Over a third (36%) of respondents to EY’s survey felt that health and wellbeing would be the second biggest driver of future UK growth, more than double the figure from 2019 (15%).
Only the digital sector was rated as a bigger driver for future UK growth (50%, up from 26% in 2019).
The figures are the latest evidence of the economic impact of the COVID-19 pandemic, which has created uncertainty around business investment and prompted a re-think of investor priorities.
The survey of 220 non-UK investment decision makers also found that 43% of respondents are continuing with the UK investments they planned before the pandemic, down from 72% in April.
According to EY’s analysis, these figures would mean 30-45% fewer FDI projects in the UK in 2020 than the 1,109 projects recorded in 2019 – equivalent to a fall of between 333 and 499 projects.
Life Sciences boost for the East of England
EY’s report reveals the pandemic has prompted shifts in what matters to investors and has brought health and wellbeing towards the forefront of investment plans.
Notably, 41% of respondents deem the ‘quality of the health system’ a more important factor in their investment strategy as a result of COVID-19 – outranking factors like sustainability and climate change (35%).
Stuart Wilkinson, Office Managing Partner at EY in the East of England (pictured), comments: “The pandemic has reinforced the importance of health and wellbeing opportunities for investors. The UK has a strong track record in these areas and the East of England plays a key part of this as a world-renowned research and development hub for the sector. This has been particularly important during the recent pandemic. There is clear appetite for further investment in the health and wellbeing sector and the life sciences cluster in the East of England continues to be well-placed to meet this demand.”
The wider UK picture
The report also found that the proportion of overseas companies planning to invest in the UK in the next 12 months has fallen to 25% from a ten-year high of 31% in April.
Over one-third of respondents (35%) said they had scaled back their UK FDI plans and 17% have paused them. However, just 5% have cancelled UK plans entirely and 21% said they had increased UK investment in light of COVID-19 (up from 5% in April).
The UK’s longer-term outlook has improved, with 53% of respondents saying UK attractiveness will increase over the next three years compared to 34% in April and 26% in 2019.
In the latest survey, respondents felt the digital sector would be the biggest driver of future UK growth (50% of respondents, up from 26% of respondents surveyed in 2019), followed by health and wellbeing (36%, up from 15%), real estate and construction (31%, up from 10%), the consumer sector (19%, up from 12%), and the automotive sector (18%, up from 12%).
And, while down from April’s decade-high, the proportion of respondents planning UK investments in the next year (25%) is still at the second highest level since 2016.
Alison Kay, EY UK&I Managing Partner for Client Service, says: “The UK’s attractiveness as a destination for FDI remains comparatively strong despite COVID-19. Overall, the outlook for the UK is stronger than that for Europe. With strengths in key areas like digital technology, Research & Development, and manufacturing, there is more than a solid base for the UK to build a future strategy on. These factors, combined with a growing interest in ‘reshoring’, present post-pandemic opportunities for the UK to meet investor needs and accelerate its levelling-up agenda.
“However, the UK will need to keep pace with the changing drivers of investment. Since the start of the year, COVID-19 has seen investors put an increasing premium on a country having measures in place to prevent a future crisis and its level of success in dealing with the pandemic.”
Investor appetites changing
EY’s report reveals the pandemic has prompted shifts in what matters to investors and in the types of project attracting investment, with 61% of survey respondents saying the changing economic model in major city centres will become an important part of their future investment strategy.
COVID-19 has also required investors to re-prioritise their investment criteria. Thirty-six per cent of respondents say their most important investment criteria is a country having measures in place to prevent a future crisis (up from 20% in the summer), followed by 27% prioritising a country’s success in tackling COVID-19 (up from 23%). Factors such as the quality of labour (down from 25% to 19%) and the labour supply (down from 21% to 17%) have become less important.
Stuart concluded: “The pandemic has been a significant driver in boosting the importance of technology adoption and appetite for investment in health and wellbeing. The Government’s ambitious infrastructure plans also seem to have prompted interest in real estate and construction FDI. The decline in appeal of business services reflects the fact that this is a mature market with fewer new investment opportunities.
“It’s clear that investors will need to be convinced that a country can cope with future shocks before investing.”