How to feed the bulldog economy – UK inbound investment and export growth

31 July 2015

The UK’s standing as a partner for trade and a destination for investment has been steadily rising in recent years and the positive signs for growth are boosting its profile among the world’s other mature economies. Dominic Jermey, CEO of UK Trade and Investment, reveals how to feed the country’s appetite for inbound investment and export growth.

When China's wealthiest man says that he believes the UK is the best place in the world to invest, it makes sense to listen. Wang Jianlin, who heads up Dalian Wanda, China's largest property company, greatly values the UK's high degree of free-market openness, and is considering a $1-billion investment in its entertainment industry.

His remarks, made in March this year, came as no surprise to Dominic Jermey OBE, chief executive of the UK Trade and Investment (UKTI), the government organisation that works to attract foreign direct investment (FDI) and support UK businesses as they seek to sell goods and services overseas. The success of UKTI during the last year stems in part from the increasingly widespread view that the UK is a stable and secure market in which to invest, and that it offers good long-term growth prospects, as well as a large pool of talent and resources.

"As an organisation, UKTI helps UK companies export, and brings investment capital into the country," says Jermey. "It is the end of the financial year and we are going to smash our targets. We have 1,200 FDI projects and are supporting 50,000 expanding UK businesses. We have had a material impact on around £20 billion of business and are continuing to have conversations with worldwide investors looking to commit to the UK.

"We have also hit our target of supporting 3,000 medium-sized UK businesses - with turnover of £25-500 million - for the first time. Usually, the focus is on supporting smaller businesses. In total, UKTI is creating, or safeguarding, 250,000 additional jobs and around £50 billion in additional sales," he adds.

Opening the door to investment

Jermey's international experience, which includes his former role as the UK's ambassador to the UAE, has proved extremely useful in understanding the intricacies of international trade and forging relationships with potential investors. He recently met with investors in Shanghai, including representatives of Chinese conglomerate Sanpower, which recently bought a majority stake in (UK department store chain) House of Fraser, for £480 million in what was then the largest foreign retail investment by a Chinese company.

"Investors like this like the UK's economic growth rate, which is better than the rest of Europe's," observes Jermey. "They see the country as a springboard to Europe and the US, and appreciate its regulatory stability. Corporation tax at 21% helps to sell the UK, which is also a big consumer market in its own right. It is undoubtedly the most attractive destination for inbound FDI at the moment."

There is, of course, a long history of substantial overseas investment in the UK's manufacturing sector. In the 1980s, for instance, the European arm of Japanese car manufacturer, Nissan, opened a manufacturing plant in Sunderland, Tyne and Wear. Among the latest deals is Hitachi Rail Europe's investment in an £82-million manufacturing and assembly plant in Newton Aycliffe, County Durham, which is being developed to support the Department for Transport's Intercity Express programme, as well as future projects.

"Investors like the UK’s economic growth rate, see the country as a springboard to Europe and the US, and appreciate its regulatory stability. Corporation tax at 21% also helps make it the world’s most attractive destination for inbound FDI."

Hitachi Rail Europe views the construction of a new rolling stock plant as a fundamental building block in its strategy for growth. It is scheduled to provide a total of 866 class 800/801 train carriages, which will be put into action on the Great Western Main Line from 2017 and the East Coast Main Line from 2018, and a contract is in place for a consortium to finance, deliver and subsequently maintain the trains for 27 years. The parameters of this development show that much inbound investment is for long-term, capital-intensive projects.

Further investment from Asia is expected to flow from the Free Trade Agreement (FTA) signed between the EU and South Korea in 2010, which has already proven to be a useful platform from which to stimulate inbound investment, and for domestic exporters to increase sales.

"The FTA with South Korea has opened up opportunities for high-end manufacturing businesses, and has helped us show the benefits of doing business from the UK, as it has much to offer in opening trade with, for example, the US," Jermey remarks.

Beyond the capital

While the overall flow of capital into the UK from investments and export income is showing good signs of growth, there is a need to ensure that it does not remain concentrated in one region, but instead spreads across the country. The Nissan and Hitachi developments show that, over the years, the north of the UK has been an attractive destination, so if regions around the UK play to their strengths and make the most of the opportunities that present themselves, there is scope for geographically diverse new investment.

"A lot of investment comes through London, but then moves out to other regions," says Jermey. "Manchester has developed its offering by working across local authority boundaries, although serendipity comes into play as well. I was ambassador to the United Arab Emirates when its royal family bought Manchester City, after which I saw industries come into business park and social housing development in Manchester. So, it is important to capitalise on such relationships to open up new business opportunities."

"Birmingham has a relationship with Hainan Airlines to develop its airport as a centre for direct flights to China, so more people are coming from Asia into Birmingham. The 2016 International Festival of Business in Liverpool is another example of how a city can expose itself to new business opportunities," he adds.

Diversity is not only important geographically, but also in terms of sectors. The UK shifted towards a service or knowledge-based economy during the 1990s, but is now shifting back towards manufacturing. It is important to have a blend, particularly for export purposes, and it is encouraging that the manufacturing sector is now expanding three times as fast as the rest of the UK economy.

"As an exporter, the UK is extraordinarily strong in the ICT and high-tech industries. As well as being the number two global destination for ICT inbound investment projects, it has a great export story to tell in that sector. Four of the world's top six universities are in the UK, and there is a lot of intellectual property development; fin-tech start-ups are a good example.

"However, there is also a rejuvenation of the manufacturing base. Jaguar Land Rover is a good example of a company that supports strong exports of products and the supply chain that feeds it.

"The UK now manufactures more cars and engines than at any time since the 1970s. Nissan's Humber facility is its most efficient manufacturing centre outside Japan," notes Jermey.

Outward bound

In its efforts to support exporting companies, UKTI is helping to identify opportunities in mature and developing economies.

"There is a growing appetite for investors to look for higher rates of growth, particularly in emerging economies," says Jermey, "so, as well as supporting SMEs in exporting to mature countries, such as the US and the Netherlands, we are supporting their efforts to reach developing markets.

"Exports to China have doubled in the last four years. UKTI has advisers all across the UK to help companies expand the range of markets to which they sell and the range of products they export.

"We also have overseas teams in 107 countries to make connections with professional advisers and lenders, for example, and to get specific market knowledge. We also help to stimulate demand for UK goods," he adds.

For CFOs at domestic companies looking to export, or overseas companies looking for a stable home for investment capital, UKTI has a great deal to offer.

"CFOs should give UKTI a call," advises Jermey. "We can help in many ways, including analysing the ecosystem of existing businesses in a region, accessing the skills bank, and advising on infrastructure support.

"We will help companies look at what they want to be in five or ten years' time, so we can work through and assess access to infrastructure, resources and qualified people. Overall, UKTI can help organisations map their options and put forward a balance of choices that will help them drive their business."

Jermey's immediate focus is ensuring that UKTI can advertise the UK's capacity for innovation, particularly in areas such as agri-tech and ICT, at the Milan Expo that runs during the second half of 2015.

As well as seizing opportunities on the worldwide stage to attract more investment, it will be focusing efforts closer to home to help domestic companies to reach new overseas markets.

Jermey is hoping that together these initiatives will help the next financial year to be another record-breaker for the organisation.

Dominic Jermey has been UKTI CEO since June 2014 and also sits on the management boards of the Foreign and Commonwealth Office (FCO) and Department for Business, Innovation and Skills (BIS). Before this, he worked as a diplomat, including a four-year stint as the UK ambassador to the United Arab Emirates.