1%
25 Egypt 2.1%
26 Argentina 2.0%
Europe 2.0%
27 Philippines 2.0%
28 Guatemala 1.8%
29 UK 1.8%
G7 1.7%
30 Bangladesh 1.6%
31 France 1.4%
32 Germany 1.4%
33 Czech Republic 1.4%
34 Slovakia 1.3%
35 Austria 1.1%
36 Italy 0.7%
37 Nigeria 0.6%
38 Denmark 0.6%
39 Russia 0.5%
40 Pakistan 0.4%
41 Croatia 0.3%
42 Portugal 0.3%
43 Japan 0.0%
44 New Zealand -0.1%