Nawaf Alfaouri, Economic Development Specialist at Greenfield Advisors, and Robin Twyman, Consul of Government and Business Affairs of the United Kingdom, discussed investments and Brexit.
The United Kingdom is bracing itself as Article 50 has been triggered, starting a two-year process of exiting the European Union. In this time of uncertainty, almost half of European businesses with British suppliers are finding replacements elsewhere in the EU, according to research underlining the threat that Brexit poses to exports. Until the UK signs Free Trade Agreements with their counterparts, trade with the UK as a whole is posing a risk for long-time supply chains.
The Chartered Institute of Procurement and Supply, after surveying more than 2,000 supply chain managers, said that its findings demonstrated that the “separation from Europe is already well under way.” Managers are not waiting for the outcome of Article 50 talks before shielding their businesses from the potential impact of tariffs, customs procedures, and regulatory hurdles.
On the financial front, while banks and funds are relocating, Commerzbank’s chief financial officer said the Frankfurt-headquartered global business had no plans to move staff out of London.
The CFO added that despite some banks moving staff out of London to the continent, Commerzbank was “focused” on customers in Britain, whereas other funds are moving out of Britain following the implementation of Article 50. But the outlook has been uncertain for banking in the UK.
Furthermore, British technology investors face being cut off from Europe’s largest single source of venture capital funding, a sign that the UK’s relationship with European institutions is weakening even before its official exit from the EU. The European Investment Fund, a public-private partnership that accounts for more than a third of investments in UK-based venture capital funds, is slowing its activity in Britain and turning away funds that may have otherwise been eligible for investment, according to industry figures. “There have been clear signs of a shift in EIF policy since Article 50 was triggered,” said Michael Collins, chief executive of Invest Europe, which represents Europe’s venture capital sector. “Before, it was business as usual for UK fund managers and UK-based funds. Since then, we are hearing that such managers are being told that it will be much more difficult for them to secure EIF investment.”
While this occurs, start-ups and local UK business are preparing for a financial winter. Those who survive the cold will possibly make an international debut where the UK is exiting the EU and eyeing international free trade agreements in the near future. The stall between Brexit and speculative FTA’s will surely hurt small businesses and startups in the interim that have lost access to many venture capital funds.
While this transition occurs, investors who have previously found a saturated market with their venture capital competitors are now finding it easier to invest in the UK, presenting opportunity in Brexit amidst the chaos. According to Invest in Great Britain and Northern Ireland, the following sectors show promising opportunities for new investors.
Aerospace Industry
With close to 3,000 companies across the UK, the aerospace sector makes a significant contribution to the UK economy. In particular, it:
- generates over 31 billion British Pounds (GBP) in turnover;
- exports over 90% of its production directly employs over 128,000 people with 26,000 in research, design and engineering In 2010 the UK government, in partnership with the aerospace industry, created the Aerospace Growth Partnership.
The partnership aims to:
- ensure that the UK remains the number one aerospace manufacturer in Europe;
- support UK companies to broaden and diversify their customer base;
- provide long-term certainty and stability to encourage industry to develop technologies for the next generation of aircraft.
Through the Aerospace Technology Institute, the UK government is funding research and development of 3.9 billion GBP to maintain the growth of the sector. Aerospace is an industry driven by technology. Providing a long-term commitment to the level and availability of funding gives the industry the certainty it needs to invest in the UK, and it is critical to protect the nation’s international competitiveness.
Advanced Manufacturing
Between 2005 and 2015, manufacturing productivity grew three times faster than the rest of the UK’s economy as a whole.
Advanced manufacturing contributes over 162 billion GBP to the UK’s economy, which places it 9th in the global economy. Research and development is high, at 13.5 billion GBP every year, accounting for almost 70% of total spending across all industries.
The UK is competitive in high-tech areas such as metrology (the study of measurement), and it is set to grow in areas like:
- additive manufacturing, specifically 3D printing;
- advanced composite materials;
- sensors;
- the use of data analytics and cloud computing.
Composites UK’s strategy for delivering growth has identified opportunities for composites increasing from 2 billion GBP to 12 billion GBP by 2030.
As the UK increases its development and use of automated systems in manufacturing, there will be opportunities in the servicing, manufacturing, and installation of these technologies.
Automotive
With over 15 billion GBP invested in the UK automotive industry between 2012 and 2015, the UK is one of the world’s most attractive destinations for foreign investment.
Automotive businesses looking to set up here will find:
- a country placed seventh in the world for ease of doing business, according to the World Bank;
- the highest value add per employee in car manufacturing of any European country, according to Eurostat;
- competitive labor costs which are lower than Italy, France, or Germany;
- low taxes (corporation tax is being reduced from 20% in 2016 to 17% by 2020);
- excellent labor relations.
Creative
Creative businesses can thrive in the UK, boosted by creative excellence, technology partnerships, and large-scale growth opportunities. The UK’s creative industries are growing three times faster than the rest of the economy, employing more than 2 million highly skilled workers.
Over 60% of creative sector jobs are held by graduates. These highly skilled workers come from one of the world’s most renowned education systems.
The UK has a global reputation for excellence across the creative spectrum, including film, TV, advertising and adtech, music, fashion, and mobile content.
The second part of our economic profile of the UK will appear next week on the blog.
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