The UK has seen a decline in its share of foreign direct investment in Europe as a result of the str...
The UK has seen a decline in its share of foreign direct investment in Europe as a result of the strength of sterling against the euro.
According to Ernst & Young, the UK's market share of foreign direct investment fell to 24% in 1999 from around 27% in 1998 although it is still the largest recipient of foreign investment into Europe. The group also found that the US accounts for 42% of foreign investment projects in Europe and represents around 55% of the inflow for countries such as Germany, the Republic of Ireland and the Netherlands.
Barry Bright, director of Ernst & Young's International Location Advisory Services, said: "The implications of these results cannot be ignored but a simple cause and effect between the UK's non-participation in the euro is not the whole story. But as 50% of UK investments originate from the US, the impact of a weakened euro against the pound and dollar has certainly made the UK less cost-competitive as far as manufacturing is concerned.
"Far Eastern, mainland European as well as US manufacturing investors are looking for cost-effective locations and consistent transaction values among their supplier and customer bases. This is more difficult to achieve with non-euro participation and all that this implies in terms of added exchange rate risk and the requirement to manage volatility mid-transaction.
"Nissan in the north east has already voiced reservations about the UK's non-euro participation. BMW, which highlighted the negative effect on its business of the high pound throughout the Rover debacle, also referred to a need for costs stability in its supply chain."
Bright added that increased e-commerce investment in the UK is ameliorating the impact of the UK's non-entry into the euro. He said the UK is well-placed to capitalise on the requirements of the e-investor with its telecoms infrastructure, liberalised telecoms environment, entrepreneurial culture and clusters of complementary activities. However, he said many other European countries are catching up, such as Finland and Sweden. He added that Amsterdam, Dublin and Frankfurt also share the UK's e-business strengths while Catalonia, Northern Ireland, the Cote d'Azur, Munich, Copenhagen and Lombardy are emerging contenders.
Ernst & Young found that Germany is the main generator of investment within Europe with a 28% share of investment projects. The country has also replaced the US as the dominant player in Central and Eastern Europe.
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