Will the UK economy survive after Brexit?

As PM Theresa May is facing mounting pressure from Labour and rebel Tory MPs, the United Kingdom’s game of hot potato regarding Brexit is continuing, adding considerable uncertainty to the country’s investment climate. Eight months from the March 2019 deadline, the shape that Brexit will take is still not decided and the economic damage of leaving the EU could be considerable. The EU and other non-European partners are already turning their back on the UK, the rising level of uncertainty eroding their business confidence and investment flows into Britain.

Germany and France were the first to forcefully state they expect investment flows to Britain to be curbed after Brexit’s completion in 2020. Germany’s Chambers of Industry and Commerce (DIHK) revealed last year that businesses are starting to shift investments away from Britain in anticipation of increased trade barriers following Brexit. In a joint statement, DIHK and the British Chambers of Commerce (BCC) called for British and EU negotiators to deliver clarity concerning the negotiations on Britain’s exit from the bloc. Otherwise, business may decide to move away from the UK sooner rather than later.

Indeed, the UK’s falling attraction is already evident. Global foreign direct investment (FDI) into Britain shrank by 90 percent to £14.3 billion last year, according to United Nations data. The Department for International Trade reported in early 2016 that Britain has an estimated stock of over £1 trillion of FDI reserves, half of which is from the EU. But with decisions like the European Investment Bank’s, which slashed two-thirds of its equity investments with the UK after the referendum, the government’s coffers seem to be emptying at a rapid pace.

The outlook looks particularly bleak after 2020, when the impact of losing sizable FDI could be fully on display. A poll taken by consulting firm EY found that 50 percent of foreign companies plan to remove their assets from the UK after 2020. This exit of capital brings with it the threat of widespread job losses, a spectre which has been hanging over the Brexit negotiations from the very start. Direct investment in the UK, primarily from European companies, has created over 110,000 new jobs in the last five years and safeguarded a further 80,000.

However, what these statistics show is a strong reliance on European companies for most of Britain’s investment. While some non-EU governments expect to reduce their financial involvement as well, citing lost access to the common market as the primary reason, London is well aware of these risks. In anticipation, Whitehall is trying to offset potential investment losses by pushing hard for new overseas partnerships in a bid to become less dependent on the EU. And as it turned out, the UK might not have to look too hard to find foreign dance partners.

While the EU and others turn away from the UK, countries such as Qatar and China do not seem to share their negative outlook and have explicitly professed their intention to boost financial ties to London after Brexit. In a display of confidence in the post-Brexit UK, Qatar’s finance minister Ali Sherif Al Emadi pledgedto pour £5 billion into Britain over the coming three to five years. The focus of these investments will be sectors that PM May previously identified as key to a successful economy in the future – infrastructure, energy and technology.

Qatar is not a new presence in Britain, having been actively involved in the UK for years. Its investment fund has already invested £40 billion in the country and Qatari investors are highly visible on the infrastructure and real estate market. The continued interest in acquiring assets in Britain, be they in real estate or business to deepen bilateral ties, is considered by market analysts an important indicator that the country’s investment strategy regards Brexit as a strategic opportunity rather than a liability. The Qatari emir is visiting London next week to meet with PM May, a further sign that the wealthy peninsula believes its diplomatic and trade ties with Britain can yet grow stronger.

Looking further eastwards, China is also keen on presenting itself as a reliable financial partner to prevent any post-Brexit stumbling. During her recent visit to the Middle Kingdom, May signed a post-Brexit commercial agreement to usher in a “golden era” of investments. A delegation of 50 business leaders in tow, including Standard Chartered Bank and HSBC, concluded deals worth about £9 billion in fields such as finance, innovation, agriculture and technology.

China, like Qatar, is bucking current investment trends as Beijing’s financial flows into the UK more than doubled last year, reaching $28 billion up from US$11 billion in 2016. These investments range from supply chain and logistics businesses, Manchester airport, English football clubs, and the construction of a new nuclear power station at Hinkley Point.

According to another EY survey, the Middle East and Asia are generally the regions whose investors retain a positive view of the UK. Thus, the sustained interest from Qatari and Chinese investors in Britain is not coincidental. 30 percent of Asian investors, for instance, responded that they intend to invest in Britain over the next 12 months, followed by North America at 21 percent.

Naturally, London seeks to capitalize on such sentiment. British Trade Secretary Liam Fox extended an invitation to overseas investors to submit bids for financing £30 billions of projects to help the UK, currently the world’s sixth-largest economy, manage the upheaval of leaving the EU. Investors have been offered the chance to fund 68 projects across 20 sectors, including technology, housing, retail, including in less affluent parts of Britain.

While leaving the EU will not be easy, widespread fears that the country will fade into economic oblivion may be exaggerated. Still, London needs to reach a final decision on a Brexit deal, remain open to new possibilities and must confidently approach potential investors to remain a global economic force – even without the rest of Europe.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.