UK: A Haven for Investors - Essay Example

UK-An Investor's Haven Table of Content Serial Number Page Number 0 Introduction 02 2.0 Executive Summary 03 3.0 Overview 05 4.0 Conclusion 07 5.0 Reference 09 'One of the best ways to reduce poverty in the world is to increase trade. Analysts estimate that a 50% cut in all tariffs worldwide could generate US$140 billion (96.5 billion), or thrice all current aid flows to developing countries. The WTO is the most effective instrument against poverty, provided; the benefits of free trade are shared fairly.' Foreign Secretary Jack Straw on 'Local Questions, Global Answers', at Manchester, September 20011 1.0 Introduction Free trade is shaping trade policies throughout the world. If nations abandon the concept of self-sufficiency and concentrate on specialising in goods that they produce most efficiently, they could export this to countries that seek such high quality goods. Similarly, countries that export such goods can then look at importing goods that they feel are more attractive and efficient from third countries. Such 'gains from trade' will help all countries benefit and lead to all-round development and prosperity. Global production and consumption will increase (Bruce E. Moon, Ideas and Policies, 1999)2. This law of comparative advantage was expressed by renowned economist David Ricardo, who concluded that such practices of 'gains from trade' benefited nations economically. The UK has enough coal deposits for consumption; however, it depends on China and Australia for its consumption. Despite the cost of transportation, coal is still cheap when imported from these countries, compared to high-cost production costs here. This way of imports not only helps the local economy, but increases revenue for those countries as well (Sherlock and Reuvid, The handbook of International Trade, 2004)3. Britain, one of the most open economies in the world, is the fifth largest international trading nation, and the second largest exporter of services. She exported 187 billion in goods and sold 67 billion worth of services overseas in 2000. Trade relations with countries other than the EU members fall within the Common Commercial Policy (CCP) of the European Union. Thus, the European Commission negotiates with third countries on the basis of mandates agreed by the Member States (European Communities Act 1972 5.2(1)). This arrangement gives the UK greater clout in global trade negotiations4. 2.0 Executive Summary Because of its open economic policy, UK has benefited both from inward and outward investment. It receives the most in terms of foreign direct investment (FDI) than any other country in the European Union (EU), creating new jobs, finance projects, and providing access to new technologies. Interestingly, UK is the world's second largest supplier of FDI to third countries. The returns earned through interest and capital investment helps run the exchequer in disbursing pensions and other savings. Foreign Direct Investment (FDI) as defined by IMF is 'a direct investment that is made to acquire a 'lasting interest' in a business operating in a country other than that of the investor, and his sole purpose being to have an effective voice in the management of that company'. 'Lasting interest' being debatable, the Organisation for Economic Co-operation and Development (OECD) recommended that 10% or greater ownership should satisfy this requirement.5 The United Kingdom imports cars, coal, oil, electronics and electrical consumer goods, and more, from foreign countries. Most of these products can be produced by the country itself. However, there are genuine reasons for such imports. Three prominent points that come to mind are6: 1. Cheaper priced than those made locally 2. More varieties available for selection due to imports 3. Better quality and features. Liberalisation has helped Trade push the economy and the government's exchequer. There are however several moves by the government that has cast a shadow with the local population. Transition of work offshore has not found favour with the masses. Call centre jobs outsourcing has come down hard on some. The government has, by running an open and flexible economy, made up for every job loss by a job gain. To sustain growth and competitiveness, the government has stepped up their active support to the people to update their skills. This they have done through FDI. It has set out a strongly demand-led approach to skills development at all levels and across all sectors, meeting the needs of both employers and individuals so that they can compete in the international economy. The Government continues its drive to invest in the skills, science, innovation and enterprise to make the UK flexible, competitive and productive7. We all know that FDI helps generate income and employment, but is that all Some companies are known to acquire companies in other countries to beat competition. Swedish furnishing giants IKEA moved to Russia when they began to feel the heat and did remarkably well. So this is a valid point. Some companies feel that they have certain product or technological advantages over local producers and this could help them do well, such as lower production costs, better distributional facilities, and little competition8. Thus, these companies would opt for FDI schemes under favourable conditions. The UK Government's view with regard to FDI at the WTO was the concept of setting in place a simple, basic framework of rules that is based on transparency and non-discrimination in the treatment of foreign investors. Does FDI directly help the economy of a country How has the UK government been able to motivate and attract investors to UK Just what sort of FDI does London look to carry their economy in the 21st Century Would there be more takers for the initiative taken by the UK government for further investment How and why would the UK government want to invest in other countries The list of questions could go on and on. Just for the record, this paper illustrates the basic components that make for the FDI and how they are utilised. The answers to the more probing questions will follow in subsequent chapters at a later stage. In order to answer these questions, the use of government published white papers, press releases, newsletters, books, and journals will support the theory. This will form the nucleus of ths dissertation. 3.0 Overview In keeping with UK trade policy of FDI, the Duke of York paid a visit to China in March this year. This was the second visit of the Duke to these parts. During this visit, he met with the Mayor of Beijing to discuss commercial opportunities for both the Beijing 2008 and London 2012 Olympics. He also highlighted UK's expertise in sustainable and green building design. The 2nd Intelligent and Green Buildings Conference provided opportunities for the UK construction industries to interact and land valuable contracts with key decision makers in China. The Duke also took the opportunity to introduce all the major metro companies in Eastern China to the latest UK railways technology and expertise during his visit to Shanghai. UK is the European Union's largest investor in China with over 4800 projects, and UK has attracted 350 Chinese companies9. In order to continue making UK the ideal destination for FDI, the Government is closely working with business leaders. UK needs to have a flexible and supportive environment to attract business investment in a global environment. In a move seen as the needed impetus, the Government has established an International Business Advisory Council. This council will advise the Chancellor of the Exchequer over the next three years on how to respond to the challenges and opportunities of globalisation10. With FDI, more and more companies will bring in expertise and finance, an essential component in economical development. Employment will rise and with it competition. More entrepreneurship will come up. UK's economic success will bloom with new knowledge, and innovative goods and services. Skill levels will rise giving way to a workforce that is both flexible and productive. Finally, the move by the government to attract investors will increase the stock of physical capital, including stronger, more efficient capital markets11. The above points illustrate the initiatives launched by the UK government to bring FDI into the country and also invest in third countries. This paper will look at the major initiatives launched by the government and analyse the features offered to investors in UK that attracts investors. Favourable investment structures, attractive incentives and tax rebates, and proximity to markets are some of the benefits that investors seek. 4.0 Conclusion The United Kingdom has experienced difficulties with trade in manufactured goods. Even during the late 19th and early 20th centuries, the United Kingdom was heavily dependent on the import of raw materials from the colonies and Commonwealth. The volume of exports was close to mediocre. Imports beat exports by a big distance. Today, the UK government is doing all it can to bring more respectability to the proceedings. Foreign direct investment has lifted the economy, brought more opportunities to its people, and encouraged the people to tone their skills to meet the challenges of a growing world order. The government has gone a step further by establishing an International Business Advisory Council to advise the Chancellor of the Exchequer over the next three years on how to respond to challenges and opportunities. The open economic policy of the UK government and the incentives offered to investors has helped attract FDI. UK also is a strong FDI investor. The government has invested in oil exploration and aviation sectors. Joint collaboration in the defense sector has also been rewarding, with joint production of the Euro Fighter a sound example. These killing machines are in demand in the Middle-East and South American countries. The background to the UK Government's view with regard to negotiations on foreign direct investment (FDI) in the WTO was the concept of setting in place a simple, basic framework of rules based on transparency and non-discrimination in the treatment of foreign investors. The government agreement with WTO is a positive move to bring FDI into the country, not only to improve the local economy, but also to re-invest in third countries, adding to the exchequer. The UK governments move to provide stable and predictable climate that foreign investors seek is perhaps the most positive initiative towards bringing in FDI. 5.0 Reference 1. Global Economy, International Priorities, Foreign and Commonwealth Office http://www.fco.gov.uk/servlet/Frontpagename=OpenMarket/Xcelerate/ShowPage&c=Page&cid=1007029394329 2. Brian Hocking and Steven McGuire, Trade Politics, Chapter 2, Ideas and Policies, Bruce E. Moon, The theory underlying the doctrine of free trade, Page 41, Routledge 3. Jim Sherlock and Jonathan Reuvid, The rationale for foreign trade and its organization, The handbook of international trade, Chapter 1.1, Page 3-4, Kogan Page. 4. Making globalisation a force for good, Chapter 6, Introduction and Summary, Page 6, 2004 http://www.dti.gov.uk/files/file23441.pdf 5. UK Trade and Investment, Duke of York to Highlight Olympic Opportunities in Visit to China, Corporate Newsroom, http://www.newsroom.uktradeinvest.gov.uk/index.aspPageID=2&PressReleaseID=725 6. Walter Goode, WTO, Dictionary of Trade Policy Terms, Fourth Edition, Page 142, Cambridge University Press, 2003. 7. EFSR, 3, Meeting the Productivity Challenge, Page 28, 2006, http://www.hm-treasury.gov.uk/media/20E/EA/bud06_ch3_192.pdf 8. Jonathan Jones and Colin Wren, Foreign Direct Investment and the Regional Economy, Hymer's Contribution, Page 29, Ashgate Publishing Ltd. 2006. Read More