What began as a referendum for the British people about leaving the European Union has ended in a divorce called ‘Brexit’. A lot was uncertain during the negotiations, especially for the companies in the United Kingdom or the European Union. Companies thought they could lose access to the European mainland, but this uncertainty led to no real changes in investment flows from the UK to European Union countries.
Article by DataBewijst
The EU country that ‘gained’ the most from Brexit in the field of investment was The Netherlands. This country saw an average of 39,5 billion euros flow into the country during the period of the Brexit referendum in 2016 and the year 2019, according to numbers collected by the Dutch National Bank (DNB). Other European Union countries also saw a slight increase during the same period, but none of the increases were as big as the one in the Netherlands.
The numbers show that Brexit isn’t a good thing for the European Union, looking at the investments from the UK to the EU. Several countries saw a slight increase when comparing the average of the 2016 – 2019 period with the average of the 2012 – 2015 period, but most of the countries saw a (slight) decrease when compared. Take for example Italy. Italy had an average of 2 billion euros during the 2012 – 2015 period, but the average of the 2016 – 2019 period was 1,9 billion; a decrease of 100 million euros. Not that big of a difference, but some countries were affected more (see the map below).
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What about some of the other ‘neighbours’ of the United Kingdom? Ireland saw an average of almost minus 11 billion euros, with a low point in 2018 when there was a minus 23 billion euros (see map above). This means that more investments flow out of the country than flow into the country. Belgium saw a flow of 2,5 billion euros going into the country and France saw almost 6 billion euros flow into their country. But how is it possible that some countries saw a decrease in investment and others saw an increase in investment?
For that, we need to explain first what Foreign Direct Investment (FDI) is. “FDI is a form of investment in which you can start new operations in a different country”, says Riccardo Creszeni, professor of Economic Geography at London School of Economics (LSE). “However, there was a lot of uncertainty when it came to Brexit and investment.” According to Creszeni, the United Kingdom was the gateway between the European Union and the world. But because of Brexit companies had to look for a new ‘gateway’. However, there is still a lot of uncertainty and it is not clear what the future will hold for the UK and its relationship with the EU.
Different reasons for waiting
Brexit is complex enough without the impact of the COVID-19 pandemic. That made this far more complicated, according to Creszeni. “Take, for example, the rate of people that are vaccinated”, says the LSE professor. “The United Kingdom is doing better than the European Union right now when you look at vaccination.” This could lead to British businesses wanting to wait a little more to invest in other countries.
However, what is most important according to Ceszeni is the fact that a lot of companies are still wondering what the true impact of Brexit will be for them. “FDI is expensive and a lot of companies are wondering how the UK will develop itself in a post-Brexit world”, says Creszeni. This is the reason that in the future a lot of companies could invest more or less in the European Union.
The Netherlands, location and taxes
Looking at investments from Brexit – as said before – the Netherlands gained the most. But why is this country so attractive for investments? “The Netherlands was always our number one choice for our European logistics hub, due to its transport links and affiliation with many of the industry’s leading technology manufacturers”, says Richard Eglon, Chief Marketing Officer by Agilitas (an IT company). Because of Brexit, Agilitas had to invest in the European Union. Otherwise, they could lose access to their European clients who are very important for the company.
Losing access to the European market was one of the reasons to move to the Netherlands, but professor Creszeni says there are more. “The Netherlands has favourable taxes”, says the LSE professor. This means that companies could move to the Netherlands because the country is a tax haven. This could potentially mean that companies could only move their money to the Netherlands and with that create no jobs at all.
More reasons to choose The Netherlands
That the Netherlands has favourable taxes is not the only reason according to Creszeni: “The Dutch speak English very well and the Netherlands is very interesting if you have a lot of clients in France, Belgium and Germany”, tells Creszeni. Because of all these different aspects, it’s clear that the Netherlands is an attractive country to invest in.
A company that can confirm what professor Creszeni says, is AM Best. AM Best is a credit rating agency with a focus on the insurance industry. The company opened a second headquarters in Europe, because of Brexit. According to the website of the Netherlands Foreign Investment Agency (NFIA) called investinholland.com, there were multiple reasons to move to Amsterdam. “AM Best was drawn to Amsterdam for a variety of reasons, including its well-established financial centre and its strong pool of talent”, says Nick Charteris-Black, managing director, market development for Europe, Middle East and Africa at AM Best.
However, it is too soon to talk about the exact effect of Brexit on, for example, the investment numbers. There is so much uncertainty, but for now, it seems like the Netherlands profited the most from Brexit. But according to the LSE professor, no one benefits from the UK leaving the EU.
Explanation with investigation
For this investigation, Mirthe van Wijngaarden and Cédric Broodman (data-driven journalists for DataBewijst) contacted all of the Central Banks of European Union countries. The requested data contained the Foreign Direct Investment flows from the UK to each EU country from 2000 till 2020. The reason for taking such a long period was to check if there were perhaps some other trends usable for research. Not every country could give the data from 2000 till 2020. These countries are marked grey in the visualisation. Some countries weren’t able to give all the data or did not have the data for this period complete. In the end, as long as the data contained flow numbers, this given data was used. That way, the data could be correctly compared and interpreted.
It is important to note that flow numbers don’t tell the whole story and that there are a lot of aspects that could change these investment flows. Examples of these possible aspects are Brexit itself and the COVID-19 pandemic. Furthermore, for this article, the average was used to compare the data. An average is quite sensitive to outliers. That is why it was decided to show the numbers per year in the interactive map of Mapcreator to show a complete picture and to be as transparent as possible.
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