Car trouble: Report looks at Brexit uncertainty and foreign investmentPublished: Friday, 6th July 2018
With Jaguar Land Rover, BMW and Airbus airing concerns about the type of Brexit on the horizon, West Midlands in Context takes a look at Ernst and Young's (EY) annual analysis
The UK’s biggest car producer Jaguar Land Rover (JLR) recently became the latest advanced manufacturer to comment on Brexit. Chief Executive Ralf Speth was quoted saying “a bad Brexit deal” would cost JLR more than £1.2 billion in profit a year, suggesting that if this were the case the company would have to “drastically adjust” it’s spending profile in the UK. Parent company, Tata Motors’ Chief financial Officer PB Balaji went on to say that “Jaguar Land Rover needs free and full access to the single market beyond transition to remain competitive”.
The West Midlands region is UK’s third largest exporter of goods and the extent to which the nation and the region can retain and attract foreign investment will play a major role in determining future economic and social health. The most recent iteration of EY’s regional attractiveness report therefore makes an interesting read. Based on an analysis of Foreign Direct Investment (FDI) decisions and surveys of global investor attitudes and intentions, these reports show how different parts of the world are viewed and are performing in terms of their attractiveness to inward investors.
Understandably, Brexit is a key issue. Encouragingly, EY notes the proportion of businesses intending to invest in UK over next 12 months has remained stable, but on the flip side they found that “over one third of investors globally expect the UK’s attractiveness to deteriorate over the coming three years”. Indeed, “30% of investors say that Brexit may cause them to move assets out of the UK in the future”. While EY points out that “only 8% of investors expect to reduce their UK activities in the next three years”, in their view, there is a “real risk that the UK’s stable performance masks the fact that the UK is missing out on growth opportunities”.
Perhaps tempering the risk for the West Midlands, it seems financial and business service investors are more likely to move assets in the next three years than manufacturing. Indeed, EY found “investors in consumer goods and manufacturing indicated they had increased investment in the UK”. That said, it could be that the differences between sectors only “reflect in part the relative ease of moving for businesses in different sectors”. While some sectors are more deeply rooted, in others, declining confidence already appears to be having some effect. EY found, for example, the “fall in investment in the financial services and business services sectors provides direct evidence of the impact of Brexit“. These falls in UK investment happened at a time when their wider markets across Europe grew.
Still number 1
Despite this and whatever the future intentions of investors are, the UK still increased its number of FDI projects over the year and in doing so, kept its position as Europe’s leading investment destination ahead of Germany and despite a “surge” in projects heading to France.
Regional performance had a major role in this, as nine of the UK’s 12 nations and regions posted an increase in projects. The report also noted that “Yorkshire and the West Midlands consolidated their strong 2016 performances”, although the increases were only relatively modest. London also had a modest year, as its share projects fell to its lowest level in a decade, even so, it still accounted for 38% of all UK projects.
At this point, it’s worth noting the Department for International Trade (DfIT) figures. The Department’s method differs, for example, by including mergers and acquisitions and using the financial rather than the calendar year. This presents a picture where the UK remains the leading European FDI destination, but with less projects than the year before albeit, with slightly more jobs created by them. Out of these, the West Midlands benefited from an increase in projects giving it the third highest number of projects and the second highest number of new jobs.
Of course, performance can vary markedly from year to year. In also looking at a longer period, EY found that nine of the top ten UK cities (not considering London) secured more projects in 2017 than their five year averages; Birmingham had the third highest figure, despite a fall in the number of projects over the year, while a substantial boost in Coventry’s projects gave them joint fifth place with Glasgow.
Wake up call
Looking across the piece, EY says that there is “no doubt as to the message: the UK is an economy in transition, as the move towards Brexit and the accelerating digital revolution reshape the landscape” they say that “urgent action is required to position the UK for future success”. Seeing a “narrow window of opportunity to respond”, they say their survey results should “serve as a call to action for policy makers to use the next three years to protect and improve the UK’s competitiveness”.
EY identifies a number of actions. These include the Government taking action to “rebuild the UK’s reputation” by clearly articulating its vision for the UK and explaining how it proposes to drive growth in the future “characterised by certainty and long-term vision rather than ad-hoc tinkering”. In parallel, they call for clarity over a range of issues that affect investor confidence such as immigration, public services and the approach to inward investment. They also call for the industrial strategy to be expanded to include services and digital and for the development of a focused trade strategy.
Interestingly, among the points made by EY is the need for “more explicit consideration of the geographic benefits with increased priority on FDI and trade-related activity that can benefit towns and not just large cities”. The need for greater consideration of places is also reflected in their call to improve transport infrastructure. Bemoaning the fact that “every year plans are articulated but consistently not delivered” they go on to say that “given the importance of transport investment decisions in the UK regions, the geographic dimension should be a key part of the decision-making on future investment priorities". In the context of the recent Transport Select Committee report which highlighted how rail and transport spending is skewed towards London, with transport scheme appraisal methods inherently biased towards the capital, and the drive for local growth, this is something that many areas around the country are likely to find agreement with.
BBC News - Jaguar Land Rover boss: Brexit threatens £80 bn UK investment, July 2018
Tata Motors - Official Media Statement from CFO Balaji, July 2018
Airbus - Airbus in the UK/Brexit Risk Assessment Memorandum, June 2018
The Times - The Airbus Brexit risk assessment, June 2018
BBC - BMW joins Airbus in Brexit warning, June 2018
HM Renvue and Customs - Regional Trade in Goods Statistics First Quarter 2018, June 2018
EY - UK Attractiveness Survey 2018, June 2018
DfIT - Inward Investment Results for 2017 to 2018, June 2018
DfIT - Press release: Inward investment brings 1,500 new jobs a week to the UK, June 2018
Commons Transport Select Committee - Rail infrastructure investment inquiry report, June 2018