The UK’s strong track record in securing overseas investment is being put at risk by Brexit, with the number of jobs created and foreign capital deployed in Britain falling sharply since the EU referendum, according to Financial Times analysis.
The UK has scooped up large amounts of inward investment during the past four decades, due to its business friendly environment and the ability of foreign companies establishing operations in Britain to sell goods and services into the rest of the EU.
Japanese carmakers including Nissan and Toyota are among the high profile overseas investors to have set up factories in the UK. Britain has over the years accumulated the third largest amount of foreign investment by value, after the US and China, according to a report published in June by the United Nations Conference on Trade and Development, a UN intergovernmental body.
Just on Monday, CK Asset Holdings, the Hong Kong property investment firm founded by billionaire Li Ka-shing, agreed to acquire UK pubs group Greene King in a £4.6bn deal, the latest in several foreign takeovers of British companies this year.
However, in the three years to June, the number of jobs created in the UK as a result of foreign investment in new production facilities or extensions of existing ones — so-called greenfield investment — dropped by 19 per cent to about 183,000 compared with the same period before the Brexit referendum, according to FT calculations. These are based on figures from fDi Markets, an FT-owned database that tracks cross-border greenfield investment.
During the same period, the foreign capital deployed in greenfield investment fell by nearly 30 per cent to $83.4bn.
While the UK is currently still part of the EU, the uncertainty over Britain’s future relations with its largest market is harming the country’s attractiveness as a destination for inward investment, said economists.
New prime minister Boris Johnson is insisting the UK will leave the EU with or without a deal on October 31, and has yet to set out proposals for Britain’s long term relations with the bloc.
“Even though the factual conditions for trade and investment have not yet changed, merely the uncertainty about future border and tariff arrangements between the UK and the EU has adversely affected inbound [foreign direct investment] flows,” said Ingo Borchert, a senior lecturer in economics at Sussex university. “This is seriously bad news for the economy.”
In the 12 months to March, the number of greenfield projects, and merger and acquisitions involving overseas companies in the UK fell by 14 per cent to about 1,800, its lowest level in six years, according to data from the UK Department for International Trade published in June.
About one in five overseas investors has either cancelled or put on hold plans in the UK since the Brexit referendum, said a report by EY, the accounting firm, released in June.
“The persistent uncertainty experienced over the last three years is turning investors elsewhere as they are no longer willing to take a ‘wait-and-see approach’ on Brexit negotiations,” said Andy Baldwin, an EY partner.
Nissan in February reversed a decision taken shortly after the Brexit referendum to build the latest version of its X-Trail sport utility vehicle at its Sunderland factory, switching production to Japan.
During the past year, Japanese electronics companies Panasonic and Sony have announced plans to move their European headquarters from the UK to the Netherlands because of the risk of Brexit upheaval.
Since the EU referendum, “the number of new foreign investments and expansions . . . are showing disconcerting reductions”, said Swati Dhingra, lecturer in economics at the London School of Economics.
In 2017, there were about 26,000 foreign-owned businesses in the UK, with the majority controlled by European companies, according to data from the Office for National Statistics, Britain’s statistical agency. This calculation excludes the financial services industry.
Experts said that, as well as creating relatively well-paid jobs, foreign investment provided technology and productivity benefits for the UK.
Furthermore, inward investment in Britain has been focused on some strategically important industries: information and communication technology, and manufacturing.
But these sectors no longer appear to be reaping the benefits of foreign investment.
In the three years to June, the number of UK jobs in information and communication technology created through inward investment in greenfield projects dropped by 47 per cent compared with the same period before the Brexit referendum, according to FT calculations based on fDi Markets data.
In the 12 months to June, the number of UK manufacturing jobs generated by foreign investment dropped to its lowest level since at least 2003.
Experts said they did not expect overseas investors to suddenly move assets out of the UK because of Brexit.
But they warned that falling foreign investment would hurt efforts to boost economic growth by improving the country’s poor productivity performance.
“Investors are not planning to flee the UK,” said Mr Baldwin. “What it is more likely is that the UK’s economic growth will slow gradually as the country fails to attract the level of capital investment required to position itself to operate in a post-Brexit world.”
This is the third part in a series about the state of the economy in the run-up to Brexit.
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