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WAVTEQ CEO provides evidence at the House of Commons for their inquiry into UK investment policy


Dr Henry Loewendahl, CEO of WAVTEQ, was invited to give evidence at the House of Commons on Wednesday 23 January. Joined by investment experts, Dr Ilona Serwicka, UK Trade Policy Observatory and Jonathan Athow, Deputy Director General, Economic Statistics, Office for National Statistics, Dr. Loewendahl covered a range of topics focusing on UK Investment policy.

Key topics covered by Henry included:

1. The official data published on FDI (by ONS, UNCTAD and OECD) is mainly showing which countries are most successful in selling corporate assets in their country to foreign companies because M&A accounts for the bulk of FDI in the UK and other developed economies like the US.

2. Because the ONS does not provide a breakdown of M&A vs. Greenfield FDI, its not possible to interpret accurately the official data on FDI and it makes the data difficult to use for informing policy making.

3. Henry advised the Committee that they should look at the FDI data series published by the BEA in the US which provides (for first time in 2016) a breakdown of FDI into the US by M&A vs. Greenfield FDI, by New Investments vs. Expansions and by the investments made vs. planned investments. The US FDI data also provides a breakdown of the above by State and Sector.

4. The location determinants and economic impact of FDI are very different for M&A FDI vs. Greenfield FDI. The OECD states that M&A in general has no impact on economic performance and that governments should primarily be promoting Greenfield FDI.

5. Looking at the latest trends in Greenfield FDI, drawing on data from the fDi Markets database of the Financial Times (a database which Henry was the original patent applicant), Henry notes the following key trends:

  • Greenfield FDI into the UK has been declining since the Brexit referendum with a 25% decline in inward FDI projects to the UK from 2015 to 2018
  • The decline in FDI has been most apparent in manufacturing, HQ, and R&D inward investment, which are most dependent on access to the Single Market (free trade and free movement of skilled workers), with a nearly 50% decline in FDI project numbers from 2015 to 2018 in these sectors
  • The argument that companies have pent up FDI in the UK which will be realised following the final Brexit agreement can be measured by looking at whether FDI is increasing above average levels in other European countries indicating that companies are investing in other European countries instead of UK. What we observe is that FDI in several countries in Europe increased sharply following the Brexit Referendum with Germany in 2017 for the first time ever attracting more FDI projects than the UK. We also see in certain sectors that FDI in the rest of Europe has skyrocketed (albeit from low level). As an example, financial services FDI projects in France, Germany, Ireland, Netherlands and Switzerland increased by 2-5x in each country in 2017
  • For transparency, Henry noted that there are other databases as well as fDi Markets tracking Greenfield FDI as well as multiple private sector provided databases tracking M&A

6. Henry made comments on the FDI performance of the Department for International Trade (DIT) arguing that:

  • While DIT publishes clear data on its results in attracting new and expansion FDI, to evaluate the performance of UK government departments in attracting FDI they should also publish data on FDI projects in the UK which subsequently close down or are downsized especially from “key accounts” which DIT helps invest in the UK, so that the net impact is known. Henry likened this to a business which only tells its shareholders about new customers it brings on board but not the customers it loses
  • Henry suggested to the Committee that they look at IDA Ireland which has targets around the net FDI they attract and they publish data on the net FDI results (new and expansion FDI minus reductions in FDI)
  • Henry also noted the DIT depends on private sector databases for tracking FDI into the UK, and that data from these databases includes a lot of estimates on the size of investments being made and that DIT (or ONS) should be validating the actual capital investment and job creation in the UK
  • While there was not time in the Panel to discuss the topic of financial incentives, Henry also wanted to note that any evaluation of the performance of the UK government in attracting FDI must also include the £100’s millions in financial incentives given to foreign companies to establish and expand their investment projects in the UK. These incentives are non-repayable cash incentives and the value of these incentives must be included in any assessment of the Return on Investment (e.g. Cost Per Job or the Investment Multiplier) of government expenditure to attract FDI (the efficacy or otherwise of incentives is a whole other topic to debate!)

7. Henry noted that the FDI data published by ONS and by DIT does not show clearly the quality of investment being tracked and he notes several salient facts on Greenfield FDI:

  • Around half of new FDI job creation in the UK in 2018 was in retail, construction, and sales & marketing which are low value added, market seeking sectors
  • Only 2.5% of total new FDI job creation in the UK was in high tech manufacturing and 10% in high tech services
  • France is now ahead of the UK in the number of high tech manufacturing FDI projects it attracts and in 2018 both France and Ireland attracted more high tech manufacturing FDI jobs than the UK (Germany was also ahead of the UK in terms of capital investment in high tech manufacturing projects)
  • France also pushed ahead of the UK in 2017 in attracting high tech services FDI jobs and in 2018 the UK was only just ahead of France with Ireland not far behind too
  • In terms of the highest quality FDI, the UK is no longer the dominant location in Europe

8. Henry briefly commented on UK outward FDI noting that:

  • In terms of both FDI flows and Greenfield FDI, the volume of inward and outward FDI into and out of the UK are at similar levels and the UK is no longer a big net outward investor, due to foreign companies acquiring more UK companies in recent years than vice versa
  • In terms of Greenfield FDI, Henry noted that the US attracts about 20% of UK FDI overseas followed by Germany, India, China, and Australia each with around 4-6% share of UK outward FDI and these countries have remained the leading destinations for UK FDI over the last few years. Henry noted that in 2018, UK FDI in Spain and China grew the fastest and he noted that FDI in Spain was mainly real estate FDI
  • Henry also noted that UK firms created many more jobs overseas than foreign firms do in the UK, as UK firms investing heavily in countries like India and China which are more labour-intensive economies

9. Henry closed his comments by forecasting what the official FDI data for 2018 will look like when published in a few months and how to interpret the data correctly:

  • Henry expects inward FDI flows to the UK to have increased by around 20% in 2018 (based on H1 2018 preliminary data) and the UK to again be one of the very top countries for attracting FDI. Henry made clear to the Committee that this is almost totally due to growth in M&A in the UK, especially by cash rich US firms which see UK corporate assets as a good investment given the weak Pound and and attractive P/E ratios both which can be directly attributed to the Brexit effect
  • Henry expects outward FDI flows from the UK to decline in 2018 when the official data is published due to a decline in M&A by UK companies overseas

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About WAVTEQ

WAVTEQ is a pioneering data, technology and consulting company with a mission statement to make the global FDI market more efficient by connecting companies with locations worldwide and encourage sustainable investment through our lead generation and research services.

We have worked with over 300 investment promotion agencies (IPAs) and economic development organizations (EDOs) providing data and technology solutions and lead generation, strategy, marketing and training services to attract inward investment. Multinational Enterprises (MNEs) and site selection firms also subscribe to our data products to inform corporate location decisions.

WAVTEQ was established in Hong Kong in 2010 and has grown rapidly to become the largest FDI consulting team in the industry with 75 specialist FDI consultants in 10 countries (Canada, China, Germany, India, Ireland, Japan, Korea, Spain, UK, and USA). Nearly two thirds of companies that have invested overseas in the last 15 years are headquartered in these countries. Our offices are ideally located to effectively target over 85% of companies worldwide currently considering FDI.

WAVTEQ is the world's leading developer of FDI databases and tools and is at the forefront of knowledge on FDI and investment promotion (See: www.wavteq.com/publications). WAVTEQ is also the exclusive consulting, technology and sales partner of fDi Intelligence, Financial Times Ltd.