What impact will the Office of Investment have on UK FDI?
The UK’s Department for International Trade has announced a new office dedicated to strengthening the country's FDI offering, but with details about the office lacking, how effective is it likely to be?
On 9 November 2020 the UK government’s Department for International Trade (DIT) unveiled plans for its Office for Investment. This office is specifically designed to attract foreign direct investment (FDI) into the UK. The press release stated that it is intended to “connect public and private sector expertise in order to drive investment into all parts of the UK, while ensuring high and rigorous standards of scrutiny and security”.
Between 2018 and 2019, the UK’s FDI inflows declined by approximately £6bn, according to figures from the UN Conference on Trade and Development (UNCTAD) 2020 World Investment Report. This came before the Covid-19 pandemic, which UNCTAD says caused global FDI flows to drop by 49% in the first half of 2020 when compared with the same period in 2019.
With Brexit on the horizon and a no-deal exit from the EU still a possibility, the Office for Investment will face a baptism of fire.
A key question for many regarding the Office for Investment is how it will work with the existing DIT office and why it was felt a new office was necessary. A spokesperson for the DIT responded to this question saying “The Office for Investment will work with the DIT’s existing teams and take an active role in ensuring a joined-up approach across the UK government.”
Mark O’Connell is CEO of advisory firm OCO Global, which worked alongside PwC to advise the DIT’s new investment strategy. He says: “[The office] isn’t intended to replace or usurp the very important work of the DIT, which has the national mandate for attracting foreign investment. It is expected to provide both access and a profile for the prime minister at the top of government.
“In terms of access – [the office will reflect a] change in investment and press policy levers that will make the UK more attractive from a business environment perspective, with regard to tax, skills, etcetera. So, it offers the most important investors a little bit of additional leverage, should they need it, and the ear of the top guys and top politicians.”
So who is the office aiming to target? The answer to this seems to still be a work in progress, according to the DIT spokesperson, who says: “We are currently working to staff and fully operationalise the Office for Investment. In parallel, we are working across government to define a target list of investable opportunities so there will be a clear set of strategic priorities to pursue from day one.”
EY chief UK economist Mark Gregory expands on possible sector focuses. “Based on EY’s latest research into UK FDI, digital, healthcare and manufacturing should be priority sectors,” he says.
With regard to any geographic focus, Gregory and the DIT both say the Office of Investment will be designed to work for every part of the UK. This brings into question how it plans to unite the existing investment bodies within the UK, particularly those working with devolved governments.
Minister for investment Lord Gerry Grimstone is confident about any collaboration.
“Working across government, with experts drawn from the public and private sectors across the English regions and devolved administrations, we can play to our regional strengths, put the UK at the helm of the industries of the future, and respond to the challenges of the pandemic,” he said.
O’Connell believes that the DIT already does this effectively. “There is a pretty good coordination of national efforts around foreign investment,” he says. He stresses that communication will be key and that the main goal is getting investment in, adding: “The coordination of goals [among the different entities] is critical. Frankly DIT and the UK government are agnostic about where the investment goes, as long as it comes to the UK.”
Michel Lemagnen, an inward investment and business development expert, and CEO of market research company MCJ Associates, expands on the importance of the new Office for Investment and related players around the UK setting goals.
“[There needs to be] more targeted work,” he says. “If they have got ten key projects – whatever they are – that they want to really push forward, [then they have to prioritise and say] okay, for these ten projects, what are the opportunities that could be filled by foreign investors? Furthermore, what sorts of foreign investors [do we want], who are they and where are they? They need to adopt a strategic account management approach.”
How important is FDI to the UK’s economic future?
Much of the detail regarding the Office of Investment remains vague. When asked who will be making up the team, the DIT spokesperson answered a “small number of highly skilled investment professionals”. When questioned on budget, answers were similarly lacking in detail. “The Office for Investment is a critical government priority and appropriate resources, including funding, have been allocated to ensure that we land the most strategic investments,” said the DIT spokesperson.
Lemagnen is keen to see this detail fleshed out. “I would hope it is not window dressing,” he says. “It is easy to make announcements.”
Despite some mystery as to how exactly the office will work, the announcement is a long-awaited answer to the call for heightened focus on the UK’s FDI strategy.
UK inward investment specialist Adam Breeze says: “It is positive news that the attraction of inward investment is being given renewed focus at the heart of government, recognising the important role FDI can play in the economic recovery. It is not clear yet what the new Office for Investment will do that the DIT [isn’t doing], or where it will be based, but the fact that investment is being given such attention is to be welcomed.”
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