The Covid-19 pandemic has slammed the brakes on global foreign investment. The UK is no exception.
As the crisis pummels commercial activity, the fDi Index, a gauge of foreign direct investment (FDI) activity produced by greenfield investment monitor fDi Markets, plummeted in March and April.
The medium-term outlook appears bleak. FDI could slump by 30-40% in 2020 and 2021, according to the United Nations Conference on Trade and Development (Unctad).
March saw many countries around the world impose strict lockdowns. That same month, the number of foreign investment projects to the UK hit its lowest in more than a decade, fDi Markets preliminary data shows.
Gerry Grimstone, the UK’s minister of investment, says: “Investment for most people is on pause at the moment. This isn’t a time when people are traveling around the UK, scouting for sites and looking for opportunities.”
“You would be a brave investor if you thought you could predict what the long term looks like. Many firms’ business models may have to change completely and their finances may have to be re-evaluated,” he adds.
Indeed, the lockdown poses obvious challenges to foreign direct investment, which typically requires a stable long-term outlook.
The crisis has, however, not eliminated the long-term viability of all investment opportunities. The clutch of companies and investors not in survival mode have been steamrolling ahead.
For example, the UK’s Octopus Energy – a green energy supplier – sold a 20% equity stake in its business to Australia's Origin Energy in late April, unlocking about $400m.
“During this crisis, companies with a unique strategic proposition can remain attractive to long-term investors who see past Covid-19,” says Octopus CEO Greg Jackson.
Octopus has prospered because it’s at the forefront of the green energy transition and has invested heavily in tech, claims Mr Jackson. Nonetheless, the lockdown slowed Origin’s investment into Octopus by about six weeks.
Newcastle United's proposed £300m ($375m) takeover by an investor group led by Saudi Arabia's sovereign wealth fund is another example of a foreign investment taking place during the lockdown. Although the club’s profits have been slashed by the crisis, its long-term value within the most lucrative football league in the world still makes it an attractive investment.
In March, meanwhile, Japanese carmaker Nissan ploughed £400m into its Sunderland car plant, taking a long-term view over the more immediate threat of EU tariffs caused by Brexit.
Investment to the UK has not ceased, it has paused, insists Mr Grimstone.
“The number of inquiries we're getting is actually continuing. I've seen absolutely no diminution in interest in investing in the UK.”
This corroborates with the international trend. Although global mergers and acquisitions are on course to drop by 50-70% in the first half of 2020, according to Unctad, there’s scant evidence of an increase in withdrawn deals, says the OECD. As a result, there’s been an increase in pending deals.
Opportunistic quick-buck investment is on the backburner, while sectors viewed as less viable in a post-pandemic world have been cast aside, says Octopus’s Mr Jackson.
The pandemic is changing the face of the UK economy. “Tech will be even more in demand, as will automation and innovation and medical science and biotechnology,” Mr Jackson says. “The UK is well-placed to take advantage of this.”
The UK has already benefited from a rapid surge of foreign investment into biotech, according to fDi Markets. A recent example is Japan’s Fujifilm, which announced a $83m expansion in the UK in March to increase its microbial production capacity.
Similarly, Canadian education-tech company ApplyBoard is set to invest millions into the UK, while German food-tech startup YFood Labs recently raised €15m to enter the UK and other European markets, according to fDi Market’s investor signals for April and May. (It’s worth noting that fDi Market’s investor signals monitor has picked up significantly fewer FDI announcements compared to the pre-pandemic monthly average.)
Mr Grimstone highlights how there are many examples of companies taking on extra employees due to the crisis, especially in logistics and distribution.
Job posting data from LinkedIn supports this, and shows that the UK healthcare industry is still exhibiting job growth, while industries such as IT and software are also weathering the storm reasonably well. However, the data also shows a significant drop in the overall number of vacancies across the UK economy.
On the positive side, the Covid-19 outbreak has already stimulated a decade-high surge of investment into renewable energy in the first quarter, while the investment into the oil and gas industry has fallen away in line with the collapse in the oil price.
In early May, meanwhile, leading executives called on the UK government to prioritise a green economic recovery following the coronavirus crisis.
“The opportunity that companies like ours represent is to create growth via green investment, creating lots of jobs building wind and solar farms,” says Mr Jackson.
In mid-March, French oil and gas group Total announced its first project in the UK’s floating offshore wind segment. The UK boasts the world's largest offshore wind market, accounting for just over 36% of installed capacity. Total’s installation will be located off the coast of Wales and have 96 megawatts capacity.
Foreign investment to the UK will most likely continue to fall this summer, in line with the global trend.
Once the lockdown eases, foreign investment will have a large role to play in reigniting global economic growth, says Mr Grimstone, particularly as public finances will be weakened by the crisis.
“The pandemic will not alter the attractiveness of the UK to foreign investors. Many global supply chains will be shortened and relocated. Where better than into the UK? The government’s work on trade policy, free trade agreements [and free ports] feeds directly into this,” he adds.
If, however, travel restrictions continue for many more months, Mr Jackson expects to see more international partnerships.
“As a company which expects to expand in the post-Covid era, not being able to visit countries as easily means we’ll work more for local partners around the world,” he explains.
Such initiatives provide grounds for optimism, but any spirit of collaboration and internationalism is also under threat from a wave of new government-led FDI-screening measures around the world that have gathered momentum during the Covid-19 crisis.
It remains to be seen how much these restrictions provide additional obstacles during the frantic post-pandemic rush to secure foreign capital.