APPENDIX 22
Memorandum submitted by Think London
I am writing in response to the House of Commons
Trade and Industry Committee's request for views on both the general
attractiveness of London to South American businesses and on the
potential barriers to or limitations on increased investment.
I am also happy to outline Think London's strategic approach to
South America as a source market for foreign direct investment
(FDI).
There is a widely held belief, to which we subscribe,
that an increasing proportion of the World Economic growth over
the next 20 years or so will be driven by the rapid expansion
of key emerging markets, notably Brazil, Russia, India and China,
the "BRICs". As such FDI from these markets looks set
to accelerate over coming years with these markets becoming increasingly
important sources for FDI projects and job creation both in London
and in the UK more generally. However whilst this has already
become a reality for India and China, which already rank as London's
second and fourth largest sources of new FDI respectively, Brazil
and Russia have yet to mature to a similar level.
This differing level of maturity in these markets
as sources of FDI is reflected in Think London's strategic approach
and marketing activities. Whilst we are particularly active in
China and India with offices and staff deployed both locally and
in London, our activities in Russia and Brazil are at an earlier
stage and remain less developed. Having said this we certainly
take the potential of Russia and Brazil very seriously indeed
and in the specific case of Brazil we have already undertaken
business development trips there. Our most recent visit was in
September 2005 whilst accompanying the Lord Mayor of the City
of London on a visit to South America. During the visit we undertook
a programme of meetings with Brazilian companies interested in
setting up businesses in London. Following up on interest generated
during this trip a decision was made to jointly fund with UK Trade
and Investment (UKTI) an Inward Investment Manager based in the
British Consulate-General São Paulo.
More generally, London has received a moderate
amount of FDI from Brazil which has traditionally gravitated towards
the European markets with strong historical links (notably Portugal),
however, there are some signs that this is on the increase. The
Ernst & Young European Investment Monitor (a well respected
database of new FDI projects) has recorded a total of 25 investment
projects from Brazil coming into Europe since 1997 of which nearly
a third went into Portugal. The UK received three projects all
of which went to London but notably this investment all occurred
post 2004. In addition to this "new" investment Think
London estimates that there are at least 20 large Brazilian companies
operating in London including: Banco Do Brasil S.A. (Banking),
Banco Mercantil Finasa S A São Paulo (Banking), Banco Do
Estado De São Paulo S A (Banking), Banco Itau Europa, S.A.
(Banking), Petrobras Europe Ltd (Oil & Gas), Petroleo Brasileiro
(Oil & Gas), Tristão (Coffee), Tam (Airlines) and Varig
(Airlines). The main activities of these operations are European
headquarters type functions and sales and marketing activities
capitalizing on the excellent access to markets provided by a
London location.
Whilst the historical links have focused on
Financial Services, Oil and Gas and Airlines, Think London has
been dealing with a number of recent enquiries from a wider range
of sectors. For example at the end of November and in conjunction
with UKTI and the DTI's Global Watch Service Think London hosted
an inward mission of five Brazilian mobile operators interested
in showcasing their capabilities and understanding the opportunity
of the UK wireless industry. Think London has also been working
closely with Brazil's largest cosmetics company as it looks to
enter the UK market, a project that if successful has the potential
to create a significant number of jobs across the country.
The main barriers to investment include generic
barriers not specific to Brazilian companies consisting largely
of cost factors notably property and labour costs, tax and regulations
issues, infrastructure problems particularly transport and competition
from other locations as well as a number of barriers more specific
to Brazilian companies including language and cultural compatibility
and restrictions on the granting of visas and immigration to the
UK. To overcome these barriers Think London has put in place a
strategy of having a long-term base in partnership with UKTI,
in São Paulo as the best way forward in this huge, complex
market. We have done this for the following reasons: Firstly Brazil,
especially in the south, is made up of large immigrant communities,
for example, Italian, Portuguese, German, Japanese, Spanish, Lebanese,
Korean and Russian communities are prevalent with deep roots going
back decades, even centuries and where the first language is often
the "mother tongue". These communities have deep economic,
trade and cultural ties with their countries of origin making
any targeting or selling of the London/UK offer much more complex.
Secondly London/UK have to compete with the default investment
options traditionally the USA, Spain, Portugal and other Latin
American countries. To overcome this necessitates a longer term
presence to continually and consistently hammer home the London/UK
story.
In summary, whilst unlike their Indian and Chinese
counterparts, Brazilian corporates have yet to make a significant
impression on the FDI landscape. We envisage that it is only a
matter of time before this changes. This is illustrated by the
fact that in the year to October 2006, for the first time, Brazilian
companies invested more abroad than was received in FDI, (the
net figure was minus US$13 billion), this fact is even more striking
when it is considered that much of the inward investment in Brazil
is largely "hot" and can be removed at relatively short
notice. Given these circumstances, it seems that Think London
will have a growing and increasingly receptive audience.
Our belief is reinforced by recent media coverage
and real investment decisions including Brazilian steel group
CSN's proposed £4.3 billion (US$8.2 billion) takeover proposal
for Anglo-Dutch rival Corus as well as reports of Companhia Vale
do Rio Doce, one of the world's largest mining companies, listing
on the London Stock Exchange. In particular we believe that London
has real opportunities in the area of finance, Information communications
technology and R&D with companies wanting to stay close to
London principally because of the size of the local market, links
with mainland Europe, capital market proximity and the fact that
it is the cultural centre of the UK.
22 December 2006
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