Foreign investment in UK collapses

UN Report: Investors give Britain the thumbs down as capital heads instead for Australia and China

Foreign investment into the UK collapsed last year as Britain was hit by the global economic slowdown and a drought in corporate take-overs, the United Nations said yesterday.

A total of $25bn (£15.6bn) flowed into Britain last year, a fall of 57 per cent from the $62bn in 2001 and less than a fifth of the $130bn that flooded into the UK in 2000.

In its annual world investment report, the United Nations' commission on trade and development (Unctad) said the slump punished those countries that benefited most from the IT bubble of the late 1990s.

It was the worst fall in Europe and meant the UK lost its slot as top destination for foreign direct investment (FDI) in the European Union. It fell to fourth, behind rivals including Germany and France.

The Tories seized on the figures, saying it showed Britain was an increasingly unpopular place to do business. "Increasing the burdens on business can only lead to foreign investors giving Britain the thumbs down," said Tim Yeo, the shadow secretary of state for trade and industry.

"As many people have feared, the rise in tax and increased regulation is discouraging investors. Recently a worsening of industrial relations has been a further reminder of the bad old days."

But the Department of Trade and Industry said one year's inflows of investment did not give the full picture. A spokesman said it was better to look at the value of the stock of existing investment, which rose to £639bn from £552bn.

The figures also triggered a fresh row over the significance of Britain's decision to stay out of the European single currency, as Germany enjoyed a 15 per cent jump in investment while France fell just 7 per cent.

Britain in Europe, the leading pro-euro campaign group, said the UK's share of EU inward investment had dropped. Nick Canning, economist at Britain in Europe, said: "Our declining share of foreign investment is a stark reminder of the costs of staying out of the euro. The longer we stay out, the greater the cost - and that is why the issue of our membership will not go away."

But the No Campaign said the fall was driven by temporary factors such as the bursting of the IT bubble. James Frayne, its campaign manager, said: "While investment is down this year we are projected to receive more investment than France and Germany over the next few years.

"The best way to secure this investment is by maintaining stability by keeping control of our economy outside the euro."

Unctad tried to stay out of the row, saying that while some eurozone countries had done well, others, such as Holland where investment halved, had fallen. Torbjorn Fredriksson, an economist at Unctad, said: "There is not a clear-cut picture when it comes to the euro and if there were a clear-cut pattern it is unlikely you would see it in FDI."

He blamed a slowdown in corporate investment due to weak economic conditions, reduced profit prospects, a pause in consolidation, a drop in cross-border M&As and declining share prices.

The scale of the collapse was only exceeded by the United States, where investment tumbled by $114bn last year and $284bn since 2000.

China overtook the US as the largest recipient of foreign investment - a fresh sign of the growing power of the world's most populous country.

Looking forward, Unctad said it expected weak growth and low M&A activity meant there would be little improvement in FDI this year. But he said 2004 should show a return to patterns of trade and corporate activity that would especially benefit the US and UK.

Coals to Newcastle as India invests in Wales

In a welcome break from a seemingly endless flow of UK jobs moving to India, four companies from the subcontinent have decided to invest in the UK establishing operations for 300 employees in Wales.

The four include GTL Limited, a telecom infrastructure company, BPL Telecom, its top provider of mobile telephony, Infrasoft Technologies, a financial software specialist and Elan, a company that is developing a laser technology for use in heart surgery.

Deepak Rao, head of European operations at GTL, said: "We will build a long term partnership with Welsh organisations in our approach to European markets."

Dina Dattani, a London-based corporate lawyer specialising in Asian companies, said: "Based on the success of this we are planning to work with another 30 companies by the end of the year."

So far this year a string of leading UK companies, including BT, HSBC, Aviva, and Tesco, have provoked an outcry from trade unions with their plans to move call centre, back office and software jobs to India.