Finance & Markets
INVESTMENT AND PRODUCTIVITY
different locations from using public money to compete with each other. Instead, they had to become more strategic, targeting certain sectors and understanding why those firms would consider their location. They also had to understand how they could maximise the benefits of any investment, not just in terms of employment, but also in productivity growth. Our approach is to help different regions understand why firms might consider their location and what features make this a long-term proposition. In turn, they have to consider how this investment matches the needs of the region. For example, a biotech lab may bring in new technology and increase productivity but remain relatively disconnected from local firms. Alternatively, a large logistics hub may create jobs but add little to productivity. One also needs to consider that, for many firms, investment decisions are driven by the ‘war for talent’ and they are wary of needing to compete for scarce labour. Typically, some sectors will offer a ‘sweet spot’ in terms of potential suppliers, local capacity, and the mutual gains of co-location. These are different for every location. The most common issue that investment promotion agencies have sought to address since 2016 is how to mitigate threats from Brexit. Our research indicates that inward investment into the UK is expected to fall by some 40 per cent. In particular, there will be a prolonged negative impact on foreign direct investment in advanced manufacturing, food technology, and financial services, which are especially vulnerable to the fallout due to frictions in global value chains. Brexit has changed the UK’s relationship with potential inward
investors. For 30 years, the UK’s key offering was as an English-speaking bridge between America and Asia (initially Japan, subsequently India, and more recently China), as the single market encouraged the separation of activities and the lengthening of value chains. “The financial crisis changed the landscape for those seeking inward investment forever. The days of using subsidies were over” Now, a much higher percentage of the investment the UK attracts will be focused on selling here or on exporting to locations outside the European Union. Our promotion activities need to recognise and reflect this. They need to consider the potential benefits for the firm and the location in terms of the precise jobs that will be created, how these can be filled from the local labour source, and what existing activities can connect to the investors, such as local suppliers. Done right, this approach can yield tangible benefits as it has in Coventry and Warwickshire, where we helped to develop a strategy for economic recovery post-COVID. The challenge the region faced was substantial. Three districts were among the 10 hardest hit
by COVID-19 in the entire country. The key to a focused recovery lay in understanding the region’s strengths and how inward investment could amplify them. By targeting electric vehicles and batteries, zero carbon technology, and videogame development, local leaders established a strong value proposition and gave companies the confidence to invest in the region, relocating operations and creating and securing jobs. As a result, Coventry and Warwickshire has bucked the trend of general decline in the British economy over the last two years. It secured 50 foreign direct investments in 2021, which created 2,000 new jobs – a year- on-year increase of 10 per cent. This included major investments from REE Automotive, Rimac Automobili, Classic Legends BSA motorcycles, Epic Games, and Electronic Arts. This success was recognised by fDi Intelligenc e Magazine, which placed the region in the top 10 overall, for strategy, and for economic potential in its bi-annual awards. With the Russian invasion of Ukraine pushing the world towards global recession in the wake of the COVID-19 pandemic and Brexit, the challenges facing regional economies are likely to grow. It is more important than ever that local leaders understand and exploit their strengths to prevent the productivity gap between London and the rest of the country from growing too. Sustainable Development Goals (SDGs) Learn more about earning an MSc in International Business at Warwick Business School
Levelling up the UK economy post-Brexit
by Nigel Driffield S but in the long run it’s almost everything”, it is no surprise that London dominates the UK economy. Productivity in the capital is 40 per cent higher than the national average. It is also obvious that productivity
tarting with the well-known premise from the American economist Paul Krugman, “Productivity isn’t everything,
growth outside London is the only viable path to levelling up. There are only three routes to achieving productivity growth in a given location. We detailed these in our recent reports for The Productivity Institute. The first is to encourage start-ups that are more productive than the existing firms, the second is to help existing firms to become more productive, and the third is to attract firms that increase average productivity while simultaneously making others more productive. Clearly, ‘levelling up’ requires
regions outside the South East to better establish and communicate their value proposition to attract internationally mobile capital. They also need to better harness that investment to secure productivity growth by encouraging co-operation between foreign-owned and local businesses for mutual benefit. The onset of the financial crisis in 2008 changed the landscape for those seeking to attract inward investment forever. The days of using subsidies or capital allowances were over. Budgets were cut and regional policy sought to prevent
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