Tuesday, April 23, 2019

FDI Foreign Direct Investment and the Brexit Conundrum

Is the importance of FDI Foreign Direct Investment over played?

The UK government have placed a great deal of importance on Foreign Direct Investment FDI, as indeed have I in my various ramblings on Brexit. However, is this so important a Metric? If so does FDI come with a moral compass? Important points to consider in all of this are the views of the climate change protagonists perhaps, I am not in any way advocating the disruption these guys are doing to London on the contrary I agree with Boris that they should take their pink bus and head to China.

To deal with, is this so important a Metric; I suspect evidence shows that it is not, albeit the establishment add great credibility to this data as indeed have I. On that point I would say, negate the morals to this, as a measure of confidence in the brexit argument there remains no better indicator. However, I digress, the UK may have attracted considerable Foreign direct investment and this may well be a confidence indicator but, often the benefit is not commensurate. For example, a country can secure FDI through grants, generous taxpayer funded grants inspiring relocation of operations to within your shores. In this event, in the first instance taxpayers are carrying the burden through subsidies, on a second point this money could well be used for other more meaningful activity. However, having dealt with the negative it would be imprudent not to offset this with the positives. FDI can be achieved whereby it is spontaneous ie. has not been solicited then this is indeed worthy investment save that of the morality which I'll deal with later. It could well be that this investment have historically found their way into the UK due to our single market membership status.  If indeed that is the reason as we pay substantial sums into the European Union budget then we are indeed subsidizing such investment that reaches the UK.  Couple together the regulatory burden the UK carries which is a kind of indirect subsidy then the FDI comes at a high cost, a high cost indeed.

In any event let's not demean the FDI, the UK has achieved significant investment and it has done this on a backdrop of brexit, the confidence that this brings should not be dismissed. In future any such subsidies offered could well be funded from our single market membership and still leave change.


FDI requires some scrutiny as it could well be used to circumvent home location regulation, regulation that have been applied for a good reason. There may well be environmental considerations due to legal loop holes. I'm not suggesting that we are open to unscrupulous manufacturers looking to exploit child labour etc.. But I am suggesting close observation of their intentions. FDI comes in three flavours horizontal, vertical and conglomerate. Horizontal shows an establishment of a similar enterprise as that operated in the home country. Vertical would be a complimentary operation is established ie a part or a raw material that is required for the manufacture process in the home country. A conglomerate is where a company makes an acquisition or joint venture to buy knowledge of a business that they may well have no experience. This form of enterprise is often as a joint venture or as a take over. Here we have to be mindful that certain promises are made we all remember the Kraft promises made to Cadbury, or that a good business is simply asset stripped. 

On a point of note research has shown that Leaders who follow their moral compass outperform those who seek achievement through unethical practices read this report from the world economic forum

Climate Change Should Not Be Dismissed

I will end here, on a note which has become topical particularly for all of those trying to go about their business via the streets and bridges of London. The impacts surround us, wildfires, hurricanes, tsunamis, earthquakes which I have acutely experienced, they and other extreme conditions are all part of our day to day lives. The earth is warming, sea levels are rising none of this we can be complacent about. If you look to the attached NASA graph we are in danger, and ways to lessen our dependence on fossil fuels have to found if we are to progress in a sustainable way.  A balance has to found, we can not as the protesters advocate just go back to the stone-age, all effort now needs to be focused on renewable energy in some form or other. To simply target zero emissions by 2025 is absurd.

Thank you for reading please comment, like or subscribe if you wish to be updated. I try to write on a daily basis, this is not always possible but mostly I do. 

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