2.7.11 Investment refers to the acquisition of new productive assets and can be a key source of sustained economic growth through improvements in technology, productivity and future capacity. There is limited good quality data on capital investment at the regional or sub-regional level. This section considers the available evidence on capital expenditure and foreign direct investment.
2.7.12 Figure 2.7.1 shows that, according to unpublished ABI data, the region has performed relatively well on the capital expenditure to labour ratios indicator and in 2008 had the third highest ratio of the English regions. As is the case for the England average, the SW capital:labour ratio has been declining since 2000 (following a sharp increase between 1998 and 2000), as the nation and region have become increasingly more dependent upon cheap labour rather than investment in plant, machinery and technology for productivity improvements. It is the region’s share of capital expenditure that has fallen over this period, as its share of employment costs has been fairly stable throughout. In 2008 the region contributed around 9% of national capital expenditure with London making up around 21%. Between 1998 and 2008, capital investment grew at an average annual rate of 2.0% in the South West, just above the English rate of 1.9% and the highest of the English regions; however, excluding the 1998 to 2000 increase, capital expenditure in the region fell by 0.9% per year (2000 to 2008) whilst national capital expenditure still grew at a 1.9% annualised rate - hence the drop in share.
2.7.13 It is important to note that the ABI data displayed here is deemed ‘unreliable’ by ONS as there are methodological concerns with the data.
2.7.14 Based on the measure of capital expenditure as a proportion of regional GVA, the South West performs comparatively weakly (see Figure 2.7.2). The region invests 6.6% of its GVA as capital expenditure compared to a national average of 7.9%. As a share of output, investment has been lower in the UK than in most developed countries, with the exception of the USA, and this has been the case for a number of years. All UK regions need to improve their position on this measure.
Figure 2.7.2 Capital Expenditure as a Proportion of Regional GVA (Nominal) 2008
Capital Expenditure as a Proportion of Regional GVA (Nominal) 2008 [Fig 2.7.2]. Source: ONS.
2.7.15 Experian estimates for the region suggest that total SW investment fell from around £5 billion in 2007 Q4 and 2008 Q1 to just over £4 billion in 2009 Q4, a 20% fall overall. As with the UK trend, Experian forecast that recovery began in Q1 2010 with investment levels expected to be back up to £4.5 billion in the second quarter of 2010; however, investment will not return to pre-recession levels until 2013. Government investment, which grew by 25% over the period of the recession, is expected to have started falling in the second quarter of 2010, and is projected to continue to fall each quarter until 2015. In the short term this is expected to be more than compensated for by private sector investment as economic recovery continues.
2.7.16 During the recession, access to finance problems combined with a more general downturn in business conditions, dampened investment activity in the South West significantly. The last RDA National Business Survey (Autumn 2009) suggested that even towards the end of the recession investment intentions remained very low, with the majority of businesses not intending to invest at a greater rate in the next year than in the previous 12 months.
2.7.17 Foreign Direct Investment: An alternative measure of investment is Foreign Direct Investment (FDI). Research suggests that US-owned manufacturing firms were 26% more productive than those with UK ownership with other foreign-owned firms being 14% more productive. Multi-nationals also indirectly benefit the economy through productivity and managerial spillovers, both geographically and sectorally .
2.7.18 Research by Deloitte (2008) considered the South West’s FDI performance. It found that the flow of FDI into South West England was relatively low with the region ranking in the bottom third of the UK regions over the last 10 years. Recent FDI flows into the region have increasingly tended to concentrate on existing investors rather than new companies.
