Influence of Brexit on Foreign Direct Investment in the United Kingdom Economy

Reducing current restrictions on other major investors, such as the United States and Japan, would lead to even further increases in U.K. inward FDI and potentially significant gains in welfare.If break away from interaction with the European Union, we will notice that the share of other direct foreign investments in the UK economy, for example, from Asia and the United States, has only increased.The UK tech sector has seen a record US $ 6.7 billion investment in year 2019 between January and July, most of it in America and Asia, according to the UK Secretary of Digital. However, at the same time, according to the UK Department for International Trade (DFIT), the UK as a whole has seen a decline in the number of projects to attract foreign direct investment (FDI) (i.e. foreign investment in UK enterprises) every year since 2016. (-22% compared to 2017-2018). Company registration in the UK in 2018-2019 was not a popular procedure among foreign investors and decreased by 12%.Possibly, potential investors are scared off by the unstable situation with the pound sterling exchange rate, which has been record weak for several years.After all, the pound exchange rate directly affects income and the total cost of their investments. Due to this fact, many investors adopt a wait and see approach. However, British companies still try to stay optimistic and use international surveys as an argument. After all, really, some surveys since the Brexit vote pointed to the likelihood of buoyant post-Brexit FDI. For example, the annual business survey conducted for the World Economic Forum by PwC found the majority of the UK’s CEOs to be very positive about the UK’s prospects. A recent survey by Colliers International found that London is set to remain the most attractive location for FDI among 20 world cities.Other third-party investor surveys show that EU membership is generally at the bottom of the list of important factors affecting investment anyway. For any investor, the main thing is a stable political situation in the country, so that he does not have to worry about effective and long-term cooperation. With the end of Brexit and the gradual stabilization of society, this condition is considered fulfilled by the potential investor and it does not matter how stabilization was achieved. In addition, the UK still has many undeniable advantages that Brexit does not affect, such as English, easy regulation and many possible forms of doing business, highly developed capital markets, strict rule of law and flexible labor markets.Even after the Brexit vote, amid destabilization of society, the fall of the pound sterling and the loss of confident control over the understanding of the situation by the authorities, foreign investors still continued to open headquarters in the country. As an example, Nissan confirmed on October 27, 2016 that it will manufacture new models at its Sunderland plant. UK office announcements for Boeing, GlaxoSmithKline, Google, Facebook, Apple, Jaguar Land Rover, Tata and McDonald's also indicated that these companies will continue to invest in the UK despite Brexit and expand their branches across the country as they see no reason to termination of an effective partnership. Of course, Brexit influenced the possibility of safe and confident entry into the UK market for new foreign companies, but old investors remained faithful to mutually beneficial cooperation.If talk about concrete spheres, the real estate sector was predicted to be the biggest victim of Brexit. But the market, which took, in fact, a three-year break, is now showing positive indicators in some segments. In addition, the British market benefits from freedom from outside interference and a favorable climate for investors.The combination of significant foreign exchange discounts and higher yields compared to Northern Europe continues to attract foreign investors, both private and institutional, so the growth in real estate investment is not very surprising. Subject to the conclusion of profitable trade agreements with the EU and the United States, after a while, general stabilization of the economy will occur, which means that a decrease in profitability is an excellent opportunity to increase capital at the exit from an investment.Relatively high returns regardless of Brexit events can also make the UK market very attractive, especially for foreign investors. The return on offices in the famous City of London is about 4.25%, which compares favorably with Paris with 2.75% and Berlin with 2.65%.Some experts believe that the final exit from the EU is a good sign and it will contribute to the growth of prices for British real estate as well. Because there is nothing worse for the market than uncertainty. During such a period, there is a wide field for speculation, including with regard to real estate prices. Certainty is always better than uncertainty. The UK economy is growing, banks are easily financing home buyers and prices are going up. Nonetheless, the rise, which the British with their characteristic humor call the Boris bounce, is more of a reaction to the clarity of Brexit. There are still many unresolved issues between the EU and the UK, including the critically important free trade agreement. They will continue to influence the country's economy in general and property prices in particular. There are other factors indirectly related to Brexit that may affect the level of property prices. For example, the discussed increase in the cost of registration of the purchase of real estate (stamp duty) for foreigners, the kingdom's immigration policy, including in relation to EU citizens, and so on. So some final conclusions can be drawn no earlier than in a couple of years.However, the newspaper ‘Financial Times” adds fuel to the fire, claiming that nearly 500,000 businesses in the UK are in financial distress, the highest ever recorded. Almost 126 thousand London companies showed signs of serious stress, more than 358 thousand enterprises in other regions of the country-experienced difficulties. The number of businesses in dire straits has grown by 81% since the beginning of 2016But such a large-scale game cannot be emerged as an absolute winner without losing a few drops of blood. In general, by mid-2020 it is already possible to say more confidently that Brexit will harm the European Union more - it, according to market experts' forecasts, will become weaker both politically and economically. It is not surprising, since the UK is a nuclear power, a permanent member of the UN Security Council, the country with the second largest economy in the alliance and with serious military capabilities. Already now, - after the December elections - confidence in business has sharply increased in the country. A month after the Conservative victory, UK mutual funds received $ 1.9 billion. Sentiment is believed to have improved amid expectations that a new parliamentary majority will launch a wave of public and private spending to boost assets and the pound.In addition, analysts record the lowest unemployment rate in the country since 1974. At the same time, the number of employed people is about 33 million people - the highest figure in the entire history of the state. In this context, a sharp increase in the self-employed population is especially noted - more than 5 million people. All this does not allow to say that an economic crisis is coming in the UK.This research helps to form the conclusion that the situation is ambiguous, for long-term partners of the UK, Brexit did not become an obstacle to increasing the number of investments, but for new companies, the fluctuation of the pound, market volatility and political uncertainty are not a favorable climate to try their luck and deposit their money. However, the UK is successfully compensating for temporary difficulties in the exchange of direct investments with the EU, which is associated with the need to revise the system and transfer it to new rules. Investors from Asia are actively attracted; the US is trying to replace the losses from a decrease in cooperation with the EU.ConclusionThe objective factors behind the negative outcome of the referendum on Britain's EU membership were the conflicting interests of various business groups; demarcation in society between the winners and losers from globalization. Subjective factors were also superimposed on objective factors: the irreconcilable position of the Eurosceptic Tories, who threatened Cameron's governments with a “riot of the back benches” in parliament; and the desire of the prime minister in narrow party interests to preserve state power for conservatives. These include the volatility of public opinion due to the economic situation and the weak ideas of ordinary citizens of the kingdom about the true nature of relations between Britain and the EU. The British were asked to give a simple answer to a difficult question: the political crisis caused by Brexit will only get worse for the near future. As for economic factors, it is obvious that Brexit caused significant damage to the country's economy, forcing to rebuild the working mechanisms over the years in a new way, raising customs barriers, losing profitable and proven sales markets. Nevertheless, there were positive aspects, such as an increase in the independent role of Great Britain in trade with the rest of the world, the ability to pursue a more protectionist policy in relation to its goods, an increase in the share of trade relations with Asia, and the ability to increase the share of sponsorship of its subsidiaries.Due to the Brexit environment and its impact on the FDI, research showed that it is not as bad as experts thought at first. Some investors were scared off by destabilization of economy, depreciation of the pound sterling, the closure of the British economy as part of the exit from the common free trade zone of the European Union, political changes in the country, etc. However after two-three years of small unrest in the economy it has been seen that the UK continues to be a major destination for FDI (for example, it was the third largest recipient in the world in 2019, after the United States and Germany): however, its share of European FDI inflows has shrunk, and its overall inflow of FDI projects is some 16-20 percent below what could have been expected it to be in the absence of Brexit. Maybe the most effective way to estimate the real impact of Brexit will be possible to find only several years after the final decision of the UK. 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