For the past 15 years, global economies have struggled to get a grip on growth stagnation according to the leading economic British think-tank, the Institute for Fiscal Studies. The United Kingdom has experienced notably slower productivity growth than comparable countries with similar gross domestic product (GDP). Wages have not increased to match inflation. Although the United Kingdom remains an important investment destination, overall project numbers have not yet returned to pre-pandemic levels, and global competition for investment remains fierce.
One solution for increasing productivity is to learn best practices to develop a cohesive long-term trade and investment strategy that will raise employee productivity.
The Productivity 2.0 series by our CIMA Advocacy teams includes a comprehensive report — Productivity Lessons Learnt from the World — Trade and Investment which presents:
Trade, investment and productivity from a policy perspective
Best practices
Comparisons and contrasts of trade and investment strategies for Australia, Denmark, Finland, Norway, Republic of Ireland, Singapore, Sweden and the United Kingdom
The research collated data on a range of issues impacting the working environment across the seven countries and the United Kingdom. A key conclusion was that trade barriers reduction was essential to advance nations productivity and growth. The conclusion formed part of the report’s overall policy recommendations for the United Kingdom. The report highlighted published research by the International Monetary Fund that said that ‘lowering trade and foreign direct investment restrictions, could increase output and productivity’. The report analysis included the following.
Trade, investment and productivity from a policy perspective
According to the Organisation for Economic Cooperation and Development, the top 10 economies with the best regulatory performance on average in the 2022 Services Trade Restrictive Index (TRI) — a summary of the trade policy stance of a nation — included Denmark, Ireland and the United Kingdom.
However, the report found that barriers to trade remain. For example, air transport services, legal services, and accounting and auditing services were the most restrictive sectors on average. The reason why accounting and auditing scored high in restrictiveness can be attributed to the need for licences or authorisations to supply such services.
Lessons for the United Kingdom included a case for additional liberalisation to increase output and productivity, and lowering foreign direct investment restrictions, which would increase the favourable effects of lower tariffs and lower nontariff restrictions on productivity.
Comparing and contrasting trade and investment strategies of 8 countries
The report analysed TRI policy changes applied by Denmark, Ireland and the United Kingdom in the last few years to reach success. In Denmark, foreign, non-EU/EEA corporations with specific corporate forms are no longer banned from opening branches in Denmark because of a change to the Corporations Act in July 2022. In 2020, Ireland shortened the processing time for issuing visas, which improved regulatory transparency for business in all sectors. In the United Kingdom, a new National Security and Invest Act (NSIA) was adopted by the United Kingdom and went into effect in 2022.
However, the United Kingdom’s trade openness declined after Brexit and has recovered more slowly from the pandemic compared to the other G7 countries. Singapore’s competitive market, open to foreign investment and technology, investment-friendly legislation and decades of dedicated strategic economic policy have all contributed to Singapore’s steady economic growth and higher wages. As the report notes, given its tiny size Singapore’s trading capacity — which is roughly three times its GDP — is impressive.
In one of the most liberal economies in the world, the Australian economy’s structure has undergone an outstanding transformation — lowering its trade restrictions on commodities, services, and investments. The advantages have included an educated workforce, competitive environment and good physical and communications infrastructure.
Highlighting best practices
National sectors that adapt their strategies to compete successfully in worldwide markets thrive.
Easing nontariff barriers, increasing capital mobility and implementing labour market policies can contribute to productivity growth and attract international investors.
By adopting lessons from successful policies, reviewing trade deals and maintaining a balance between openness and addressing distributional concerns, the United Kingdom can foster conducive conditions for increasing productivity growth.
Read the complete Productivity Lessons Learnt from the World — Trade and Investment report to gain insights and learn best practices for nurturing an environment that can increase trade, drive investment and stimulate the productive potential of the United Kingdom.