What does it mean to live in a Brexit parallel universe? One could have no better guide than the Rt. Hon Dr Liam Fox, the Secretary of State for International Trade, a man who if he were in charge of selling second hand cars would always have an empty forecourt. Probity. Wisdom. Honest Liam’s got it all. He made a speech in the City a couple of days ago, to pep everybody up with the good news about Brexit and how wonderful life will be following the Second Coming, or something like that. It’s all good news. Here’s a snatch:
We retained our position as the number one destination for FDI [Foreign Direct Investment] in Europe and number 3 globally. And according to the UN’s Conference on Trade and Development, [UNCTAD] in the first 6 months of 2018 the UK was second only to China, attracting $65.5 billion of investment compared to China’s $70 billion.
That sounds brilliant indeed – in the whole of the previous year we only managed $15bn. So what’s going on? Is Fox’s $65.5 billion figure real? Looking at UNCTAD’s most recent statistical report (2018) we learn:
Cross-border M&As [Mergers and Acquisitions] in the United Kingdom had been exceptionally large in 2016, at $255 billion (compared with an average of $45 billion over 2011–2015). The four largest deals alone had a combined value of $224 billion (table II.1). In contrast, the largest deals in 2017 were much smaller in value, and a greater share of transactions were changes of ownership between foreign investors (with no net effect on FDI) or divestments (which result in negative FDI). As a result, inflows to the United Kingdom declined by 92 per cent to $15 billion. (https://unctad.org/en/PublicationsLibrary/wir2018_en.pdf)
Without those four large M&As UK FDI in 2016 would have only stood at $31bn. But a bit more context is desirable. I found this on the Santander website:
According to the UNCTAD World Investment Report 2018, FDI inflows to the United Kingdom stood at USD 15 billion in FDI in 2017. This represents a year-to-year decrease of more than 90%; however, 2016 figures were unusually high due to three cross-border M&A deals, including the acquisition of the British SABMiller PLC by Anheuser-Busch Inbev (Belgium) for USD 101 billion. Despite the Brexit process, the British economy is resilient: London continues to be the financial capital of Europe, while Great Britain keeps a strong currency, despite its recent depreciation, and is one of the most important European consumer markets. The UK was ranked seventh out of 190 economies in the 2018 Doing Business ranking established by the World Bank.
The largest share of FDI inflow into the UK goes to the financial services industry while nearly half of the UK's investment stock of GBP 1 trillion came from the EU member States. The Brexit process raises concerns among certain investors about higher trade costs with Europe. (emphasis added)
The gist of Dr Liam Panfox’s remarks is to suggest that the UK is benefiting from a sudden rush of post-Brexit referendum overseas confidence – foreigners are rushing to invest here. But it’s poppycock – there is nothing exceptional happening. One can only conclude that some British assets are still worth acquiring – maybe more so with a depreciated pound. As to the claim of our continued primacy at the top of the tables for FDI, this is somewhat fanciful. If one were to measure FDI on a per capita basis, Ireland far exceeds the UK. Astonishingly (or not) Ireland’s FDI in 2015 was $215bn and it was still nearly twice ours in 2017.
And how much FDI represents investment in productive capacity – which in the longer term could lead to greater exports in all the wonderful free trade deals Dr Panfox is going to make? As the Santander quote says, most FDI goes into ‘financial services.’ Not for much longer if Paris and Frankfurt get their hands on those EU member state capital flows (and good luck to them if they do).
Interestingly the UNCTAD report on Trade and Development 2018 carries the sub-title “POWER, PLATFORMS AND THE FREE TRADE DELUSION.” I bet it’s not really on Dr Panfox’s reading list.