National and local-level policies promoting creative foreign investment are needed for the UK’s creative industries to retain its position as a global leader in foreign direct investment (FDI), according to a new report.
The report, from the Creative Industries Policy and Evidence Centre (Creative PEC), examines inward and outward FDI data covering foreign investors’ individual investment decisions and projects between 2013 and 2023.
It found 10% of all inward UK FDI projects over the 10-year period were accounted for by the creative industries.
This investment is heavily concentrated in three creative sub-sectors – IT, software and computer services; advertising and marketing; and film, TV, radio, and photography – which together equated to 90% of all inward creative FDI over the analysed period.
In contrast to non-creative FDI, the majority of this investment took the shape of mergers and acquisitions (M&As) rather than new or “greenfield” projects.
The creative industries also accounted for 10% of the UK’s outward foreign direct investment (OFDI) over the 10-year period. The report says UK creative OFDI mirrors inwards trends, with M&As being the predominant form, mainly in IT, software and computer services.
Global leader
The report found the UK to be the second most popular location globally for inward creative FDI over the decade studied – and the second most popular destination for total FDI projects – only behind the USA.
The USA is also the UK’s main source of both inward and outward creative FDI. It provides nearly 45% of all creative inward FDI, but the report says there are also “notable investments in new projects from Europe, India and China”.
However, the level of FDI in the creative industries is falling. Its share of all UK-based inward FDI has fallen from a peak of 12% in 2019 to below 10% in 2023. The decline in absolute terms is more notable, with the number of inward creative FDI projects dropping by nearly 50% when comparing 2019 and 2023. The report says this aligns with global trends.
“Against a backdrop of falling FDI flows for the overall UK economy, this decline suggests that initiatives for both attracting and generating creative FDI should be a priority for policymakers,” the report says.
Creative PEC adds that the government’s forthcoming industrial strategy, which is expected to highlight the creative industries as a key sector for both investment and growth, should focus on initiatives for both attracting inward and generating outward FDI as a policy priority.
Regional differences
The report also details evidence of regional differences in types of inward creative FDI across the UK.
Advertising and marketing FDI is most often found in the South East of England, while software and computer services FDI is mostly found in the UK’s main cities. Meanwhile, FDI in architecture, film, TV, radio and photography and publishing was found to be more spread across the country.
The report says these geographic differences suggest the need to strengthen regional and national policy that promotes investment at the regional and urban level.
It adds that mapping local skills, clusters, research and development hubs, infrastructures and supply chains, in order to highlight the capabilities of the regions, could help advertise the individual strengths to foreign investors and attract place-based or sub-sector specific investment.
“This may also lead to local and devolved governments having greater agency to develop their own strategies away from central government, to target specific types of FDI in specific sectors and meet their own regional needs and abilities,” the report explains.
Christopher Smith, executive chair of the Arts and Humanities Research Council, said: “To unleash the potential of the creative industries we have to invest at scale, strategically with a clear place-based agenda”.
“The report uses 10-year’s worth of robust data to provide the evidence base to show there is regional, sub-sectoral variation in FDI activity across the UK. Smith
“It is clear that regional creative clusters have an important role to play in attracting inward investment.”