In an announcement that will be welcomed by the UK business community, the Department for International Trade has announced that a record number of investments were made by foreign firms in the UK in the year to April 2016.
A total of 2,213 inward investment projects were recorded, up 11% on the year 2014/15. And despite the uncertainty surrounding Brexit, Britain is the number one destination for overseas firms.
The data came from the Ernst & Young’s UK Attractiveness Survey, the Financial Times’ foreign direct investment report 2016 and the Organisation for Economic Co-operation and Development’s Foreign Direct Investment (FDI) in Figures.
A boost from emerging markets
Emerging markets in Latin America and Eastern Europe dramatically increased investments in the UK, up 240% and 131% respectively from the previous year.
India and China also contributed a major source of outside funding into British projects. America remained the largest investor, providing capital for 570 projects.
The UK is a major recipient of FDI with an estimated stock value of over £1 trillion, about half of which is from other members of the European Union (EU).
The importance of FDI for the British economy
FDI is crucial for the UK. Almost 1,600 new jobs a week were created by foreign direct investment in 2015 to 2016. FDI also raises national productivity and therefore output and wages. Multinational firms bring in a diversity of technological and managerial know-how, which directly raises output in their operations. It forces domestic firms to improve – for example, through stronger supply chains and tougher competition. This therefore ensures that Britain remains an attractive country in terms of political stability and business confidence - a crucial concern of the British Government.
Immediately following Britain’s vote to leave the EU, the country received a reassuring vote of confidence from Europe’s largest engineering company, Siemens, who announced it was fully committed to the UK and would continue to invest in projects here.
Chief Executive Joe Kaeser told those attending an event at the House of Commons in early July, that the UK is a "good place to do business" whether inside or outside the EU.
In a further positive sign, the 2016/17 financial year got off to a good start when UK technology firm ARM Holdings confirmed its sale to Japan's Softbank for £24bn ($32bn) in July.
Liam Fox – reaching out to India
This week, Liam Fox, Secretary of State for International Trade wrote a blog in The Economic Times (India) which pointed out the strong economic history between India and Britain. Clearly aimed at wooing India’s investors, Mr Fox stated that Britain is the third biggest car exporter in Europe thanks to Indian investment in the industry. He also pointed out the reasons why the British market was so attractive to foreign investors, including:
- the UK has a clear, stable system of law, including commercial law, which is admired across the whole world and underpins confidence in investments in Britain.
- access to a highly- skilled workforce
- low levels of industrial action and strikes
- minimal regulation and red tape (it only takes an average of 13 days to set up a company)
- a low rate of corporate tax (dropping to 18% by 2020)
- it is home to some of the best universities in the world
- it is an English-speaking nation
- it is in the optimal time zone for global trading
The effect of Brexit on FDI
Naturally, economists have expressed concern over the affect Brexit, when it eventually happens, will have on FDI. Investors need to be confident that they can manage the risks associated with foreign investment, and any potential for economic instability once Article 50 is triggered is a major concern for the business community.
Part of the UK’s attractiveness to foreign investors is that it brings access to the single market. This is especially relevant when it comes to financial services, which is the largest recipient of FDI. If the British financial sector loses its passporting rights, the impact on FDI is likely to be negative.
The key elements in protecting both investors and the receivers of FDI rests on the Government’s ability to negotiate a favourable settlement upon leaving the EU. Advantages may be gained if the UK Government commits to lowering corporation tax (which it has already done), further reducing regulations and entering into third-country trade deals as swiftly as possible.
Commentators have pointed out that access to the single market is only one of the many reasons why foreign investors chose to invest their funds in the UK. Many believe that FDI could drop temporarily whist the country renegotiates its relationship with the EU, but it will bounce back again relatively quickly.
For investors and entrepreneurs from outside the EU, the most important step they can take to ensure that risks are properly evaluated and a good return on investment is secured, is to talk their options through with professional advisors. An experienced immigration lawyer and wealth manager will provide clear, concise guidance on the possible implications of Brexit, but also, what opportunities the change will bring in terms of short and long term investment strategies.
OTS Solicitors is one of the most respected immigration law firms in London. By making an appointment with one of our immigration solicitors, you can be assured of receiving some of the best legal advice available in the UK today. We will assist you with all aspects of applying for a Tier 1 Entrepreneur or Investor Visa and will support you throughout the process.
If you wish to discuss any of the points raised in this blog, please phone our London office on 0203 959 9123.
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Posted on: Thursday, 01 September, 2016