Tech slump hits overseas investment in UK

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The number of overseas companies investing in the UK slumped last year as Britain paid for its high exposure to the collapse in the hi-tech sector, new figures showed today.

New inward investment projects fell to 377 from 575 in 2000, or a fall of 34 per cent, says a report from the accountants Ernst & Young.

Britain's share of the European investment market also dropped, to 19 from 26 per cent, but it remained the continent's most popular destination. Overall, inward investment into Europe fell 12 per cent but emerging economies in Central and Eastern Europe took business at the expense of their larger Western neighbours.

Ireland, France, Switzerland and the Netherlands, all of whom share Britain's close links with the US, saw their share of new projects drop. "Clearly the economic fallback in the US throughout 2001 reduced investment into Europe," said Mark Hughes, a leading location adviser at E&Y. "The UK suffered the greatest absolute decline because sectors like telecoms and software made up a disproportionate amount of its US investment profile."

This was underlined with a slump of almost a half in the number of telecoms and computer projects into Europe and a fall of almost a fifth in electronics projects. In contrast, the main rises were in pharmaceuticals, up 18 per cent, and in transport, up 21 per cent.

The Czech Republic, Hungary, Russia, Romania, Bulgaria, Turkey and the Baltic states all saw an improvement in project numbers and market share. Although these emerging economies still only account for a tiny fraction, Mr Hughes said it marked the start of a trend.

He added that those countries at the front of the queue to join the EU had advantages over costs and skills and lower regulatory burdens.

The E&Y report said that the launch of euro notes and coins had little impact and that the issue of membership was only one of a number of factors in an investment decision.