The San Francisco Bay Area’s reputation as a global technology hub has become so globally entrenched that the number of regions trying to name themselves after Silicon Valley seems to be growing every year.
In addition to Silicon Fen in Cambridge, England, and Silicon Allee in Berlin, Israelis brag about their Silicon Wadi and even Australian techies have attempted to christen Silicon Beach.
But when it comes to Silicon Valley, foreign investors have shown a growing reluctance to put their money where their BOM is.
Foreign direct investment (FDI) in new projects in San Francisco fell to its lowest level since 2009 last year, raising doubts about the city’s ability to maintain its advertised status as a preeminent tech hub. in the world.
Data from fDi Markets, an information provider owned by the Financial Times, shows the northern California city, home to Uber, Twitter and Salesforce, attracted around $222 million in new FDI last year. , down 87% from its peak. in 2016. Greenfield FDI refers to cross-border investments that create new jobs and facilities.
Leaders who provide location advice to foreign companies say local tax, social and regulatory policies have made it harder for companies to operate in the city, driving an exodus of foreign and domestic tech investors to other parts of the city. United States.
“It makes my job very difficult,” says Darlene Chiu Bryant, executive director of GlobalSF, a nonprofit that works to attract international investors to the city. “What I see in San Francisco is a political pendulum.”
The city’s supporters insist it still has many of the same attributes that have made it an international hub of innovation and entrepreneurship. It retains a diverse talent pool, strong transport and shipping links and a well-established infrastructure to support FDI projects with matters such as site selection, visa assistance and regulatory advice.
The inaugural FT-Nikkei ranking of the attractiveness of U.S. cities to foreign investors ranks San Francisco third in the nation for labor and talent, thanks to its large population of working-age, college-educated residents. university and close to universities such as Stanford and Berkeley. The city has a large foreign-born population, giving it a high score as a place to welcome foreign talent.
But Bryant says those attributes have, in many cases, been overshadowed by policies implemented by the San Francisco Board of Supervisors — its legislative body — that have been seen as “very anti-corporate.”
In the FT-Nikkei ranking, San Francisco is second to last for “business environment,” a category that takes into account factors such as tax rates, incentives, and office costs. The city has one of the highest corporate income and sales tax rates in the United States, and ranks first in utility payments and office and industrial costs.
Some California companies have sought and found better terms elsewhere, such as Regroup, a communications software company. “Texas offers a fertile business environment to grow and be supported by a talented, world-class workforce,” Chris Utah, the company’s chief operating officer, said in a statement about the move.
San Francisco, which is experiencing a high-profile homelessness crisis, also ranks second to last in the FT-Nikkei quality of life survey, ahead of neighboring Oakland. This measure looks at safety, cost of living, travel and access to good schools. Of the 89 cities surveyed, San Francisco has the highest costs for health care and housing.
These difficulties have begun to influence the investment decisions of foreign executives, according to the data. In fact, San Francisco has become an exception in the United States, experiencing a sustained fall in FDI even as other major US cities have experienced strong post-pandemic recovery. Although inception FDI fell in 2020 in the United States, the country attracted around $84 billion in FDI last year, down from $62 billion in 2020 and above its average of $74 billion over the period 2015-2019.
FDI in San Francisco, however, remains weak. The $222 million in inception FDI in 2021 was down from $581 million in 2020 and represents about a fifth of its annual average of $1 billion over the period 2015-2019. As of July 2022, approximately $194 million from 21 projects has been received from foreign investors.
A spokesperson for London Breed, the city’s mayor, says she is “very focused” on improving the situation in San Francisco, with greater public safety as a priority. Breed’s office has launched a study of the business environment, saying tax incentives and tax structures could be changed accordingly.
“Our hope is that there will be support from the legislature to make these changes,” the spokesperson said. “All of this work is underway now.”
Experts note that the decline in investment is not entirely due to factors within the city’s control; tensions between the United States and China sharply reduced inflows from China, which had been an important driver of growth over the past decade.
But San Francisco’s struggles have opened the door to other parts of the United States touting themselves as tech hubs, like Denver.
“What we have heard from many companies [is] they find a super competitive environment there,” says Stephanie Garnica, director of global business development at Denver Economic Development & Opportunity.
“It’s not easy to retain employees. The cost of living is very high and they don’t get much of that kind of warm, gentle support from government officials. Denver, she adds, benefited from the departures from San Francisco.
According to data from the US Census Bureau, San Francisco has seen a historic population decline – equivalent to the plunge of the previous decade – during the pandemic.
While similar demographic shifts were evident across much of the country, particularly in the tech sector, where workers moved from inner cities to more remote jobs, the shift was particularly pronounced in San Francisco. Cities like Phoenix have sought to attract potential buyers from Northern California.
“Like the rest of the country, we’ve seen rising costs, but we’re still a very profitable place,” says Todd Sanders, chief executive of the Greater Phoenix Chamber, a business advocacy group. “When you see some of the numbers that we see in places like San Francisco or Los Angeles, where owning a home becomes almost impossible, Phoenix becomes a really important and attractive place for workers to explore and hopefully to move to.”
San Francisco advocates hope the tide will reverse as remote tech workers tire of the isolation of working on their own. But some Bay Area die-hards warn the trend could become permanent.
“When I first moved to Silicon Valley, I thought it was the hub of the innovative startup universe,” says Han Shen, founding partner of venture capital group iFly.vc. Shen moved the company from San Francisco to Austin, Texas in late 2020. “As a venture capitalist, I have to worry about the current trend.”