The Political Economy Review 2017

or Greenfield investment. For example, according to expert Kavan Bhandary, Chief Business Development Officer in India, a man who has successfully worked with over 25 foreign governments supporting them to attract FDI from India, convincingly argues that FDI in the UK from India depends on “access to skills”. He states that Indian companies are largely focused on greenfield FDI in services and technology sectors, and as such, access to skills and talent pools are critical in the decision making of location for investment. Hence, it is likely that Brexit means that Indian investment into the UK may be cancelled, delayed or deferred.

The case of American investment following Brexit is illustrative. The UK’s largest source of FDI is from USA, and a study commissioned by the American Chamber of Commerce by the EU warned Theresa May, ahead of Brexit negotiations, that American investment in the UK, worth £487bn (2015), is largely based on EU membership and access to the single market. It states, “For decades, the UK has served as a strategic gateway to the European Union for UK firms and financial institutions. The primary motivation of many US companies to invest in the UK has not only been to serve only the UK market but to gain access to the much bigger EU single market”. The report then identifies the importance of access to single market through “passporting rights” provided through EU membership and warned that if the UK is unable to negotiate similar access for companies based in the UK that “many of these US firms will choose another entry

point to access single market in future”. It further argued that it would make a huge difference in London’s role as a financial hub and may “accelerate the rise of other European financial centres, for instance Frankfurt”. Overall, this report strongly highlights that unless successful negotiations are held granting firms similar access to the single market, FDI from the US in the long run is likely to be worse off. And, bearing in mind that the US are the country with the greatest share of FDI projects in the UK, a decline in FDI from the US would have a largely negative impact on the UK economy. Considering the cases of Korean, Indian and American investment following Brexit, there is a strong argument to be made that Brexit and leaving the single market poses a big risk to FDI in the UK. It comes as no surprise that the Centre for Economic Performance (CEP) expects that FDI in the UK will decline by 22% as a result of Brexit. However, one could conversely argue that Brexit won’t have quite as damaging effects on FDI in the UK. The UK remains Europe’s most attractive location for international investment. In fact, the UK secured its highest ever level of inward investment in 2016 beating Germany France and Spain, with FDI reaching an all-time high of £110946 million in Q4 2016. Therefore, it is fair to say; at least in the short run, Brexit has not had a negative impact on FDI, potentially even a positive one.


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