The Government's drive to increase foreign investment by advertising the relatively low cost of UK labour in the German press is a response to the decline in overseas investment in the UK corporate sector since 1990. Part of the £7.5 billion fall in foreign direct investment (FDI) reflects the global economic downturn. Outflows from Japan, for example, have fallen by 16% in the first six months of 1992 compared with the same period in 1991. But there has been a disproportionately large fall in FDI into the UK compared with other EC countries. In 1990 the UK received nearly 40%: the 1992 figures suggest this could be down to 25%. The outlook, predicts Schroder Economics, is mixed. Devaluation of sterling should draw funds but overseas companies often cite a stable, rather than low, exchange rate as a reason for investing. If sterling were to be more volatile outside the ERM, then they might be deterred. Similarly, the UK might be less attractive as a base to export into Europe if ties with the EC were weakened. Moreover, Europe may be losing its attraction. The US is looking to Canada and Mexico; Japan to its Asian neighbours. The EC must rekindle the impetus provided by the single market, broaden the Community and redevelop Eastern Europe.
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