Its cruise terminals and docks bring investment to Southampton and help the city guard against the worst economic effects of Brexit and Covid. (Photo by Adrian Dennis/AFP via Getty Images)

Southampton’s deepwater harbour has made the city strategically important to the UK in peacetime and in war. The port remains a historical symbol of both patriotism and pleasure-seeking as it marks the departure point for D-Day Spitfires and the doomed HMS Titanic on its virgin voyage.

A naval history and thriving cruise liner sector combined with the manufacturing and services associated with a busy commercial port have all contributed to Southampton’s economic growth over the years.

In fact, Southampton is the largest economic hub south of London and as such has ambitions to become a city of international renown, according to Peter Taylor, chief executive of the Southampton Chamber of Commerce.

FDI key to Southampton’s future

To achieve this, Southampton must do better when it comes to attracting and retaining foreign direct investment (FDI). According to EY’s UK Attractiveness Report 2020 there were 82 FDI projects in the South East region in 2019 (not including London), down eight from 2018. And with the double hit of the Covid-19 crisis and Brexit hitting UK towns and cities, attracting FDI will only become harder.

If there is just one thing the government can do, it is a public statement to acknowledge Southampton’s strategic importance to the UK. Peter Taylor, Southampton Chamber of Commerce

Southampton’s biggest foreign investor is the British-US cruise operator Carnival. One of the world’s largest travel leisure companies, the company’s UK entity, Carnival plc, includes P&O Cruises and Cunard Lines, both headquartered in Southampton.

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Apart from Carnival, the city’s largest employers include a number of public sector institutions including Southampton City Council, the University of Southampton, Solent University, the NHS, Southampton Airport, Ordnance Survey, BBC South and Associated British Ports (ABP).

Although the cruise sector has been hit hard by the Covid-19 crisis, APB plans to open a fifth dedicated cruise terminal in Southampton in 2021 in a strategic partnership with MSC Cruises and Norwegian Cruise Line Holdings. It is hoped the £55m project will further strengthen the city’s position as one of Europe’s leading cruise ports and the UK’s busiest cruise departure port.

Commercial shipping an opportunity sector for Southampton

The tourism, cruise and associated services sectors have been decimated by the Covid-19 crisis. However, Southampton is also a busy commercial freight port, and this may prove vital to the city’s economic recovery.

Southampton is the largest freight port on the Channel coast and the UK’s fifth-largest port in terms of freight volume, although freight moved through the port was down 4% in 2019 to 33.2 million tonnes, according to government port freight statistics. The EU remained the largest trade partner with more goods moved between UK major ports and Europe than any other region in 2019, accounting for 41% (196.9 million tonnes) of total port traffic, according to government port freight statistics.

However, in terms of export freight, Taylor says Southampton moves £40bn-worth of exports a year, 90% of which is destined for non-European markets. Despite Southampton’s freight business being disrupted by the double hit of a global pandemic and Brexit, Taylor says the impact of Brexit has not been felt as keenly as it may have been at other UK ports because the focus at Southampton docks is on containers rather than putting lorries on ferries, which require border checks.

Further reducing the need for lorries and border checks will be ABP’s first automotive handling rail service directly to Southampton’s Western Docks, which was launched in February this year with an investment of £300,000. Southampton is the UK’s number one port for automotive handling, moving about 900,000 vehicles a year, according to ABP. It is hoped the rail link will increase this capacity.

Southampton’s Brexit opportunity

Taylor sees Brexit as an opportunity to increase the volume of goods moving through the port as other UK ports struggle. “I am not seeing any hold up in the port, if there is one it is more Covid related,” he says.

Taylor’s view seems to be borne out by the New Statesman Brexit Vulnerability Index, which examines 379 UK local authorities to identify which might be most impacted by Brexit. The index ranks Southampton 318th overall, faring well when measured by impact on employment, trade and population.

However, the city ranks a very low 40th out of 379 authorities for funding vulnerability, as it has received at least £190m in European funding programmes between 1995 and 2020. The UK communities secretary has said the government’s Shared Prosperity Fund and a £4bn levelling up fund – both intended to replace current EU funding – will have “localism and local government at their heart”, although how this plays out remains to be seen.

Other opportunities for foreign investment in Southampton lie in new maritime technologies. US-based seabed survey and ocean exploration company Ocean Infinity is making investments in low carbon dioxide-emission robotic vessels, committing funds to build a fleet of these vessels with its control, data, maintenance and engineering centre in the Woolston riverside regeneration area of Southampton. The company is currently working with the Solent Local Enterprise Partnership on funding proposals.

Mixed-use port provides opportunity amid disruption

According to the PwC Demos Good Growth for Cities report for 2020, Southampton along with Norwich, Swindon, Portsmouth and Oxford, has been relatively less economically impacted by the Covid-19 pandemic. The report cites that the “sectoral mix and performance on broader economic and social indicators have to some extent provided resilience” in these locations.

The fact that Southampton’s port is mixed use and internationally focused may serve the city well going forward. Southampton has submitted an application to become a UK free port. Taylor has a vision of Southampton becoming “the Singapore of Europe”, and this is based on the success Singapore experienced by adopting the economic free zone approach to international trade. However, while the free port model may prove beneficial to emerging economies that are lacking in governance and infrastructure, it is not yet clear how much benefit a special economic zone status would bring to a UK city such as Southampton.

Councillor Steve Leggett, Labour cabinet member for Green City and Space in Southampton, says that despite the pandemic and its economic challenges, more than £500m in public and private investment is proposed in various schemes such as the council’s home-build programme, a £144m investment in affordable, energy-efficient, low-cost housing announced in July 2020, which will go some way to addressing the challenges posed by Southampton’s growing population.

Southampton’s employment will grow by 9.2%, adding about 12,000 jobs from 2018 to 2036, according to consultancy firm Lichfield’s Solent Economic Profile, which predicts the city’s job growth will outpace every other town or city in the Solent region.

Leisure World is another project Leggett says demonstrates how Southampton is working to strengthen partnerships and find new ways of doing business to keep attracting investment into the city. The £250m investment will see construction begin in 2022 of 650 new homes, two 150-room hotels, restaurants, offices, and a cinema and casino, creating more than 1,000 jobs. “This investment, along with the new fifth cruise terminal pioneering the use of green technology, shows demonstrable confidence in the city’s growth prospects and its vital economic assets such as the port,” he adds.

While research by Investment Monitor shows a dramatic drop in the city’s nominal GVA for 2020, proposed investments may explain an equally sharp predicted rise for 2021, albeit tapering off to 1.42% by 2025.

Many unknowns lie ahead for Southampton, although the city council’s bid to be the UK City of Culture in 2025 may see it capitalise on its arts and culture sector to cement its ambition to become an international gateway.

Taylor believes strongly in this international focus, and this is behind his belief that Southampton has the potential to become the Singapore of Europe. “If there’s just one thing the government can do, it is a public statement to acknowledge Southampton’s strategic importance to the UK,” he says. With its proximity to London, its location in global supply chain routes and strong economic indicators, Southampton is in a good position to emerge from the current economic downturn strongly, and with a more international focus.

For more of Investment Monitor’s coverage of the UK’s cities, read through our Future of British Cities series: