Troubled Britannia — Cheow Xin Yi
MAY 9 — Amid the plush and stately furnishings of the nearly two-century-old Oriental Club off London’s Oxford Street, Singapore businessman Lutfi Talib’s candid summary of the state of the British economy felt practically brutal.
Things on the ground are “dire”, said the 57-year-old.
“Political parties are lying through their teeth (about the economy) because they don’t have a choice,” said Talib, president of the Singapore business group, a network of mostly big local corporations who have a presence in the United Kingdom. The worst had yet to happen because the pain of retrenchment was only slowly being felt among ordinary Britons.
“If you are out of work in September, you’ll probably live quite comfortably in the next six months or so. And then you’ll realise are you eating into your capital and having to start re-organising your life. Nastiness will come around mid-year, where it’ll be the summer holidays, and you’ll realise you can’t have your ritual holidays ... Then they will realise ‘I’m poor’.
“When that happens, you’ll have riots on the streets,” predicted Talib, who is chairman of corporate finance firm Maxim LLP in London.
That was in late January, when Talib sat down with Today. Four months on, asked to revisit his prognosis, he insisted he “wouldn’t change a word” — likening it to “a prophet of doom ... (whose) prediction has come to pass”.
Certainly, while widespread street protests have not (yet) materialised, Saturday’s elections saw voters stripping the two ruling coalition parties of hundreds of local authority seats, punishing the government for biting austerity measures and Britain’s stalled economy.
Latest figures have confirmed the British economy is in a double-dip technical recession. Output dipped 0.2 per cent in the first quarter, after shrinking 0.3 per cent in the fourth quarter of last year.
Last week, Britain’s leading independent economic research group, the National Institute for Economic and Social Research, said the economy would stagnate this year, contrasting with the official estimate of 0.8 per cent growth.
In Talib’s view, “the coalition government are stumbling from one crisis to the next in their effort to cut the deficit. The only relief is the Queen’s Jubilee celebration and the London Olympics — then we hit August when the rich are on holiday and the poor will run havoc”.
His outlook is shared by economists that Today met in London.
John Bowler, the director of country risk service at the Economist Intelligence Unit, the entity behind finance magazine The Economist, said that ever since the 2008 global financial crisis, “one thing the coalition government wants to do is to balance the economy away from excessive dependence on financial services, property transactions. Some people say openly that we need to encourage bigger and broader manufacturing bases that has withered over the last few decades.
“(But) we haven’t seen a lot of evidence of that, and if the problems in the euro zone continue, or worsen, it’ll make the rebalancing process all the more difficult because those are our natural markets.” Four-five per cent of Britain’s exports go to the EU.
While the UK has the twin advantage of a separate currency and its own central bank shielding the financial system from the debt crisis engulfing the rest of the euro zone, London-based standard chartered economist Thomas Costerg noted that the UK has not been able to develop trade links with emerging markets as effectively as Germany.
This fact has not been lost on senior policymakers, who in recent months have gone on the charm offensive to court Asian business and political connections.
Last month, Prime Minister David Cameron personally led trade missions to the east, starting with Japan before making his way down to South-east Asia. Before him was the country’s Minister for Trade and Investment Loh Stephen Green, who visited Singapore and other regional nations to promote British businesses.
In a briefing with South-east Asian journalists, Nick Baird, chief executive of UK Trade & Investment (UKTI), said the UK government was aiming for 100,000 more British companies to export, which would raise the proportion of those that do to one-in-four.
And to make the country “an even more attractive investment destination”, he added, the UK is working towards the “lowest corporate tax levels” among the G7 economies.
Another example of the government’s efforts to rebalance its economy and attract foreign direct investments is the Begbroke Science Park, whose high-tech labs housed within the quaint farmhouse-like buildings on Oxford University grounds are attracting cutting-edge R&D investments from companies in the pharmaceutical and energy sectors.
Then there is Tech City. In 2010, the new coalition government announced a slew of initiatives, including £200 million (RM 1 billion) in equity financing, to transform what was formerly a rundown area of derelict factories in London’s East End, into “the digital capital of Europe” rivalling the likes of California’s Silicon Valley.
Speaking inside what was once a tea warehouse and now houses high technology start-ups, Eric Van Der Kleij, who oversees the state-backed Tech City Investment Organisation, said the area — which is close by the site of the London 2012 Games — was seeing organic growth on its own even before the government stepped in.
“My job is to take an existing natural cluster and accelerate it in a sustainable way and connect the growth we have here with the huge investment in the Olympic park,” he said, noting that the £9 billion pumped into building and enhancing the infrastructure of the nearby stadium includes greater bandwidth capacity.
Though unable to provide statistics on employment growth and value-add, Van Der Kleij, himself a digital entrepreneur, said the number of companies setting up at Tech City has grown from 200 to more than 700 in less than a year as of January - from smaller companies to the likes of Google, Facebook and Cisco. Rents, meanwhile, were “still half of that of the West End”, he noted.
Also optimistic about the UK’s prospects is Singaporean businessman Jamal Hassim, who moved to London in the middle of last year to incorporate a company subsidiary.
“Don’t believe what people tell you about the economy being down — there’s a lot of money in the market. We’ve seen it. Just that people are very careful about how they spend it,” said the chief executive officer of SyQic, an Internet protocol TV platform and content provider.
While he declined to reveal the amount, Jamal said SyQic had already raised funds from a European private equity investor in the City for the company’s growth and expansion, even as he is working towards an initial public offering next year on London’s Alternative Investment Market, a platform for fast-growing companies.
A Singapore-based company, SyQic partners telcos to provide video-streaming content. It targets the diaspora consumers in markets like Malaysia, Indonesia and China and is planning to use the UK as a launchpad for the European market.
According to Jamal, whose firm is also looking for “target companies” to invest in, the room where he attends private equity pitching sessions at an investment network — held once every fortnight — is always “full of investors”.
“It’s quite amazing … We literally have to chase deals because people have so many options in terms of funding,” he said, adding that the ventures involve sectors from medical services to clean energy.
While Singaporean hotelier and restaurateur Loh Lik Peng remarked on “the pretty damn grim” situation faced by the UK as a whole, he is still bullish about London.
Known for his quirky conservation hotel projects in Singapore, Loh has two commercial properties in London, including a conserved former Town Hall that is now a 98-room hotel in east London — his largest and most expensive investment to date.
Having recently been rejected in his bid for a third conserved building — also for a hotel — in Fulham, he is on the lookout for properties of historical value in the city. “London is not completely insulated but I just don’t feel the panic,” said Loh. “You still need to make reservations in advance for popular restaurants and on weekends, there are hordes of tourists at Oxford Street and Shephard’s Bush.”
To Loh, the crisis in Europe in general is “severe but temporary”. “Things will bounce back eventually. And when they do, countries like France and the Netherlands are well positioned to take advantage of any upswing, with large international cities that people want to go to.”
Even the pessimistic Talib acknowledged that for all of its troubles, the country is not “bankrupt”. “The UK is a very disciplined economy, whatever people say about it. It’s not Italy, it’s not Greece. There is a sense of justice. People pay what they need to pay, nobody ducks and dive. Wealth here is very deep.
Which is why, for Singapore companies with the stomach, Talib said such challenging times are the perfect opportunity to buy into “brands” — established British consumer names such as Harrods or Yardley.
“Even if Singapore did have a brand, they can’t be more than 30 years old. Here, they can be 100 years old. So by a single stroke, you have bought history,” he said, citing for example the sale of luxury bag brand Mulberry to hotelier Christina Ong,
“But you got to understand, there’s no point buying the brand and not investing in the brand; it won’t be for sale unless it’s going through some difficult times. Once you own a brand like that, you can build into it,’ said Talib. — Today
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.