The Importance of Foreign Direct Investment to the UK economy
With the potential consequences of Brexit on the UK economy still far from certain, and in particular Brexit’s impact on the flows of foreign direct investment (FDI) into the UK, it’s interesting to take stock of the importance of FDI to the UK.
A recent report produced by inward investment consultants WAVTEQ pointed to the fact that FDI is more important to the UK than any other G7 economy, with foreign-owned companies in the UK accounting for approximately:
- 30% of UK Gross Value Added;
- Half of UK business R&D spending;
- Half of UK manufacturing investment; and
- One-third of UK manufacturing employment.
Whilst many commentators point out that FDI is not without its drawbacks, it is clearly a hugely important source of investment and jobs especially during times of uncertainty surrounding Brexit.
I was absolutely delighted, therefore, when Nissan announced that it was to produce the new generation Qashqai and X-Trail SUV at its Sunderland plant. Nissan has been manufacturing cars in Sunderland for 30 years now and has invested billions of pounds in what is Europe’s most productive car plant. One in every three cars made in the UK are made in Nissan’s Sunderland factory, with 85% of these being exported.
Out of all the UK’s inward investment wins, Nissan’s investment in Sunderland thirty years ago must surely be the most transformational. It has attracted a deeply embedded cluster of world class supply chain companies to North East England which, when added to the 7,000 working in Nissan’s factory, together employ over 30,000 high quality manufacturing jobs. The Nissan effect has helped drive improvements to manufacturing/engineering training infrastructure in the North East as well as world class research and development into things such as electric vehicles. These all continue to have a profound effect on North East England.
So how are other foreign companies reacting to Brexit uncertainty? Well, the Department for International Trade’s results for 2016-17 point to marginally more investment successes into the UK than in previous years albeit with fewer associated jobs (down 9%). It also points out the huge contribution that London makes to the national figures with the city attracting 40% of the successful investments projects in 2016-17.
Different sectors are seemingly experiencing different impacts, however, the UK’s traditional strengths as a foreign investment hot spot seem to be enduring. Its ‘stable’ political environment, its language and culture, its fantastic universities and skills base, its international connectivity and access to markets, and currently, the weak pound, all seem to be intoxicating for many foreign investors. The UK is still Europe’s number one destination for FDI, with the USA still by far the biggest source of investment projects.
How long this will last will depend to some degree on the Brexit deal. It’s a concern that last year’s strong DIT results will have included many projects that were well on the way to being commitments before the Brexit vote. Results from the next couple of years will provide a better idea of the effect of Brexit on FDI. It will be something that inward investment professionals like me will be monitoring with great interest!
Words by Guy Currey, Director, Invest North East England