1 May 2014
Global foreign direct investment (FDI) has been consistently falling since 2008. Due to global economic fragility and political uncertainty, the recovery will also take longer than originally expected. Moreover, since 2012 – and for the first time ever – developing economies have absorbed more FDI than developed countries. Multinational companies in developed countries are either maintaining a “wait and see” approach towards new investments or are divesting their foreign assets.
Whilst FDI flows in developed economies fall, the UK is recovering from a sharp decline after the crash of 2009 and maintains a first position in Europe, in terms of both quality and number of projects (the UK achieves over 1,500 projects per annum). The overarching reason for this is that the UK is responding to what global companies look for most when they consider investing overseas. Furthermore, all of the signs are that this will continue to be the case.
This is important news for the UK mid-market. Almost 70 per cent of global trade is controlled by the top 500 companies in the world. If these companies invest in the UK, the country’s mid-market companies will have the opportunity to enter these companies’ supply chains and open up new export markets. There is clear evidence from the World Bank that working with these global companies improves the resilience and productivity of mid-market companies. This remains an important facet of the UK economy because if the leading trading companies in the world are present in the UK, it offers the mid-market companies here the opportunity to enter these supply chains and follow these companies around the world thereby creating new trading opportunities.
The UK remains a most attractive location for FDI for the following reasons:
Firstly, the framework conditions in the UK are customised and constantly evolving in line with business needs. Policy levers – such as Patent Box and R&D tax credits – allow the UK to offer the best balanced business environment for worldwide success. The recent UK industrial strategies recognise that sectors require different policy levers and enablers. An account management approach, pioneered by the UK Government, combines the best of what Government can offer in a single voice to companies.
Secondly, the UK takes a company-centric “UK First” approach. Foreign investors do not need to worry about regions, cities or boundaries. Instead, they are offered the best solution for their business, which brings together the collective UK strengths in research, development, applied research etc. This ensures that companies can embrace the UK’s most competitive aspects. Supporting this approach, there is a broad range of specialist expertise available to support companies in making the right decision for their business.
Finally, the UK offers a unique combination of services to support company success. These range from trade services, which allow the companies who invest here to trade internally with UK support, to multiple forums through which companies can contribute to Government policy and industry engagement. Companies can also benefit through engagement with the UK’s research and development landscape.
The UK’s approach to FDI works because it makes companies who invest here successful. On the back of that, our mid-market companies should use these advantages to open up new opportunities, enter into new supply chains and capture global markets.
Colm Reilly leads PA's economic development business unit and is the Managing Director of UKTI Investment services.