A new way to drive economic growth

A new way to drive economic growthThe United Kingdom has survived as an island due to its globalisation. Now it is embracing innovative new models for attracting investment and seeding regeneration projects to drive economic growth in strategies from which Australia could learn.Bringing foreign capital into the UK is a major part of the UK-China CEO Infrastructure Investment Forum’s mandate and it works hand in hand with one of the UK’s other major innovations, the UK Trade and Investment Regeneration Investment Organisation (RIO).The RIO’s Chairman, who is also Co-Chair of the UK-China Forum, Sir Michael Bear, sat down with the Property Council on a recent visit to Australia to talk about the new models and the successes they’ve achieved to date.First proposed in 2011, the Forum operates as a two-way trading and investment model, attracting Chinese investment to the UK and creating opportunities for UK firms to sell services to China in return.It’s already facilitated some big investments.Sir Michael cites the example of the China Investment Corporation (CIC), one of China’s biggest sovereign wealth funds, which is investing in Thames Water. Another is Beijing Construction in Manchester airport, where it is part builder and part investor, but will also bring Chinese flights into the city.On the reciprocal side, Sir Michael explains the Forum has secured mandates for the supply of professional and business services, like banking and architectural design, into China and also notched up some success introducing UK supply chains. When asked about the community response in the UK to such investments Sir Michael notes that, “We are a very open market in the UK. We are blind to ownership. We’ve survived as an island because we are globalised.”Over per cent of workers in the city of London have foreign passports, 300 languages are spoken. “RIO plays a key role in navigating the cultural, regulatory and other differences overseas investors face when entering what for them can be a new market in the UK. This helps ensure these differences don’t become a barrier to investment decisions going ahead.”At RIO we are able to advise what the best way is of delivering and integrating different cultures and different requirements into our market. “One has to be sensitised but as Boris Johnson has pointed out, it is really important that we build homes that are affordable for Londoners.” And of course this also comes down to perspective and context. While Australians have been taken aback by median house prices in Sydney hitting the $1 million mark, to Londoners, that price tag seems cheap.Partnerships, they have discovered, are also an important way to mitigate community concerns around foreign investment.”What we’ve found is that the partnership model is the one that works extremely well,” Sir Michael explains. And this includes both financial and operational partnership models.”We’ve managed to get our life funds to co-invest with our foreign direct investors – so you’ve got streetwise UK money together with foreign money – and that’s worked very well from an investment point of view,” Sir Michael says.”From a delivery point of view, for instance, to go back to the Manchester example, Beijing Constructions has a joint venture with one of our big contractors Ceridian. So again that’s a partnership model. “We do a lot of partnering because in a way you get the best of all worlds when you do that. And again that gets around some of the cultural and practical differences that happen when you work in different markets.”Arguably even more innovative is the ground-breaking UK City Deals initiative. Here in Australia, the Property Council, together with KPMG, took a close look at this model and identified nine key reasons why it should also be applied in Australia.The core goal of UK City Deals is to direct infrastructure spending to projects that boost productivity, employment and economic growth.”The current [UK] government manifesto is very clear on devolving decision making and spending decisions to the regions, to the core cities,” Sir Michael explains.Critically however, the UK Government also realises that central government has a supporting role to play too.”They realise that you can’t do this from a complete standing start. So City Deals, the £5 billion of seed core funding, has made a huge difference because it has been the enabler both in terms of new regulation and new legislation to enable things to happen.”Sir Michael says the UK concept of tax incentive funding, where you can capitalise business rates and invest the saving in infrastructure, was also important.”We’ve done all of these enabling deals, City Deals, where we can actually create economic growth from seed funding. It has resulted in some really interesting initiatives to help businesses grow.”And the response has been overwhelming. “When we put out the offer it was oversubscribed probably 10 times,” Sir Michaels recalls from when UK City Deals was first launched.”In terms of 360 degree feedback on what we’ve done, it’s been enormously successful. “I think that when we read our history books in 10 years’ time it will be seen as a real pioneering and transformational way of getting cities to take responsibility – with a little bit of help from central government – to really follow their own agenda because they know what it is that works in their particular area.”