Foreign Direct Investment By Ultimate Controlling Economy - UK Trends And Analysis: 2021

27th July 2023

Inward foreign direct investment (FDI) positions and earnings presented by the economy of the ultimate controlling parent up to 2021.

Companies in the North Americas ultimately controlled £868.9 billion (or 43.4%) of the UK's total inward foreign direct investment (FDI) stock in 2021; this was £150.8 billion higher than the immediate position.

This was in contrast to inward FDI with the EU where the ultimate position was £128.4 billion lower than the immediate FDI position.

This is the first time that we have published FDI earnings (profits) statistics by ultimate controlling economy; North American companies ultimately controlled the highest proportion of the UK total FDI earnings (37.7%).

UK companies investing back into the domestic economy through foreign affiliates (round-tripping) accounted for 2.7% of total UK inward FDI positions and less than 0.5% of total UK inward FDI earnings.

Foreign direct investment positions
UK foreign direct investment (FDI) statistics follow international guidance and are presented on an immediate parent company basis. This means geographical compositions can be affected by complex multinational corporate structures, where investment chains cross many borders.

Presenting on an ultimate basis can help to understand where the ultimate risk-taker and beneficiary of the investment is based. Although geographical compositions will be different, the aggregate world figures will be the same for both the ultimate and immediate controlling economy.

The FDI Survey has been enhanced using a commercial data source from 2020 onwards. This source also includes information on the ultimate parent company for inward FDI, which has contributed to these results. For 2014 to 2019, FDI microdata were linked with the Inter-Departmental Business Register to produce our ultimate statistics.

Ultimate positions by continent
Companies in the North Americas continued to control the highest value of the UK's ultimate inward FDI position in 2021, accounting for £868.9 billion (or 43.4%) of the UK total. This was an increase of £103.2 billion (13.5%) compared with 2020.

It was also £150.8 billion higher than the immediate position, continuing the trend of higher positions on an ultimate basis for this region in every year since 2014 (Figure 1). This indicates that North American companies were more likely to control their UK affiliates through other continents, rather than directly. Microdata analysis highlights the main routes for this investment, which include the Netherlands, Switzerland, Japan and Luxembourg.

A similar comparison can be drawn with Asian companies. In 2020, ultimate and immediate FDI position values were very similar (£181.6 billion and £182.0 billion respectively). In 2021, the value ultimately controlled by Asia increased by 12.4% whereas the immediate value fell by 14.5%. These changes reflect corporate decisions by companies in Japan and Hong Kong.

By contrast, FDI with the EU was more likely to be immediately controlled through that region rather than ultimately by it. For example, the immediate inward FDI position was £128.4 billion higher than the ultimate FDI position in 2021. The results also show a stable inward FDI relationship with the EU where the ultimate FDI position in 2021 was 2.5% lower than the value in 2020, while the immediate position was 2.9% lower over the same period.

The values for the UK refer to FDI that both enters the UK on an immediate basis from foreign countries but is ultimately controlled by parent companies within the UK. This is "round-tripping" and refers to UK companies' foreign affiliates reinvesting back into the domestic economy.

UK round-tripping was £53.2 billion (2.7% of total UK inward FDI position) in 2021. Microdata analysis of UK companies showed a mix of round-tripping destinations in large economies such as the United States and Germany as well as offshore financial centres such as the British Virgin Islands, Cayman Islands and Singapore.

Ultimate positions by economy
The United States continued to control the highest inward FDI position on both an immediate (£675.7 billion) and ultimate (£817.4 billion) basis in 2021 (Figure 2). The ultimate control value with United States companies was 21.0% (£141.7 billion) higher than the immediate position and accounted for 40.8% of the total inward position. The values for Japan (8.8%) and France (6.2%) were the second and third highest ultimate positions with the UK respectively.

Foreign direct investment earnings
Foreign direct investment (FDI) earnings statistics effectively measure the profits generated on the stock (position) of these investments. FDI earnings can vary from year to year, and aggregate totals can be affected by the results of a few companies. It is also possible for companies to report negative FDI earnings (losses). This is the first time that we have published FDI earnings statistics by economy of the ultimate controlling parent.

Companies in the North Americas ultimately earned £27.1 billion from their direct investments in 2021, accounting for over one-third (37.7%) of the inward UK FDI total. As with FDI positions, FDI earnings with this region were also higher on an ultimate basis in all years between 2014 and 2021 (Figure 3). The difference was much smaller (£0.1 billion) in 2018, which partly reflects changes in the profits of companies ultimately controlled from the North Americas compared with those controlled directly, in addition to any changes in corporate structures between 2014 and 2021.

Ultimate FDI earnings with the EU more than doubled between 2020 and 2021, while immediate earnings increased by 73.8%. This partly reflects the lower values reported in the region in 2020.

Like FDI positions, UK earnings with the EU were also higher when calculated on an immediate basis compared with an ultimate basis. The Netherlands controlled the highest value of inward FDI earnings within the EU on both the immediate (£7.9 billion) and ultimate (£2.7 billion) basis in 2021. This was followed by ultimate earnings with Germany (£1.8 billion) and Ireland (£1.7 billion).

FDI earnings with non-EU European countries saw a large 71.7% (£4.9 billion) increase on an immediate basis between 2020 and 2021, mainly from a £3.5 billion increase with the UK Offshore Islands, such as Jersey and Guernsey. On the other hand, ultimate earnings with non EU-Europe increased by 57.8% even though they fell to negative £1.5 billion in 2021 with members of the European Free Trade Association.

Earnings on UK round-tripping have followed a downward trend, from £2.4 billion in 2014 to £0.3 billion in 2021. Despite the increase (£0.3 billion) in ultimate FDI earnings from round-tripping in 2021 compared with 2020, these earnings accounted for less than 0.5% of the UK's total FDI earnings in that year.

Read the full ONS report HERE