The Political Economy Review 2017

meaning a deal which will hurt the poorest in society and ignores the wishes of 48.1% of the electorate as well as future generations. I believe that for a decent negotiation to happen, the government needs to accept that it will have to pay a substantial divorce settlement, but the Commission also needs to accept that a 'future relationship' will need to be discussed alongside the divorce settlement. I believe that the Commission may wish to punish Britain but the European Council will be pragmatic in its approach; not a punishment but firm treatment. I believe the ‘coalition of chaos’ can reach a deal with a transitional period if hard-Brexiteers back down and accept the economic realities. However, any deal is worse than the deal we already have.



The impact of Brexit on FDI in the UK

The outcome of the June 2016 Brexit referendum defied all the polls, it was a result no one expected. As a direct consequence of the process of Brexit negotiations the UK has noticed a sharp fall in business confidence and rise in uncertainty with a significant effect on FDI (Foreign Direct Investment) in the UK. Whilst noting the limited time frame since Brexit, one can still determine the immediate impact of Brexit on FDI in the UK. To place matters in context, it is important to understand how FDI performed in the UK before the Brexit referendum. When the UK was a member of the EU, it was the most successful nation in the EU in attracting FDI, attracting 25% of all European Greenfield funds (projects in which companies builds the entirety of its operations in a foreign market starting from scratch). FDI projects since 2015 nearly equalled those of Germany and France combined. Moreover, from 2011 to April 2016 the UK managed to attract 22% of all FDI projects into the EU. Under EU membership FDI in the UK thrived. EU membership was a significant factor in attracting FDI because it provided foreign investors with access to the EU internal market. The single market had its structural advantages, flexible labour (freedom of movement for EU nationals) and product markets (free trade within EU). EU membership also meant that in the long run as the UK had become more integrated with the EU, it has strengthened its comparative advantage in many sectors, most notably the financial sector, in which it dominates. Despite all the uncertainty throughout the Brexit negotiations, one thing Theresa May made very clear from as early as her first Brexit speech is that the deal she would be pursuing “cannot mean membership of the single market”. Brexit would mean that businesses would lose the benefits derived from UK single market membership. One could therefore argue Brexit would have detrimental effects on FDI in the UK. Citing the example of Korean businesses: expert Young-Ho Seo, Chief Business Development Officer in Korea, reported that many Korean companies have invested in the UK in order to access the EU market and are extremely concerned about Brexit. He further highlighted that since July 2011 Korea has had a free trade agreement (FTA) with the EU, making the UK much less attractive until it can negotiate a FTA with Korea. Both these factors have resulted in companies such as LG Electronics, announcing plans in April 2016 to relocate its London HQ to a new office in Frankfurt. Additionally, coupled with the great uncertainty over Brexit negotiations, over issues such as the UK’s post Brexit immigration policy or access to the single market, companies may be less inclined to take big financial risks in M&A (Mergers and acquisitions, a general term referring to the consolidation of companies or assets)


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