Trade News December 3: China, Romania, EU, Cambodia, London, UK

1.     China FDI plunges further

In recent years, China, the world’s second-largest economy, has been experiencing a significant shift in its financial landscape. For the first time since 1998, the country’s Foreign Direct Investment (FDI) has slipped into the red. This unprecedented decline in FDI, which stood at minus $11.8 billion in the third quarter of 2023, indicates a trend of foreign investors withdrawing their capital at a faster rate than they are investing. This article aims to delve into the reasons behind this phenomenon, exploring the various economic and geopolitical factors that have led to this exodus of foreign investors from China. Since Russia invaded Ukraine fears about China’s potential invasion of Taiwan has sent investors fleeing.

What caused the exodus

There are several reasons why foreign investors are fleeing China:

1.      Economic Challenges

China’s economy has been struggling, and the country’s Foreign Direct Investment (FDI) has slipped into the red for the first time since 1998. This suggests that foreign companies may be withdrawing their money out of the country, instead of re-investing in their operations.

2.      Geopolitical Tensions

Rising geopolitical tensions, including China’s stance on Russia’s war in Ukraine, have led to increased uncertainty and risk, causing foreign investors to question the quality of leadership in Beijing.

3.      Policy Changes

The policies of President Xi Jinping, including his crackdown on tech groups such as Alibaba and property giants such as Evergrande, have had a profound impact on global markets¹. These policies have led to a decrease in the value of yuan-denominated financial assets held by foreigners.

4.      COVID-19 Measures

China’s strict zero-COVID policy and the resulting lockdowns have severely impacted various sectors, including the housing market¹. This has led to a decrease in pre-sales of homes and a halt in construction in many areas.

5.      Personal Safety Concerns

Foreigners no longer feel safe in the country, both financially and personally.

These factors have contributed to a significant exodus of foreign investment from China.

Implications of exodus on China’s economy

The exodus of foreign investors from China has significant implications for the country’s economy:

1.      Market Instability

The market response to the exodus has been swift and severe, with significant sell-offs in Hong Kong and companies on the Hang Seng Index near a 13-month low.

2.      Currency Devaluation

The Chinese yuan has faced challenges in the aftermath of the exodus, experiencing a two-day decline in value. In response, the Chinese government has intervened by instructing state-owned banks to defend the yuan.

3.      Government Pressure

Moody’s negative outlook on China has intensified Beijing’s battle with market bears, raising pressure on the government for more forceful measures to prop up sinking stocks and stabilise the yuan as investor confidence deteriorates.

4.      Economic Slowdown

The country’s economic slowdown coupled with this investment exodus could potentially exacerbate the challenges China faces in maintaining its growth momentum.

These impacts underscore the complexities that businesses encounter while navigating China’s evolving economic landscape.

Impact of the exodus on other countries

The impact of foreign investors’ exodus varies across countries, largely depending on their economic structure, geopolitical alignment, and resilience to global economic volatility.

1.      Emerging Economies

These economies are particularly affected by reduced access to investment from advanced economies, due to reduced capital formation and productivity gains from the transfer of better technologies and know-how. For instance, the flow of strategic FDI to Asian countries started to decline in 2019 and has recovered only mildly in recent quarters, except for flows to China that have not yet recovered.

2.      Developed Economies

Developed economies like the US and European countries have seen less impact due to their robust economic structures and diversified investment portfolios. However, they are not immune to the effects of FDI relocation, particularly those with significant FDI stocks in strategic sectors.

3.      Specific Countries

The impact also varies among specific countries. For example, in India, the trend of FDI inflow has accelerated, while other nations in the emerging economies category have seen significant or minor declines.

In general, a fragmented world due to the exodus of foreign investors is likely to be a poorer one. It’s estimated that long-term global output losses are close to 2 percent of world gross domestic product. These losses are likely to be unevenly distributed, underscoring the complexities of global economic integration.

How does China’s poor performance compare to other countries?

China’s economic performance can be compared to other countries in several ways:

1.      GDP

Despite recent challenges, China remains the world’s second-largest economy. According to estimates from the IMF’s latest World Economic Outlook, China will account for 18.8 percent of the world’s GDP based on purchasing power parity (PPP), up from just 8.1 percent two decades ago.

2.      GDP Growth

Over the past 20 years, both the U.S. and the European Union have seen their economic superiority challenged, as new powers, such as China, India, and others have emerged. While the U.S. saw its share of global GDP decline from 19.8 to 15.8 percent between 2002 and 2022, the EU’s share dropped from 19.9 to 14.8 percent over the same period.

3.      Economic Freedom Index

China’s economic freedom index ranking is 111, indicating a mixed economy with a high level of state intervention.

4.      Economic Structure

China’s economic structure is unique, with the country slowly opening up its economy in some areas while swiftly retrenching in others. This zigzag approach worked in the 2010s, but it could become a self-inflicted wound in the 2020s.

In conclusion, while China’s economic performance has been poor recently, it’s important to note that the country still plays a significant role in the global economy. However, the exodus of foreign investors and the country’s unique economic structure present significant challenges for the future.

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2.     Romania’s economic transformation

Over the past 33 years, Romania has undergone a remarkable economic transformation. Since gaining independence in 1990, the country’s Gross Domestic Product (GDP) has grown nearly eightfold¹, showcasing its commitment to economic progress. This growth has been one of the highest in the EU since 2010², ensuring a steady convergence with the EU in GDP per capita⁴. However, the journey has not been without its challenges, including weak institutions, shortages of skilled workforce, poor connectivity, and the effects of climate change². This article aims to delve into the key drivers behind Romania’s economic success and growth, and explore the challenges it faces in its quest for more inclusive and sustainable growth.

Key drivers behind Romania’s economic success

There are several key drivers behind Romania’s economic success:

1.      Strong Private Sector

The private sector has been the engine of Romania’s economic development, creating new, better-quality jobs, and driving connectivity, productivity, and competitiveness.

2.      Booming IT Sector

Romania has capitalized on the success of its booming IT sector to boost its services sector by improving digital skills, increasing enrolment in tertiary education, and enhancing management practices at the firm level.

3.      Green and Digital Transitions

The country has boosted economic opportunities through green and digital transitions, including through new green value chains.

4.      Agricultural Productivity

There is room to improve agricultural productivity and value addition, and advance climate-smart agricultural production.

5.      EU Membership

Romania has benefited from being part of the European Union’s single market, with European direct investment and labour mobility contributing to rapid growth.

6.      Manufacturing and Industrial Sector

Historically, manufacturing companies and the industrial sector have represented the backbone of Romania’s economy.

However, the report also highlights several cross-cutting constraints currently hampering development, including skills shortages and mismatches; governance and institutional shortcomings in the business environment; barriers to competition; limited innovation due to chronic under-investment; and infrastructure and connectivity issues.

Green economy

Romania has shown a strong commitment to becoming a green economy, as evidenced by several key initiatives and programs:

1.      Climate Change and Low Carbon Green Growth Program

Romania is committed to fighting climate change and pursuing low carbon development. The Government of Romania, through the Ministry of Environment and Climate Change (MECC), has requested the World Bank to provide advisory services to help meet this commitment. The program aims to enable Romania to advance towards attaining the “Europe 2020 Strategy” objective, which provides EU Member States a framework for moving towards a greener and more competitive low carbon economy.

2.      Decarbonising the Economy

Romania is on track to achieving its 2030 target of reducing emissions by 55% from 1990 levels. However, achieving its pledge of carbon neutrality by 2050 will require substantive and coordinated policy action and funding. The investments needed to develop a decarbonized energy sector alone is estimated at $356 billion by 2050.

3.      Sustainable Development Goals (SDGs)

Romania prioritizes SDGs 6 (Clean Water and Sanitation), 7 (Affordable and Clean Energy), 11 (Sustainable Cities and Communities), and 12 (Responsible Consumption and Production) with an environmental dimension.

These initiatives highlight Romania’s commitment to a green economy and its efforts to combat climate change.

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3.     France objects to LATAM trade deal, Brussels proceeds anyway

Valdis Dombrovskis under scrutiny at the European Parliament

In a move that has stirred controversy, Brussels has decided to proceed with a significant trade deal with the Mercosur group of Latin American countries, despite strong objections from France. French President Emmanuel Macron has openly criticized the proposed pact, citing concerns over its potential impact on the environment, French farmers, and industry. However, the EU’s trade commissioner, Valdis Dombrovskis, has expressed his intent to finalize the deal, stating that a majority of EU countries back the agreement and that many of the French concerns would be addressed in the final agreement. This article aims to explore the intricacies of this decision, the reasons behind France’s objections, and the potential implications of this trade deal on the EU and LATAM economies.

Key features of the deal

The trade deal between Brussels and the Mercosur group of Latin American countries, despite French objections, has several key features:

1.      Market Expansion

The agreement would create a market of 780 million people, providing a valuable opportunity for EU exporters.

2.      Duty Savings

The deal is expected to save European companies more than €4 billion annually in duties.

3.      Investment Opportunities

EU companies have €330 billion in investments in the Mercosur region, which includes Brazil, Argentina, Uruguay, and Paraguay.

4.      Trade Volume

Trade in goods between the two blocs was worth €119 billion last year.

5.      Climate Commitments

A commitment to implement the Paris Agreement, which pledges to keep global warming below 1.5 degrees Celsius, would be an “essential element” of the pact. Brussels is also working on additional sustainability requirements, including commitments to protect the Amazon.

6.      Regulations

The EU has already introduced laws to ban the import of products made on deforested land and tax carbon-intensive imports.

These features highlight the economic and environmental considerations that are central to this trade deal.

Intricacies of the trade deal

The decision by Brussels to pursue a trade deal with the Mercosur group of Latin American countries, despite French objections, involves several intricacies:

1.      Majority Support

EU trade commissioner Valdis Dombrovskis has stated that a majority of EU countries back the deal. This suggests that the decision to proceed is not unilateral but is supported by a significant number of member states.

2.      Addressing Concerns

Dombrovskis has also indicated that many of the French concerns would be addressed in the final agreement. This implies that the decision to proceed does not dismiss the objections but seeks to resolve them within the framework of the agreement.

3.      Trade vs Environment

The decision also reflects the ongoing tension between trade and environmental concerns. While the agreement could save European companies more than €4 billion annually in duties, it has been criticized for its potential environmental impact.

4.      Geopolitical Considerations

The decision underscores the geopolitical importance of the agreement. With the inclusion of Brazil, Argentina, Uruguay, and Paraguay, the agreement would create a market of 780 million people.

5.      Negotiation Powers

Trade deals are handled at the EU level, so the commission has full negotiating powers. Any agreement must then be approved by a majority of member states, meaning France and Austria — which has also openly opposed the pact — would need several other countries to block its ratification.

These intricacies highlight the complexity of international trade negotiations and the balancing act required to reconcile the diverse interests of member states.

Reasons behind France’s objections

France has raised several objections to the trade deal between Brussels and the Mercosur group of Latin American countries:

1.      Environmental Concerns

French President Emmanuel Macron has expressed concerns about the potential environmental impact of the deal. He has specifically mentioned the need to protect the Amazon and implement the Paris Agreement, which pledges to keep global warming below 1.5 degrees Celsius.

2.      Impact on French Farmers and Industry

Macron has also voiced concerns about the potential negative effects of the deal on French farmers and industry. The agreement could potentially expose these sectors to increased competition from Latin American countries.

3.      Political Reasons

An EU official suggested that Macron’s opposition to the pact could be due to internal political reasons, as opposition leader Marine Le Pen is against the pact.

These objections highlight the complexities of international trade agreements and the need to balance economic benefits with environmental and social considerations.

Potential implications of this trade deal on the EU and LATAM economies

The trade deal between Brussels and the Mercosur group of Latin American countries has several potential implications for both the EU and LATAM economies:

1.      Market Expansion

The agreement would create a market of 780 million people, providing a valuable opportunity for EU exporters.

2.      Duty Savings

The deal is expected to save European companies more than €4 billion annually in duties. This could lead to increased profitability for EU businesses and potentially lower prices for consumers.

3.      Investment Opportunities

EU companies have €330 billion in investments in the Mercosur region, which includes Brazil, Argentina, Uruguay, and Paraguay. The deal could potentially open up new investment opportunities and strengthen economic ties between the two regions.

4.      Trade Volume

Trade in goods between the two blocs was worth €119 billion last year. The deal could potentially increase this trade volume, benefiting both EU and LATAM economies.

5.      Environmental Impact

The deal includes commitments to implement the Paris Agreement and protect the Amazon. However, there are concerns that it could contribute towards deforestation in Latin America. 6. Geopolitical Considerations

The deal could potentially shift geopolitical alliances, with Brussels seeking new trading partners amid growing fears that countries like Brazil are slipping towards China.

These potential implications highlight the economic, environmental, and geopolitical stakes involved in this trade deal.

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4.     Cambodia FDI strong future prospects

In 2024, Cambodia is poised to take centre stage in the world of Foreign Direct Investment (FDI). According to the FDI Standouts Watchlist 2024, this Southeast Asian nation is expected to lead in attracting FDI, outpacing many of its regional and global counterparts. This prediction is backed by a robust economic recovery and a strong manufacturing base that has positioned Cambodia at the forefront of FDI growth in Southeast Asia. However, the journey to this point has not been without its challenges. This article aims to delve into the factors contributing to Cambodia’s FDI success, the implications of this influx of capital, and the potential hurdles that lie ahead.

1.     Incentives offered to foreign investors

Cambodia offers several incentives to attract foreign investors:

1.      Investment Incentives

The new investment law establishes a transparent, predictable, non-discriminatory, competitive investment incentive regime². Incentives are offered in 19 sectors, including high-tech industries involving innovation or research and development.

2.      Tax-Related Incentives

These include a minimum tax exception, corporate income tax exemption, and special tax rate. There’s also an automatic tax holiday and a 100% exemption from import duties.

3.      Investor Guarantees

Protective measures are granted to investors and their assets, including non-discrimination, guarantees against nationalization and arbitrary expropriation, free transfer of funds, and intellectual property protection.

4.      Land Leases

Renewable land leases of up to 99 years on concession land for agricultural purposes are offered.

5.      Special Depreciation and Duty-Free Import

Qualified Investment Projects (QIPs) are entitled to receive different incentives such as profit tax exemptions, special depreciation, and duty-free import of production equipment and construction materials.

These incentives aim to create an open and transparent legal framework for investment, as well as to attract and promote quality, efficient, and effective investment tailored to support socio-economic development.

2.     Economic Recovery

Cambodia’s economic recovery from the COVID-19 pandemic has been robust and is a key factor in its attractiveness as a destination for Foreign Direct Investment (FDI). Here are some points to consider:

1.      Resilient Growth

Despite the global economic downturn caused by the pandemic, Cambodia’s real GDP growth is projected to reach 2.2% in 2021. This resilience is largely due to the strength of traditional growth drivers such as the garment, travel goods, footwear, and bicycle manufacturing industries, as well as agriculture.

2.      Recovery Strategy

The government’s “Living with COVID-19” strategy, introduced in late 2021, has been instrumental in the country’s economic recovery. This strategy has allowed businesses to reopen while enforcing protective health measures.

3.      Rebound in Tourism

The services sector, especially travel and tourism, has done well since the introduction of the “Living with COVID-19” strategy. Total international visitor arrivals have steadily increased, reaching 1.2 million in the first nine months of 2022.

4.      Increased Confidence

Both domestic and foreign investment have increased as business and consumer confidence have risen.

5.      Future Growth

Economic growth is projected to accelerate to 5.2 percent in 2023 as increased hiring supports rising domestic consumption and as inflation recedes.

These factors have contributed to making Cambodia an attractive destination for FDI in the post-pandemic world.

3.     Strong manufacturing base

Cambodia’s strong manufacturing base plays a crucial role in attracting Foreign Direct Investment (FDI). Here are some key points to consider:

1.      Labour-Intensive Manufacturing

Cambodia has adopted a policy of promoting the labour-intensive manufacturing sector, which plays a vital role in the country’s economy and is consistent with its comparative advantages. The garment sector, in particular, has seen significant growth, increasing from 17% to 22% of GDP over the last two decades.

2.      Export-Oriented Industries

FDI is concentrated in labour-intensive, export-oriented manufacturing industries, such as garments. This focus on exports has helped to spur a ‘crowding in’ effect for the garment and textiles industry.

3.      Diversification

Over the last two decades, Cambodia has undergone a process of rapid industrialisation and diversification. This shift from a predominantly agricultural economy to a more diversified one has made the country an attractive destination for FDI.

4.      FDI Performance

In 2022, Cambodia scored 5.10 in the Inward FDI Performance Index, showing it received more than five times its share of inward greenfield FDI compared to what could be expected when looking at its GDP.

These factors highlight the significant role of Cambodia’s strong manufacturing base in attracting FDI.

4.     Major contributors

The major contributors of Foreign Direct Investment (FDI) in Cambodia are indeed diverse and significant:

1.      China

China has been the top investor for the most registered FDI in Cambodia, with a sharing percentage of 48.2% of the whole FDI inflow in 2021. In 2019, 42% of FDI came from China.

2.      Thailand

While specific recent data on Thailand’s contribution to Cambodia’s FDI is not readily available, Thailand has historically been a significant investor in Cambodia.

3.      Japan

Japan contributed 6% of FDI in 2019. Japanese companies have been particularly active in sectors such as manufacturing and services.

4.      South Korea

South Korea was the third-largest source of FDI in 2021, with a shared portion of 8.1 percent. In 2019, South Korea contributed 11% of FDI.

These countries have played a crucial role in Cambodia’s economic development, contributing to its strong manufacturing base and robust economic recovery.

5.     Challenges

Cambodia faces several challenges in attracting Foreign Direct Investment (FDI), including:

1.      Global Economic Uncertainties

The global economic landscape is fraught with uncertainties, such as the ongoing effects of the COVID-19 pandemic and geopolitical tensions. These uncertainties can make investors wary and hinder Cambodia’s progression.

2.      Governance and Regulatory Environment

Despite recent changes in laws to attract FDI, Cambodia has faced challenges in attracting significant investment from certain countries, including the US. The reasons behind this include widespread corruption, a limited supply of skilled labour, inadequate infrastructure, opaque government approval processes, and preferential treatment given to local or other foreign companies involved in tax evasion or benefiting from the weak domestic regulatory environment.

3.      Limited Local Content

The generation of benefits, externalities, and sustainable linkages from inward FDI does not happen automatically, but requires the involvement and collaboration of all interested stakeholders. The impact of FDI depends on the local embeddedness of multinational enterprises, their linkages with local small and medium firms, and the latter’s access to global value chains.

4.      Quality of FDI

The quality of FDI matters more than quantity in terms of overall impact on development and growth. This suggests that FDI promotion policies should particularly target industries likely to supply inputs to domestic firms.

5.      Inequality and Social Rights

The interaction between global production networks and technological change is likely to produce unequal regional development, income polarization, low-quality jobs, limited knowledge spillovers, infringement of environmental, human, and social rights.

These challenges highlight the complexities of attracting FDI and the need for effective governance and regulatory frameworks.

6.     Future prospects

The future prospects of Foreign Direct Investment (FDI) in Cambodia are promising, with several sectors likely to attract the most investment:

1.      Manufacturing and Services

With a strong manufacturing base and recovery in services following the COVID-19 pandemic, these sectors are expected to continue attracting significant FDI.

2.      Technology and Innovation

High-tech industries involving innovation or research and development are among the 19 sectors that the new investment law offers incentives for. This suggests that these sectors could attract more FDI in the future.

3.      Tourism

With the recovery in tourism since China started lifting its COVID-related travel restrictions earlier in 2023, the tourism sector is also likely to attract more FDI.

Potential impact

The potential impact of this investment on Cambodia’s economy could be significant:

1.      Economic Growth

FDI can contribute to economic growth by providing capital for investment, creating jobs, and boosting exports.

2.      Technology Transfer

FDI can lead to technology transfer and knowledge spillovers, which can enhance the productivity of local firms.

3.      Infrastructure Development

FDI can contribute to infrastructure development, particularly in sectors such as energy, transport, and telecommunications.

However, it’s important to note that while FDI can bring many benefits, it also presents challenges, including the risk of economic volatility due to global economic uncertainties. Therefore, it’s crucial for Cambodia to continue improving its investment climate and addressing potential risks

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5.     London tech FDI steams ahead

In the world of Foreign Direct Investment (FDI), London has emerged as a leading global destination for tech companies. In 2023, the UK capital has attracted more new international tech companies than any other global city. Despite a challenging global economic climate, London’s attractiveness as a top destination for international tech firms looking to set up an overseas operation remained resilient. This article aims to delve into the factors contributing to London’s success in attracting FDI, the implications of this influx of capital, and the potential hurdles that lie ahead.

Tech ecosystem

London’s tech ecosystem, now valued at over £600 billion, has matured significantly over the years, becoming one of the leading global hubs for start-ups and scale-up companies. Here are some key points that highlight this growth:

1.      Record Year for Investment

In 2021, London tech firms raised a record $25.5 billion in venture capital funding, more than double the investment levels in 2020. This indicates a strong investor confidence in London’s tech ecosystem.

2.      Increase in Mega Rounds

There was a large increase in mega rounds (investment rounds of $100 million or more) in 2021, demonstrating signs of maturity for London’s tech sector.

3.      Unprecedented Number of Exits

The total enterprise value of exits of London startups reached $88 billion in 2021, up from just $3.5 billion in 2020. This represents a 25 times increase, further boosting indications of the maturity of London’s tech sector.

4.      Rise of Unicorns

London added 20 new unicorns to its ranks in 2021, more than any other previous 12-month period¹. This takes London’s total unicorn count to 75, making it the unicorn capital of Europe.

5.      Global Competitiveness

Despite the challenges posed by Brexit and the pandemic, London’s tech sector showed strong performance and rapid growth in 2021, suggesting that the city is competing strongly on the world stage with other leading global tech hubs like the Bay Area and New York.

6.      Strength in High Growth Sectors

London’s strengths in high growth sectors such as Fintech, EdTech, and Climate Tech have been highlighted. Investment data shows that London is the top hub globally for fintech funding in 2022 with $6.3 billion raised.

These factors collectively illustrate how London’s tech ecosystem has matured into a leading hub for producing start-ups and scale-up companies¹².

Major contributors

The major contributors of Foreign Direct Investment (FDI) in London are indeed diverse and significant:

1.      Google

Google has made significant investments in London, including opening a new office in King’s Cross, which is expected to create up to 3,000 jobs.

2.      Apple

Apple has also invested heavily in London, opening a new headquarters at Battersea Power Station.

3.      Salesforce

Salesforce, the American cloud-based software company, has made London one of its main investment destinations in Europe.

4.      InMobi

InMobi, the Indian mobile advertising and discovery platform, has expanded its presence in London, recognizing the city’s potential as a hub for the AdTech industry.

5.      Tencent

Tencent, the Chinese tech entertainment company, has made significant investments in London’s tech sector.

6.      Alloy

Alloy, the US fintech unicorn, has also chosen London as a key location for its global expansion.

These companies’ investments highlight London’s strength as a global tech hub and its ability to attract FDI from some of the world’s most successful tech companies.

Government policies

The UK government’s policies, particularly its audacious campaign to attract French tech entrepreneurs to London, have had a significant impact on the city’s tech ecosystem:

1.      Attracting Talent

The campaign aims to attract French tech entrepreneurs to London, pitching the city as an ideal location for tech start-ups. This could lead to an influx of talent and innovation, further strengthening London’s tech ecosystem.

2.      Boosting Investment

By attracting tech entrepreneurs, the campaign could also bring in more investment into London’s tech sector. This could lead to the creation of more tech start-ups and scale-ups, contributing to job creation and economic growth.

3.      Enhancing London’s Tech Reputation

The campaign sends a strong message about London’s ambition to be a global tech hub. This could enhance the city’s reputation in the global tech industry, attracting even more tech companies and investment.

4.      Strengthening Ties with France

Despite the competition, the campaign could also strengthen ties between the UK and France in the tech sector. This could lead to more collaboration and partnership opportunities between tech companies in both countries.

However, it’s worth noting that such a campaign could also lead to competition and tensions with France, as it’s essentially a pitch for French techies to move to London. It will be interesting to see how this campaign unfolds and what impact it will have on London’s tech ecosystem in the long run.

Challenges

London faces several challenges in attracting Foreign Direct Investment (FDI), including:

1.      Global Economic Uncertainties

The global economic landscape is fraught with uncertainties, such as the ongoing effects of the COVID-19 pandemic and geopolitical tensions. These uncertainties can make investors wary and hinder the inflow of FDI into London.

2.      Governance and Regulatory Environment

Despite the city’s attractiveness as a global tech hub, issues related to governance and the regulatory environment pose challenges. Widespread concerns include the transparency of government approval processes, preferential treatment given to certain companies, and the weak domestic regulatory environment.

3.      Brexit

The UK’s departure from the European Union has created additional uncertainties for investors. The impact of Brexit on trade agreements, labour mobility, and regulatory alignment is still unfolding, which could affect investor confidence.

4.      Regional Imbalance

London’s dominance in attracting investment within the UK has been declining. The proportion of investors describing the city as the UK’s “most attractive destination” fell from 49 per cent in 2019 to 27 per cent in 2021.

5.      Slow Recovery of Tech Investments

London’s foreign investment projects have not fully recovered to pre-pandemic levels, particularly in the digital sector.

These challenges highlight the complexities of attracting FDI and the need for effective governance and regulatory frameworks

Future prospects

The future prospects of Foreign Direct Investment (FDI) in London are promising, with several sectors likely to attract the most investment:

1.      Tech Sector

London’s tech sector, now worth over £600bn, has matured into one of the leading hubs for producing start-ups and scale-up companies. This sector is expected to continue attracting significant FDI.

2.      Financial Services

As a global financial hub, London’s financial services sector is likely to continue attracting substantial FDI.

3.      Real Estate

London’s real estate market, particularly commercial real estate, is another sector that traditionally attracts significant FDI.

Potential impact

The potential impact of this investment on London’s economy could be significant:

1.      Economic Growth

FDI can contribute to economic growth by providing capital for investment, creating jobs, and boosting exports.

2.      Innovation and Technology Transfer

FDI, particularly in the tech sector, can lead to technology transfer and innovation, enhancing the productivity of local firms.

3.      Infrastructure Development

FDI can contribute to infrastructure development, particularly in sectors such as energy, transport, and telecommunications.

6.     Turkey FDI

In the realm of Foreign Direct Investment (FDI), Turkey has emerged as a significant player. In October 2023, Turkey reported an inbound FDI of $1.2 billion, marking a notable achievement in the country’s economic landscape. This surge in FDI is a testament to Turkey’s robust economic policies, strategic geographical location, and dynamic private sector. However, this achievement is not without its challenges and complexities. This article aims to delve into the factors contributing to Turkey’s success in attracting FDI, the implications of this capital influx, and the potential hurdles that lie ahead.

What are some of the incentives offered to foreign investors?

Turkey offers several incentives to attract foreign investors:

1.      VAT Exemption

VAT (value added tax) is not paid for machinery and equipment to be purchased domestically and abroad within the scope of the investment incentive certificate.

2.      Customs Duty Exemption

Customs duty is not paid for machinery and equipment to be purchased from abroad within the scope of the investment incentive certificate.

3.      Tax Deduction

Income and corporate tax is the total amount of tax offered, calculated at the proposed rates until the investment contribution rate reaches.

4.      Social Insurance Premium Support

Social insurance premium employer’s share is paid by the government which is calculated from the legal minimum wage for providing employment by the investment.

5.      Interest Rate Support

A certain part of the interest/dividend to be paid for the loan used up to 70% of the fixed investment amount registered in the investment incentive certificate is paid by the state for the first five years at most.

6.      Land Allocation

Investment land is allocated for the investments to be made, depending on the availability of land according to the regulations of the Ministry of Finance.

7.      VAT Refund

Paid VAT is refunded back while spending for the building-construction expenses if the minimum investment amount is more than 500 Million ₺ within the scope of strategic investments.

8.      R&D Incentives

Turkey offers special incentives for R&D and design projects in Turkey. 100% of R&D expenses are deducted from the tax base.

These incentives aim to create an open and transparent legal framework for investment, as well as to attract and promote quality, efficient, and effective investment tailored to support socio-economic development.

How does this compare to other countries in the region?

Comparing Turkey’s FDI performance to other countries in the region can provide valuable insights:

1.      Regional Performance

Turkey’s FDI inflow of $1.2 billion in October 2023 is significant when compared to other countries in the region. For instance, Albania reported an FDI inflow of $439.9 million in September 2023.

2.      Major Contributors

European countries accounted for 60% of the inflows in Turkey, followed by Asia and the Americas with 23% and 16%, respectively. The U.K. is the biggest investor among nations, accounting for 19%, followed by the U.S. and the Netherlands with 16% and 13%, respectively.

3.      Investment Strategy

Turkey’s investment strategy has been successful in attracting FDI. The country offers a wide range of incentives to foreign investors, including VAT exemption, customs duty exemption, tax deduction, social insurance premium support, interest rate support, land allocation, VAT refund, and R&D incentives.

4.      Regional Attractiveness

Turkey’s strategic location, modern logistics infrastructure, and incentive packages cater to the needs of international investors. The country has the required means to access a giant market of 1.3 billion people and US$26 trillion worth of trade volume with a four-hour flight radius.

5.      FDI Strategy

Turkey’s FDI strategy aims to increase its share in global FDI inflows to 1.5% in 2023. This strategy is designed to increase Turkey’s share in knowledge-intensive and high-value-added investments which also create high-quality jobs.

In conclusion, Turkey’s FDI performance is strong compared to other countries in the region, and the country’s strategic initiatives and incentives have played a significant role in attracting foreign investment.

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7.     UK manufacturing plan

In a significant move towards bolstering the UK’s manufacturing sector, Business and Trade Secretary Kemi Badenoch has unveiled a groundbreaking Advanced Manufacturing Plan (AMP). This landmark initiative, backed by a substantial £4.5 billion commitment in the Autumn Statement, aims to fortify Britain’s manufacturing prowess and secure its long-term success. The AMP, which has been warmly received by industry leaders, is set to catalyse innovation and growth across key industries including automotive, aerospace, clean energy, and life sciences. This article delves into the details of this ambitious plan and explores its potential impact on the UK’s economic landscape.

Key features

The UK Advanced Manufacturing Plan is a comprehensive initiative with several key features:

1.      Investing in the Future of Manufacturing

The plan extends and builds on successful programmes to 2030, forging partnerships with businesses to support market-led investment in innovation and research and development (R&D).

2.      International Cooperation and Supply Chain Resilience

The plan aims to increase UK capability to build supply chain resilience, boost economic security, and ensure sectors have access to the goods that drive prosperity.

3.      Reducing Costs and Removing Barriers

The plan seeks to boost competitiveness and ensure the UK retains its attractiveness to international investors in the long term by reducing costs and removing barriers.

4.      Building the Workforce of Tomorrow

The plan focuses on building the workforce of tomorrow.

5.      Regulating for Growth

The plan includes measures for regulating for growth.

6.      Supporting Innovation

The plan supports innovation.

7.      Leadership in Sustainability

The plan emphasizes leadership in sustainability.

8.      Securing Britain’s Place as a Leading Trading Nation

The plan aims to secure Britain’s place as a leading trading nation.

9.      Improving the Business Environment and Attracting Investment

The plan details crucial measures to enhance the business environment and attract investment, encompassing expedited grid connections, comprehensive expensing, and an increased focus on apprenticeships.

This plan is expected to have a significant impact on the UK’s manufacturing sector and the broader economy.

Timeline

The UK Advanced Manufacturing Plan is set to be implemented over several years. As part of the £4.5 billion investment package for key growth sectors over five years, the Made Smarter scheme will be expanded to all of England in 2025. Following this, the government will work with the devolved nations to explore making the programme UK-wide from 2026/7. This timeline indicates a phased approach to implementation, ensuring that the benefits of the plan are realized across the entire UK. Please note that these timelines are subject to change and it’s always best to refer to the latest updates from the Department for Business and Trade.