Brexit impasse takes its toll on British business investment

Dave Ramsden BoE deputy governor
Updated 06 November 2019

Brexit impasse takes its toll on British business investment

HUTHWAITE, England: As uncertainty over Brexit spills into its fourth year, Swiftool Precision Engineering has taken a tough investment decision: It will press ahead with a plan to spend £50,000 ($323,000) on a 3D printer but a new workshop roof will have to wait.

Like many British companies, the small, family-owned firm which makes parts for aircraft engines and offshore oil wells wants more clarity on what leaving the EU might mean for its business before carrying out all its investment plans.

“You become more mindful,” Director Sam Handley said at the company’s workshops, near Mansfield in central England, where it employs 126 people.

Swiftool (SPE) is not alone in being cautious.

 British business investment has fallen 1.1 percent since the Brexit referendum in June 2016 and analysts warn that could cause long-term damage to the economy.

Over the same period, business investment in the other Group of Seven big, industrialized economies has risen 10 percent, with the US posting an increase of 13 percent, according to Alpesh Paleja, an economist with the Confederation of British Industry.

“With every piece of machinery we have to convince the bank that we are doing the right thing. Every decision counts,” Handley said.

British Prime Minister Boris Johnson is urging voters to end the Brexit impasse by giving him a majority in Parliament in an election on Dec. 12, so he can get the divorce deal he struck with Brussels last month past lawmakers.

Weak business confidence is not just a British phenomenon. The International Monetary Fund says Sino-US trade tensions are hurting investment globally. But Brexit uncertainty threatens to turn the British problem into a crisis.

Bank of England Deputy Gov. Dave Ramsden said last month that weak investment has eaten away at Britain’s growth potential to the extent that the economy is now too inflation-prone to allow the central bank to cut interest rates.

The car sector — which is grappling with the prospect of high EU tariffs on top of global upheaval in the auto industry — cut investment by more than 70 percent in the first half of 2019, according to an industry group.

European planemaker Airbus, meanwhile, warned this year it might stop building aircraft wings in Britain if the country leaves the EU without a withdrawal agreement.

Warning signs about Britain’s diminishing growth potential are flashing in its productivity record.

It has long lagged the performance of the US, France and Germany and in the three months from April, British output per hour fell at its fastest annual pace in five years.

Paul Mizen, an economics professor at the University of Nottingham, said a survey of companies set up in 2016 by his university along with Stanford University and Britain’s central bank did not bode well for productivity going forward.

“Investment growth has been affected to the greatest extent among the most productive firms, which indicates that the productivity average for the UK as a whole will be lower.”

Mizen said the Decision Maker Panel survey also showed that constantly changing Brexit scenarios were distracting companies from focusing on boosting productivity.

Johnson says things could improve quickly. Getting his Brexit deal through Parliament would “unleash a great tide of investment into this country and be a demonstration of confidence in the UK economy”, he told lawmakers in October.

Johnson has left open the possibility of diverging from EU standards in sectors such as aviation to help Britain secure post-Brexit trade deals with the US and others.

Having to comply with different sets of rules would mean additional costs for British manufacturers that could erode their competitiveness.


Alibaba confirms huge Hong Kong public listing worth at least $13bn

Updated 15 November 2019

Alibaba confirms huge Hong Kong public listing worth at least $13bn

  • Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade
  • Alibaba Chief Executive Officer said the group wanted to participate in Hong Kong’s future

HONG KONG: Chinese technology giant Alibaba on Friday confirmed plans to list in Hong Kong in what it called a $13 billion vote of confidence in the turbulent city’s markets and a step forward in its plans to go global.
The enormous IPO, which Hong Kong had lobbied for, will come as a boost for authorities wrestling with pro-democracy protests that have tarnished the financial hub’s image for order and security and hammered its stock market.
Alibaba will offer 500 million shares at a maximum of HK$188 apiece to retail investors, the company said. The number eight is considered auspicious in China.
Over-allocation options could take the total value to more than $13 billion, making it one of the biggest IPOs in Hong Kong for a decade after insurance giant AIA raised $20.5 billion in 2010.
Alibaba had planned to list in the summer but called it off owing to the city’s long-running pro-democracy protests and the China-US trade war. The US and China are now working on sealing a partial trade deal.
Daniel Zhang, Alibaba Chief Executive Officer, said the group wanted to “contribute, in our small way, and participate in the future of Hong Kong.”
“During this time of ongoing change, we continue to believe that the future of Hong Kong remains bright,” he said.
The firm’s shares are already traded in New York. A second listing in Hong Kong is expected to curry favor with Beijing, which has sought to encourage its current and future big tech firms to list nearer to home after the loss of companies such as Baidu to Wall Street.
In the statement, Zhang said that when Alibaba went public in 2014 it “missed out on Hong Kong with regret.”
Mainland authorities have also stepped up moves to attract such listings, including launching a new technology board in Shanghai in July.
The listing comes after the city’s exchange tweaked the rules to allow double listings, while Chief Executive Carrie Lam had also been pushing Alibaba’s billionaire founder Jack Ma to sell shares in the city.
“The listing in Hong Kong will allow more of the company’s users and stakeholders in the Alibaba digital economy across Asia to invest and participate in Alibaba’s growth,” the company said.
It has long been expected to launch a multibillion-dollar stock listing in Hong Kong but appeared to postpone the offering because of political and economic turmoil.
Hong Kong’s key Hang Seng Index rose 0.48 percent in morning trading following the announcement
Chinese shoppers set new records for spending on Monday’s annual 24-hour “Singles’ Day” buying spree, despite an economic slowdown in the country and the worries over the US trade war.
It said consumers spent $38.3 billion on its platforms over that stretch, up 26 percent from the previous all-time high mark set last year.
Alibaba also said it saw record amounts of cross-border sales, underlining its plans to expand globally.
“Globalization is the future of Alibaba Group. We firmly believe the marriage of digital technology and commerce will bring about unprecedented change that will not be limited by borders,” Zhang said.