Karl P. Sauvant, PhD
Resident Senior Fellow

Columbia Center on Sustainable Investment
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
p(212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
wwww.ccsi.columbia.edu | t: @CCSI_Columbia

"China Moves the G20 toward an International Investment Framework and Investment Facilitation", "China Moves the G20 on Investment", "The Rise of Self-judging Essential Security Interest Clauses in IIAs", "Can Host Countries have Legitimate Expectations?", "The Next Step in Governance: The Need for Global Micro-regulatory Frameworks", "How International Investment Agreements can Protect Free Media", "The Evolving International Investment Law and Policy Regime: Ways Forward", "China's Outward FDI and International Investment Law", and  "Policy Options for Promoting FDI in the LDCs" are available at http://papers.ssrn.com/sol3/results.cfm and http://www.works.bepress.com/karl_sauvant/.

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Columbia FDI Perspectives

Perspectives on topical foreign direct investment issues
No. 195  March 13, 2017

Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Matthew Schroth ([log in to unmask])
The UK has been one of the top recipients of FDI among advanced economies and the biggest recipient of FDI flows into the EU. According to OECD data, the stock of inward FDI, US$1.55 trillion, in the UK at the end of 2015 was higher than that of France and Germany combined.[1] However, the result of the June 23, 2016 referendum, in which the country voted by a majority of 52% to 48% to leave the EU, led many observers to expect that a significant negative impact on inward FDI would ensue.

The London School of Economics estimated that Brexit would lead to a 22% decrease in inward FDI flows over the next decade. The study looked at FDI flows across all 34 OECD countries over the past 30 years and analyzed how investment is affected by EU membership after controlling for other FDI determinants.  These figures are similar to other estimates.[2] Many surveys also pointed to a probable negative impact of Brexit on FDI inflows to the UK. The heads of leading multinational enterprises, including the chief executives of GE, Airbus, Cisco, and Hitachi, warned that uncertainty following a vote to leave the EU could affect FDI decisions.

In assessing the impact of Brexit on FDI, one needs to distinguish between the short term and long term. Most forecasters predicted that the impact of Brexit on the economy and investment would be negative even in the short term. They definitely have been proved wrong. The UK’s real GDP grew by 2% in 2016, well above predictions. Since the referendum, the country’s economy has grown faster than that of the euro zone. Business investment, employment and stock market performance have all exceeded expectations.

According to UNCTAD, inward FDI to the UK surged to US$179 billion in 2016, the second highest in the world, behind the US, representing a six-fold increase over the 2015 total (when the UK ranked 12th). Of the total, $101 billion was due to one mega-deal acquisition, but notably this was finalized after the Brexit referendum.[3]

The long-term impact of Brexit is subject to uncertainty. Many investors may adopt a wait-and-see approach. Much could depend on the precise outcome of difficult UK-EU exit negotiations, especially for FDI by UK-based companies that focus on the European market. However, even for the long term, there are reasons to suppose that FDI into the UK will remain robust, especially by companies servicing UK and non-European markets.

Most surveys since the Brexit vote point to the likelihood of buoyant post-Brexit FDI. For example, the annual business survey conducted for the World Economic Forum by PwC found the majority of the UK’s CEOs to be very positive about the UK’s prospects. A recent survey by Colliers International found that London is set to remain the most attractive location for FDI among 20 world cities.

Surveys of investors show that EU membership, in any case, tends to feature low down the list of important factors that affect investment. The UK also has many advantages that will be unaffected by Brexit such as the English language, light regulation, highly developed capital markets, strong rule of law, and flexible labor markets.

Since the Brexit vote, foreign investors have continued to open headquarters in the country. On October 27, 2016, Nissan confirmed that it will build new models at its Sunderland plant, following unspecified “support and assurances” from the British government. Announcements from Boeing, GlaxoSmithKline, Google, Facebook, Apple, Jaguar Land Rover, Tata, and McDonald’s have all indicated that these companies will continue to invest in the UK despite Brexit.

In addition to the UK’s traditional location advantages, several factors suggest that FDI flows to the UK post-Brexit will continue to be robust. A weakened pound will boost FDI inflows. FDI will also be encouraged by the country’s political stability and by the new opportunity to deregulate. Strong FDI inflows will also depend on government policies such as cuts in the corporate tax rate, investment in infrastructure and the pursuit of new trade deals across the globe. The government and the Bank of England will have to dampen inflationary pressures that threaten growth. Above all, the government will need to reduce uncertainty by outlining a clear goal for post-Brexit relations with the EU and by expeditious negotiations with the EU on Brexit after Article 50 is triggered.
* The Columbia FDI Perspectives are a forum for public debate. The views expressed by the author do not reflect the opinions of CCSI or Columbia University or our partners and supporters.
** Laza Kekic ([log in to unmask]) is an independent consultant. The author is grateful to Axel Berger, Jeremy Clegg and Magnus Runnbeck for their helpful peer reviews. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed series.
[1] OECD, FDI in Figures (Paris: OECD, 2016), http://www.oecd.org/corporate/FDI-in-Figures-October-2016.pdf.
[2] LSE Centre for Economic Performance, The Impact of Brexit on Foreign Investment in the UK (London: LSE, 2016), http://cep.lse.ac.uk/pubs/download/brexit03.pdf; see also PricewaterhouseCoopers, Leaving the EU: Implications for the UK Economy (London: PWC, 2016), http://www.pwc.co.uk/economic-services/assets/leaving-the-eu-implications-for-the-uk-economy.pdf.
[3] UNCTAD, Global Investment Trends Monitor, No. 25 (Feb. 2, 2017).

The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “Laza Kekic, ‘FDI to the UK will remain robust post-Brexit,’ Columbia FDI Perspectives, No. 195, March 13, 2017. Reprinted with permission from the Columbia Center on Sustainable Investment (www.ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].

For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Matthew Schroth, [log in to unmask].
  • No. 194, Ilan Strauss and Vasiliki Mavroeidi, “How India can benefit from FDI: lessons from China,” February 27, 2017.
  • No. 193, David Collins, “Investment contracts are not a substitute for investment treaties,” February 13, 2017.
  • No. 192, Joseph (Yusuf) Saei, “Influencing investment disputes from the outside,” January 30, 2017.
All previous FDI Perspectives are available at http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/

Other relevant CCSI news and announcements
  • On May 11-12, 2017The Asia FDI Forum III will gather top academia, government, company and civil society practitioners in Hong Kong, who will discuss regional investment trends, highlight specific features of China’s and EU’s investment treaties and policies, and explore the various legal and policy implications that the treaty currently under negotiations between them will have. Organized by the Faculty of Law of the Chinese University of Hong Kong, the Centre for Financial Regulation and Economic Development, and Tsinghua Law School, with the support of the Columbia Center on Sustainable Investment and the World Economic Forum, the Asia FDI Forum III will host a comprehensive discussion on the PRC-EU negotiations for an investment treaty, where attentive analysis and new proposals will both emerge. For more information, and to register, please go here.
  • CCSI's Nicolas Maennling was interviewed by Barron’s on how deregulations proposed by the Trump administration will likely impact Environmental, Social and Governance (ESG) investment trends. The article argues that due to increasing risks related to climate change and other ESG factors, investors may push for disclosures by companies even without government requirements. While deregulation may benefit companies that do not take sustainability into account in the short term, the increasing trend of investors using ESG filters will continue to grow.
  • June - August 2017: We are accepting applications for our three upcoming executive trainings: on Extractive Industries and Sustainable Development (June 5-16, 2017), Sustainable Investments in Agriculture (July 12-21, 2017), and Investment Arbitration for Government Officials (July 31-August 10, 2017). Each program is designed to equip participants with the necessary skills, analytical tools, and frameworks to address relevant challenges and opportunities, and to encourage a rich dialogue about best practices from around the globe. More information about each training, including brochures and applications, is available at the links above. Applications are accepted on a rolling basis. Participants will receive a Statement of Attendance from Columbia University.
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