The UK must work hard to lure vital foreign investment after Brexit commences, says James Sproule, who looks at the options for businesses
Ensuring your country is an attractive home for business investment is a key component of long-term prosperity. Not only does such investment drive greater productivity and often lead to more agile companies, it is one of the surest signs of a dynamic economy. In the looming post-Brexit world, Britain’s appeal as a location for investment, whether from established firms or start-ups, is going to be critical. We believe there are five choices businesses might make…
Abandon Matters become so untenable that existing investments are written off and business is discarded. Things have to get pretty bad to trigger this sort of reaction – think Venezuela, not the UK.
Diminish No one launches a business and existing operations are gradually transferred elsewhere. This can happen as a result of a poor business environment, inferior geographic prospects or declining industries. In the early 1990s German carmakers struck an overly generous agreement with trade unions and the result was a gradual shifting of manufacturing of tier two components to the newly free countries of central Europe: great for workers in these nations and an object lesson for the unions.
Today there is a good deal of concern that Brexit could lead to diminished investment, but in reality such a dwindling situation more accurately describes the prospects for Mediterranean Europe, where near-recession conditions look likely to last for a generation.
Maintain Businesses continue their operations, investing to keep present capacity up to date. Most companies most of the time are, of course, simply sustaining operations. For an economy as a whole, growth is necessary to provide rising living standards, so there is a need to seek expansion beyond the maintenance of what already exists.
Expand Existing companies spot opportunities and invest to grow business beyond maintenance capex. Expanding businesses also spur the growth of a wealth of new firms as well. Clearly this was the situation faced by the UK before the vote for Brexit; the challenge for politicians is to protect the UK’s broad attractiveness whatever happens in talks with the EU.
Attract Here is the real prize. New industries with multiple choices weigh up a range of critical factors, including politics, infrastructure, economics and the broader social considerations. The opportunity to attract new industries is not present at all times. Look at Ireland, where low taxes and other incentives were put in place, starting in the mid-1970s. But it took the IT boom to persuade firms globally to look at options for fresh investment. It was only then that the advantages of Ireland began to pay off.
We are in the midst of a fourth industrial revolution, where information, aided by IT, will drive prosperity. If the UK can be one of the most attractive locations for existing businesses and entrepreneurs from across Europe to set up companies to take advantage of this transformation, we will be on the right course.
Watch more from James Sproule at youtube.com/DirectorMagazine
James Sproule is the IoD’s chief economist and director of policy