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UK securing 975 instances of FDI in 2020, Guardian reports


A recent article from the Guardian reports that the UK came second in FDI to France in Europe as the nation secured 975 instances of FDI in 2020 as opposed to the french 985.


The figures, provided by accountancy firm EY, suggest that the UK has seen success during the pandemic, especially post Brexit, as the nation almost achieves the top spot in Europe for FDI.


But why has the UK been such a prominent nation for FDI?


One reason is the abundance of enterprise zones organised by the government to incentivise FDI into the nation.


These enterprise zones involve tax breaks and other financial incentives, such as the training of workers, which was used in the case of Siemens, a German green tech company, who set up within the UK in the Humber-Estuary to produce wind turbines.


The presence of Siemens within these regions will help to rebuild these areas as local businesses benefit from increased demand for their services as newly employed engineers and technicians spend their new disposable incomes on goods and services, thus helping to achieve an economic multiplier effect.


At the same time, the production of wind turbines helps the UK achieve its climate target of the Paris Agreement which involves the UK becoming carbon neutral by 2050.


A smart workforce also attracts FDI. The UK is quite prominent within this field too as the nation houses many top universities as well as new programs such as apprenticeships designed to fill skill gaps in emerging sectors within the UK economy.


Apprenticeships are particularly effective in closing this skill gap as their lack of student loans combined with the fact that many apprenticeships specialise in engineering/trade-related industries means that for many individuals they are a less risky option as compared to University.


Furthermore, apprenticeships allow these individuals to enter the workforce much faster, thus increasing the rate at which they can gain these skills enabling these workers to participate in highly skilled industries such as Wind Turbine production.


As stated beforehand, due to the low supply of labour within these industries, wages are high, consequently, newly employed engineers spend their new disposable incomes within local establishments helping revitalise local regions.


So, enterprise zones combined with the UK’s current and future ability to prove highly skilled labour attracts a large amount of FDI into the nation as firms looking to create additional profits see the UK as a promising candidate for future operations.


Hence, despite alleged setbacks associated with Brexit, the UK has still performed very well as a recipient of FDI as firms such as Siemens and Nissan in Sunderland enter the nation.


However, the UK’s performance has been undermined by the COVID-19 pandemic as, according to the Guardian, global FDI has decreased by 42%, with the UK’s investment projections being 12% lower than the expected figures.


Nevertheless, the UK’s ability to take second place in Europe for FDI is definitely a welcome one, especially once it is recognised that the UK’s services exports fell by £114bn between 2016 and 2019, meaning that excess production from specialised industries attributed to FDI will hopefully help to decrease this deficit by increasing the UK’s trade in physical goods with automobile and wind turbine exports.


Decreasing the current account deficit, which is part of aggregate demand, will help boost the level of aggregate demand within the UK economy, thus helping the UK economy achieve short term economic growth whilst gross investment from FDI creates additional capital and expands the UK’s productive capacity enabling the nation to also see long-term economic growth.

 

Written by Hubert Kucharski


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