Foreign Direct Investment and its importance to UK regions post-Brexit

FDI and its importance to UK Regions Post-Brexit

Foreign Direct Investments (FDI) are made by individuals or businesses from one country investing financially in another. Attracting FDI has become paramount to the UK’s continued overall growth because it sets up long-term ties between different economies. The Office for National Statistics (ONS) reports that FDI (inward) investment has had a decremental fall since 2011.

The good news is that the UK was the lead beneficiary in a number of projects in 2016 and also in terms of FDI jobs. According to EY’s annual Attractiveness Report, the rapid rise of FDI projects overall across Europe contributed to the UK’s market share falling from 21% to 19%. But with the report stating that London obtained 39% of all FDI projects from Europe, and the West Midlands leading the way amongst the UK’s regions, there’s no need to panic just yet.

It’s the way we choose to approach negotiations that could affect the UK’s investment opportunities from potential overseas investors in the future.

What are the different Brexit approaches?

A Hard Brexit would push the UK further away from the EU with the freedom and movement between EU countries tie being severely affected. This allows any EU citizen to live and work in another country within the EU. However, EU member states that previously invested in the UK, could find it a problem that workers from their own country would not be entitled to freedom of movement within said country.

A Soft Brexit moves the UK in the opposite direction. This would see the UK keep close ties with the EU and by paying a certain amount of money, the UK can retain trade links and the freedom of movement.

An alternative option to these two approaches has now arisen, an Open Brexit. This notion was first highlighted by UK Foreign Secretary Boris Johnson in a column in The Times, published days before Brexit negotiations commenced. To remain open is to give the impression that Britain will not be closed to the rest of the EU but it will remain open to maintaining the rights of EU worker’s living in the UK – and those of UK citizens working within the EU.

What we can see from these three different approaches to negotiations is that a Hard Brexit would have the biggest impact and would have big financial implications. Quite simply, lower investment from across Europe would be detrimental to those regions that are currently prospering through FDI investment.

Within the most invested region, it was Birmingham that came out on top by securing an impressive 36 projects. This was up 24 from the previous year. Coventry came second by securing 15 projects, followed by Solihull securing six.

While financial and business services showed solid growth, the biggest business investment sectors were sales and marketing. They rose to an impressive 32% and overall, manufacturing saw its number of projects rise to 374 up from 355, and the software sector performed strongly.

Depending on which approach is undertaken, negotiations could either see future UK investment concentrated in just one region, or see the focus shifted to one main sector/s that the FDI stakeholders see as the most beneficial.
At this delicate time while the negotiations continue, how should regional clients and workers best prepare to secure their position?

Daniel Yates, Director of CFO Practice at Page Executive says: “Key to ongoing success in securing ongoing FDI, as has been demonstrated in the West Midlands, is strong regional leadership by both government and industry. In particular regions need to be seen as open, outward looking and welcoming to potential foreign investors. Having the right skills in the workforce and creating the perception as being a region that is ‘on the up’ is also important.”

What is interesting to note is that on an individual project basis, the US came out as the biggest investor, which at least points to the UK being able to retain regular investment and trade links with non-European countries. But if the country’s regions are attracting such positive levels of investment in such an uncertain time, retaining that interest is key in ensuring that the biggest business investment areas can continue to grow.