Falling Foreign Investment In North East Firms Signals Need To Seize Investment Zone And Freeport Opportunities

Specialist business lawyers at Irwin Mitchell are calling on the government to continue its support for Investment Zone and Freeports following new figures which reveal that interest from overseas investors in businesses across the North East has stalled.

The law firm has analysed industry data and says although the UK continues to drive significant interest from foreign buyers, the number of UK firms which were targeted in an overseas deal, such as an acquisition or management buyout, fell to 11 last year compared to 13 in 2022 and 18 in 2021.

Research says London and the South East accounts for four out of 10 foreign investment deals into the UK and also reveals that its dominance has increased in last five years. It says in 2019, 35% of the companies targeted by foreign investors were based in the capital or the wider region, but by 2023 this stood at 42% of total deals.

Bryan Bletso, partner at Irwin Mitchell and a specialist in advising overseas businesses that are looking to invest in the UK, said:

“Despite the dynamic nature of global investment patterns, this data underscores the enduring economic significance of London and the South East in attracting international business interest. Our research does however also highlight that investment activity in this traditional FDI hotbed is increasing whilst in other regions, such as the North East, deal activity has been rising steadily over the last five years but reduced in the most recent 12 months.

Foreign Direct Investment (FDI) refers to an investment in an enterprise operating in a foreign economy, where the purpose is to have an ‘effective voice’ in the management of the organisation. According to the latest ONS data, FDI into the UK has increased year-on-year for a decade to stand at over £2 trillion by 2021.

Last November, Conservative peer Lord Harrington published a report which called for a change of approach by the government in terms of attracting FDI. The re report made several recommendations and the government accepted in its response that it needed to work more collaboratively with local government and public and private stakeholders.

The UK Government also say that Freeports and Investment Zones are a part of its FDI strategy.

Announced in 2023, Freeports are designed to boost economic activity and the ‘levelling up’ agenda by fostering trade, investment, and job creation around maritime ports and airports.  Companies operating within freeports can enjoy reduced property taxes and national insurance rates. Based around Middlesbrough, Hartlepool, and Stockton-on-Tees, the Teeside Freeport refers to itself as ‘the UK’s best connected freeport’.

The government is committed to establishing 13 Investment Zones across the UK, including one in the North East running from Northumberland down to Sunderland and Durham, with opportunities along the Tyne Corridor, and also one in the Tees Valley.

The expectation is that many of the zones and tax sites within them will go live in Spring 2024 but so far Liverpool is the only one to have officially done this, announcing details of its proposition at MIPIM.

Bletso added: “Government initiatives such as freeports and investment zones could be a gamechanger for providing favourable conditions for businesses based in the North East, attracting more interest and investment in the UK from abroad, and levelling up the economy.

“Making the UK the top investment destination in Europe, attracting new investment into communities and helping to level-up the country, is one of five key priorities for the Department of Business & Trade. Providing tailored support for each investment zone and promoting our offering in this area on an international stage is a crucial part of this.”

Irwin Mitchell published a report last summer which examined the most attractive locations in the UK for FDI. Inner London secured top spot due to its local skills, large economically active population, and many well-respected universities.

In the report’s ‘FDI Attractiveness’ league table, Newcastle came 37^th and Sunderland was in 48^th place.

About the research

Irwin Mitchell analysed deals recorded on Experian’s MarketIQ database. The type of deals were Acquisitions, Development Capital, Employee Buy-Ins, Employee Buy-Outs, Investor Buy-Ins, Investor Buy-Outs, Leveraged Buy-Outs, Management Buy-Ins, Management Buy-In / Buy-Out, Management Buy-Outs, Mergers, Public to Private, Reverse Takeovers, Secondary Buy-Outs, and Startup Fund Raising.

About the North East’s Investment Zone

The North East of England is set to bolster new investments and innovations in electric vehicle manufacturing, battery production, offshore wind, and low-carbon materials. This initiative builds upon the region's established expertise in automotive and advanced manufacturing, as well as its emerging status as a center for clean energy. A mix of tax incentives and funding will be deployed to draw investments, foster innovation, and aid the expansion of businesses within these industries. Tax benefits will be accessible at Blyth Energy Central in Northumberland, and the International Advanced Manufacturing Strategic Site in Sunderland and South Tyneside. Additionally, a £20 million co-investment fund will stimulate job creation along the Tyne Powered Economic Corridor and enhance capabilities at NETPark in County Durham. This effort will be further supported by a £15 million skills package, developed in partnership with the private sector, £15 million in infrastructure funding, and £5 million to boost innovation and productivity in these sectors. The programme's goal is to attract significant investors, promote the co-location of extensive supply chains, and nurture the development of existing companies. Local partners anticipate that these initiatives will generate at least £3 billion in investments and create over 4,000 jobs within the next decade.

The Tees Valley Investment Zone will focus on the digital and creative sectors, building on the region’s expertise and strengths in these sectors. The Investment Zone will boost inward investment, productivity, create jobs and help transform communities across the region, with focus on the cluster areas within Hartlepool and Middlesbrough. The government has also announced that Pneuma Group, the parent company of video games developer and publisher Double Eleven, has committed to making the first new major contribution to the Investment Zone. The group is investing at least £15 million to support Double Eleven’s growth, including investment in fit-out for commercial spaces and new, state-of-the-art offices for the games company to further scale its production capacity as well as increase its attractiveness to talents globally, while ensuring its teams have access to top-tier technology. Local partners expect the Tees Valley Investment Zone to potentially unlock up to £175 million of additional investment and create more than 2000 jobs over the next ten years. The government will continue to work with Tees Valley Combined Authority, Teesside University and other local partners to co-develop the plans for their Investment Zone, with due regard to TVCA’s response to recent Independent Review, ahead of final confirmation of plans.