UK Outward Foreign Direct Investment

Global context

The established pattern of FDI flows, with investments moving from ‘north’ to ‘south’, is changing. New countries are emerging as significant originating and receiving economies. FDI from developing and transition economies and the growth of ‘South-South’ FDI are important recent trends. Well established bilateral relationships between individual countries, which have dominated international investment flows, are being replaced by a more complex global position, reflecting the involvement of more countries.

In spite of these changing patterns of FDI flow, the developed countries currently still provide the major source of funding with outflows from developed countries growing by 45% in 2006 to $1 trillion. The United States and five EU countries ranked among the 10 largest outward investor economies in the world. Within the EU France, Spain and the UK are the major FDI sources.

Three sectors are recognised and recorded for global FDI purposes: primary (mining, forestry fisheries), manufacturing and services. During the past 25 years there has been a steady shift away from FDI in the primary sector and manufacturing and a shift towards services. Recent increases in global demand for raw materials, driven by the growth of the Chinese economy in particular has, however, resulted in a resurgence of interest in the FDI flows into resource rich countries, in particular within Africa and South America.

UK FDI

There has been an overall increase in annual outflows of investment funds from the UK over the period 2002-2006 reaching £49 billion in 2006 with the value of these investments reaching £735 billion in that year. In 2006 the UK was the 4th largest source of outward FDI, after the USA, France and Spain.

In 2006 the pattern of UK investment flows overseas changed from previous years with a greater emphasis on investment into resource industries. The breakdown, and trends, of UK FDI flows abroad (as reported by ONS) between the three principal sectors in 2006 was as follows:

• Services in general fell to £14.5 billion (down 59 per cent compared to the £35.5 billion reported in 2005) but financial services FDI rose to £22.1 billion (up from £10.5 billion in 2005);

• Manufacturing fell to £16.4 billion (down 11 per cent compared to the £18.5 billion reported in 2005) but FDI into food products rose to £15.5 billion (up from £5.0 billion in 2005;

• Resources rose to £18.5 billion (compared with a net disinvestment of £9.5 billion reported in 2005) with the emphasis on the extractive industries, mining, quarrying and hydrocarbons.

More about the economic sectors...