Chapter One: Introduction
1.0. Introduction
The purpose of the following assignment is to review the concept of project funding in the United Kingdom (UK) setting, whereby various international investments into the country, including infrastructural projects, are at risk of losing their funding because of the changing economic dynamics in the country. As such, the study evaluates the impact of Brexit on long-term international investments in the country, such as the Chinese infrastructural investment, given the financial uncertainty surrounding Brexit and the economic future of the United Kingdom. Therefore, the study will seek to evaluate what makes the infrastructure market in the UK an attractive long-term investment for key international stakeholders and trading partners, including China, Germany, the United States, Brazil, and Russia, among many others. (Fahy et al., 2017). The UK is the second largest economy in Europe after Germany, and also one of the largest economies in the world.
Initially, the UK was a member of the European Union (EU), the largest regional economic trading bloc in the world that brought together more than 28 European countries in an effort to create a Free Trade Area and promote bi-lateral trade between the member countries. However, the recent move by the UK to exist from the EU formalized by the 2016 Brexit referendum caused an upheaval in the economic situation of the country, given that it created numerous uncertainties on the economic prospects and future of the United Kingdom, given the fact that most of its international and bi-lateral trade agreements had been undertaken under the EU banner (Dhingra et al., 2016). Now that is was no longer a member of the EU, it became uncertain as to how the UK would continue with its ongoing and future trade and bi-lateral trade contracts with other countries, which affected various economic areas, including project funding for infrastructural project.
1.1. Background on Consumer Animosity
During the 2016 Brexit referendum, UK voters chose to exit the EU economic bloc, citing infiltration of their economy by immigrants from other EU member states that were competing for employment and business opportunities with the ordinary citizens in the country. The voters cited that the UK’s membership to the EU was only beneficial to the government and its wealthy citizens but was quite harmful to the middle income and low income citizens (Chang, 2018). In this regard, voting to opt out of the EU was the electorates’ win and the government’s loss, as the electorate voted to protect their jobs and business from unduly competition from foreigners or immigrants from other EU member countries, considering the fact that citizens from countries that were members of the EU were free to move from one country to the next without any restrictions, and they could seek employment or do business without having to go through numerous legal processes.
After the success of the Brexit referendum, the then Prime Minister of the UK, David Cameron, was forced to resign from office as a sign of the government’s failure to address the plight of its people, and promptly replaced by the incumbent Prime Minister, Theresa May. The new PM was to oversee the systematic withdrawal of the UK from the EU by following the statutory procedures that member countries had to follow up when exiting the EU (Oliver, 2017). Key among these processes included the signing of an exit deal with the EU that would see the UK set new rules and regulations that would govern its trading practices with the EU, which would also help in maintaining its existing trade agreements. The UK parliament was supposed to pass a bill stipulating the agreements reached by the end of March 31, 2019.
However, there was disagreement within the UK parliament whereby PM Theresa May was unable to marshal enough votes from UK’s parliamentarians to support the EU-UK exit deal that would protect the current economic pillars that the UK had created while still a member of the EU. Given the passing of this deadline, the UK moved forward with a ‘No Deal Brexit’, owing to the MPs desire to protect jobs and manufacturing companies in the UK from exploitation by immigrants and other European companies, respectively as was the case when the UK was a member of the EU (Hall & Wójcik, 2018). Nonetheless, the ‘No Deal Brexit’ creates significant uncertainty within the UK’s economy, as its current trade partners are not aware of the trading frameworks that would be used to continue with their trading agreements.
In this regard, the ‘No Deal Brexit’ also affects the existing bi-lateral trade agreements that the UK had with China, particularly with regard to infrastructural developments in the country. It is notable that the uncertainty caused by Brexit will have a negative long-term effect on the Chinese infrastructural investment in the country. Some of the key infrastructural projects undertaken in the country include transport and logistics, energy, water and sanitation, safety and resilience, health and education, public space, standards and rules, as well as financial support (Hunt and Wheeler, 2017). Of particular interest in the Chinese – UK infrastructural deal is the Hinckley Power Station project, and energy infrastructural project, and one of the major international investment projects in the country that has been widely discussed in the media recently.
In order to deliver on the proposed investment project in the country as one of the infrastructural plans outlined by the UK government, it is notable that the government required project funding and investment from private investors, most of whom were from outside the United Kingdom. However, the uncertainties surrounding the UK market make it difficult for prospective international investors like the Chinese to invest into such infrastructural projects. These economic uncertainties result from existing financial constraints in the country, global constraints on banking and lending as outlined in Basel IIII, as well as the financial uncertainty surrounding the ‘No Deal Brexit’. As such, questions surrounding this infrastructural project include what makes the energy and transport sectors in the UK an attractive long-term investment opportunities for countries like China (Eidenmuller, 2016). In addition, the study also addresses the right actions that the UK government has to take in order to secure this type of funding from China, and the implication of this funding on the UK tax payers. These concerns should also address whether or not future risks concerning interest rates would make any significant differences.
1.2. Subject and Motives
The subject addressed in this study is the impact of Brexit on long-term international investments into the United Kingdom, such as the Chinese infrastructure investments in the country, given the fact that the Brexit decision reached by the UK voters during the 2016 referendum resulted in uncertainties surrounding the economic future of the country. As mentioned above, the UK had made several economic deals with other countries while trading under the EU banner. However, now that the UK is no longer a member of the EU, the future of these contracts signed when it was in EU are uncertain both in the short run as well as in the long run, given the fact that the international trade partners are unaware of the right trading frameworks that would be used to continue their business or trading cooperation with the United Kingdom (Hantzsche, Kara & Young, 2019). The uncertainty primarily surrounds the concerns as to whether it would be profitable to continue trading with the UK after its Brexit referendum. One of the notable bi-lateral trade agreements that the UK should address pertains the infrastructural developments already underway in the country.
1.3. Research Aim, Objectives and Questions
1.3.1. Aim
The aim of the research study is to investigate the impact of Brexit on long term international investments in the United Kingdom, such as the Chinese infrastructure investment in the country. The concept of the study builds from the fact that the recent Brexit referendum where the UK itself out of the EU created a future of economic uncertainty with regard to the application of international trade tariffs and policies that would be applied in the overseeing of bi-lateral trade agreements between the United Kingdom and its international partners.
1.3.2. Objectives
- To investigate the impact of Brexit on international investments in the United Kingdom
- To analyse the impact of Brexit on existing bi-lateral trade agreements that the United Kingdom has with other countries
- To investigate the impact of Brexit on the future bi-lateral trade agreements that the United Kingdom plans to have with other countries
- To evaluate the correlation between ‘No Deal Brexit’ with investment activities within the United Kingdom.
1.3.3. Questions
- How does the Brexit implicate the financial future of the United Kingdom in terms of international investments?
- How does Brexit implicate the international trade agreements that the United Kingdom has with its international trading partners?
- How does Brexit the future of international trade between the United Kingdom and its international stakeholders?
- Does Brexit open or close the United Kingdom’s economy to foreign investors, including government, corporate, institutional, and individual investor?
1.4. Structure of the Study
The study comprises of five main sections. The first section is Chapter One: Introduction and it outlines the research aim, objectives, and significance. The second section is Chapter Two: Literature Review, and it evaluates published materials like journal articles and peer reviewed publications to establish the findings of other scholars on the same research topic. The third section is Chapter Three: Research Methodology and it outlines the procedure followed by the researcher in collecting and analyzing data required for completing the study. The fourth section is Chapter Four: Results, Findings and Discussions, and it analyzes the results and findings of the study. The fifth section is Chapter Five: Conclusions and Recommendations, which concludes the study and makes appropriate recommendations based on the research findings.
1.5. Findings of the Study
The findings obtained from this study indicate the implication of the Brexit referendum on the future of international investments within the United Kingdom, given the fact that the decision by the UK to exit the EU created economic uncertainties with regard to the future handling of its international and bi-lateral trade agreements. In this regard, the findings of the study will be critical in establishing how investors with interests in the UK will be treated after Brexit, in terms of taxation and tariffs, as well as identifying whether the UK markets will remain feasible for profitable investments as they used to be when the UK was still part of the EU. As such, the findings of the study will eliminate all doubts surrounding the uncertainties caused by Brexit on its international operations, as well as establish the impact of ‘No Deal Brexit’ on the economic future and stability of the United Kingdom (Dhingra et al., 2016). Notably, the findings will also help to inform the decisions of other international investors already pursuing various projects in the country as to whether they should continue with their ongoing projects, or pull out, given the implications of Brexit on their previous agreed terms and conditions, such as the Chinese infrastructure funding.
Chapter Two: Literature Review
2.0. Understanding Brexit
According to Chang (2018), Brexit refers to the term given for the UK leaving the EU, a decision that was put through a referendum on Thursday June 23, 2016. During the referendum, every eligible voter in the United Kingdom got an opportunity to exercise his or her voting rights to decide whether or not the UK should leave (Bre – Exit) from the EU or remain (Bre – Main) in the EU. Dhingra et al. (2016) supports the above findings by stating that at the end of the day, the Brexit wing carried the day as UK voted opted to leave the EU, with a majority vote of 51.9% against the Bre-main’s vote of 48.1%. The hotly contested referendum attracted 71.8% voter turnout across the country, which over 30 million voters. Similarly, Driffield and Karoglou (2019) adds that the decision to exit the EU was considered as primarily an electorate’s win, given the challenges that they were experiencing from the Free Trade Area created the EU for all its 28 member states.
Eidenmuller (2016) defines the European Union (EU) as an economic and political partnership that brings together 28 European countries, thereby creating the largest economic trading bloc in the world. The scholar noted that the EU was formed after the WWII to foster economic cooperation and integration within the European continent, whereby the primary idea was for countries to create trading partnerships with one another in order to avoid returning into war. This is especially considering the fact that Europe was the epicenter of the WWII, given that German was the villain against the Allied Forces led by France and Great Britian. Fahy et al (2017) agrees with the above findings by stating that the EU has grown over the years to create a single market for its members, whereby goods and people are free to move around without any restrictions, as if the member countries were one country. Furthermore, EU also has one currency, the Euro, currently used as the official trading currency by 19 of the 28 member countries. Similarly, Hall and Wójcik (2018) adds that the EU also has its own parliament that passes important legislations applicable to the regional economic trading bloc, such as rules and regulations affecting various areas of trade and economic cooperation, including transport, environment, and consumer rights, among many others.
2.1. Brexit Transition Program
2.2. ‘No Deal Brexit’
2.3. Implication of ‘No Deal Brexit’ on Economic Uncertainties in the United Kingdom
2.4. Implication of ‘Brexit’ on International Investments in the United Kingdom
2.5. Conceptual and Theoretical Framework
2.6. Literature Gap
References
Chang, W. W. (2018). Brexit and its economic consequences. The World Economy, 41(9), 2349-2373.
Dhingra, S., Ottaviano, G., Sampson, T., & Van Reenen, J. (2016). The impact of Brexit on foreign investment in the UK. BREXIT 2016, 24, 2.
Dhingra, S., Ottaviano, G.I., Sampson, T. and Reenen, J.V., 2016. The consequences of Brexit for UK trade and living standards.
Driffield, N., & Karoglou, M. (2019). Brexit and foreign investment in the UK. Journal of the Royal Statistical Society: Series A (Statistics in Society), 182(2), 559-582.
Eidenmuller, H. (2016). Negotiating and mediating Brexit. Pepp. L. Rev., 44, 39.
Fahy, N., Hervey, T., Greer, S., Jarman, H., Stuckler, D., Galsworthy, M., & McKee, M. (2017). How will Brexit affect health and health services in the UK? Evaluating three possible scenarios. The Lancet, 390(10107), 2110-2118.
Hall, S., & Wójcik, D. (2018). ‘Ground Zero’ of Brexit: London as an international financial centre. Geoforum.
Hantzsche, A., Kara, A., & Young, G. (2019). The economic effects of the UK government’s proposed Brexit deal. The World Economy, 42(1), 5-20.
Hunt, A., & Wheeler, B. (2017). Brexit: All you need to know about the UK leaving the EU. BBC News, 25. Retrieved from https://www.bbc.com/news/uk-politics-32810887
Oliver, T. (2017). Fifty shades of Brexit: Britain’s EU referendum and its implications for Europe and Britain. The International Spectator, 52(1), 1-11.