FDI (foreign direct investment) to the UK down 19% since Brexit vote

Since Britons voted to leave the EU, FDI (foreign direct investment) to the UK has fallen by 19%. This is what researchers at the University of Sussex state in a new briefing paper.

Researchers at UKTPO, at the University of Sussex, show that the Brexit vote undermined FDI into the country. UKTPO stands for the UK Trade Policy Observatory. UKTPO aims to ensure that new trade policies benefit everybody.

BREXIT stands for BRitain EXITing the European Union (EU). In a 2016 referendum, 51.9% of the electorate voted for Brexit while 48.1% voted to remain in the EU.

FDI into the UK has been declining since 2015. It even fell in 2017, which was a buoyant year for the global economy.

This is the longest period of continuous decline in foreign direct investment since records began. Between 2016 and 2017, the number of projects fell by 10%. There has also been an approximately US$1.5 billion decline in the value of capital investment.

If FDI decline continues

Co-author, Dr. Ilona Serwicka, said:

“Our research has shown that there has been a considerable drop in FDI since the vote to leave the EU and if the trend is not reversed, there could be serious damage to the UK economy in the medium-long run.”

“This fall in FDI could be due to a temporary adjustment because of the current climate of uncertainty. But it could also indicate a permanent shift away from the UK by foreign investors.”

Dr. Serwicka is a UKTPO Research Fellow in the Economics of Brexit at the University of Sussex.

FDI into the UK image
Since the BREXIT referendum, FDI into the UK has been falling. (Image: adapted from blogs.sussex.ac.uk)

Despite this decline, the UK is still one of the world’s largest recipients of foreign direct investment. In 2017, there were nearly 1,000 greenfield investment projects. The projects were worth over US$33 billion and about 60,000 new jobs.

According to a University of Sussex press release:

“But the uncertainty over the UK’s future caused by the EU Referendum result has seen the country lose its status as the largest recipient of greenfield FDI in Europe.”

“In 2017, the UK was overtaken by Germany as the largest European recipient of FDI with France also gaining ground.”

FDI into the EU

In early 2015, one-quarter of all FDI projects into the EU came to the UK. By the end of 2017, this proportion dropped to eighteen percent.

The loss of investments in the service sector could be as high as 25%, the researchers say. The services sector represents approximately three-quarters of the British economy.

The hardest-hit sectors have been high-value-added industries such as investment management and retail banking. Software publishing is also a high-value-added industry that has been negatively affected.

The reduction in FDI since the BREXIT vote puts high-skilled jobs at risk.

Nicolo Tamberi said:

“The UK is attractive for FDI for a number of reasons, including the UK’s status as a member of the EU that offers businesses investing here easy access to the European Single Market.”

“But the drop in FDI that we observe suggests that the prospect of losing unfettered access to the EU Single Market once the UK leaves the EU could lower investors’ appetite to invest in the UK.”

Tamberi is a Research Officer in the Economics of Brexit at the University of Sussex.

FDI worth $540bn 2003-2017

More than 12,000 inward investment projects to the UK were registered from 2003 to 2017. They involved about 8,000 companies investing approximately US$540bn. Those investments created nearly 900,000 jobs.

This total figure includes all project-based ‘productive’ investments that led to new capacity. However, the figure does not include mergers and acquisitions.