Investors are largely optimistic about the UK’s economic outlook, though a significant minority express greater pessimism than last year, according to global consultancy partnership Kearney’s 2021 Foreign Direct Investment (FDI) Confidence Index, which provides an indicator of FDI flows globally.
The US once again takes the top ranking for the ninth consecutive year, followed by Canada and Germany. The UK rejoins the top five after ranking sixth in 2020. The results mark the third time in the 23-year history of the Index that the top five positions were held by developed markets. This continued optimism for advanced economies likely stems from conducive regulatory environments coupled with skilled workforces, advanced tech infrastructure, and economic stability.
Only three emerging markets are on this year’s Index: China, the United Arab Emirates, and Brazil. China remains the highest-ranked emerging market, a distinction the country has held consistently since 1999. However, concern over escalating US–China trade tensions and a more general corporate rethink of international supply chains could explain its drop to 12th place. The virtual disappearance of emerging and frontier markets from the Index could be a reflection that investors believe the rollout of vaccines in emerging markets will be highly uneven, both for logistical and economic factors.
FDI has historically been higher for the UK than for its peers in Europe, and its improved ranking shows investors remain confident despite the pandemic. The research found that the UK scores high for areas that are important to investors, such as regulatory process ease and technological innovation. The UK is also making efforts to re-skill its population, invest in and expand renewable energy, and support health and agricultural technology.
Its improved performance this year is also likely the result of less uncertainty about Brexit, with the UK securing a free trade deal with the European Union and negotiating trade deals with other economies including Japan, South Korea and Switzerland. In addition, while the survey was in the field, the United Kingdom was in the midst of an overall successful and efficient strategy to ensure vaccinations while also managing deadlier and more transmissible new strains of Covid-19. This response likely boosted investors’ confidence.
On a global level, the ranking reveals a significant fall in overall optimism about the economy from pre- and early-pandemic levels last year. Investors say they are more cautious as they gear up for a long-haul recovery for investment flows. Most of the overall scores for the top-25 countries have fallen compared with previous years, and only 57 per cent of investors feel optimistic about the three-year global economic outlook, which is much lower than the corresponding figure last year of 72 per cent (prior to and at the onset of the pandemic).
Andrew Stewart, Managing Partner UK & Ireland at Kearney, says: “The pandemic has left a deep mark on the UK economy which contracted by almost 10 per cent in 2020, worse than many of its European counterparts. That said, the UK has maintained a strong position in areas that are important to investors with a post-pandemic outlook. Renewable energy and technological innovation are sectors in which the country is a global leader with growing, dynamic markets. In addition, the country has a favourable regulatory environment and is investing in re-skilling its population. While investors can’t afford to overlook global macro-economic and geopolitical shifts that will define the years ahead, our research shows that the UK still has the confidence of market players.
“Across the globe, investors continue to perceive FDI as an important part of corporate profitability and competitiveness, and while FDI may have dropped in 2020, this fall is unlikely to become a permanent feature of the global economy.”