4 minute read 21 Jun 2019
Falkirk Kelpies, Scotland

Foreign Direct Investment: Why Scotland must seize the opportunity

By

Mark Gregory

EY UK Chief Economist

Committed to using economics to drive informed decision-making in the public and private sectors. Helping rebalance the UK economy. LinkedIn Top Voice. Sports mad. Loyal supporter of Stoke City FC.

4 minute read 21 Jun 2019
Related topics Growth Attractiveness Brexit

The 2019 EY Scotland Attractiveness Survey reveals a more cautious, subdued market for foreign direct investment than seen in previous years.

However, it also importantly demonstrates a resilient Scotland that remains the most attractive destination in the UK for both existing and new investors after London.

The total number of FDI projects in Scotland was 94, down 19% from 116 the year before. This is a trend seen across the UK, particularly in the regions, and evidences a challenging environment in securing inward investment. In fact, every UK region apart from Northern Ireland attracted fewer projects in 2018 than 2017.

There is clear potential for Scotland to capitalise on its proven strengths; its record for attracting new investment, and the positive perceptions of Scotland as a UK investment destination amongst both established and not established investors, and to consolidate its position as the natural alternative to London. The headwinds facing UK FDI overall make it especially vital that Scotland seizes this opportunity with both hands.

Brexit

While FDI projects in London held firm in 2018, the decline in projects across most UK regions appeared to reflect the uncertainty surrounding the Brexit process, with 15% of companies in our 2019 survey of international investors saying they have put UK investment plans on hold as a result of the vote to leave the EU.

Reality

Despite a fall in the number of projects secured during 2018, Scotland has managed to sustain most of the strong progress made during an unprecedented run of record-breaking success over the last few years.

Many UK regions were dealt the same combination of falling projects and declining UK market share felt by Scotland during 2018. The ‘Northern Powerhouse’ fell more sharply, while the ‘Midlands Engine’ and South East England suffered smaller falls. Scotland retains its position as the second most important ‘region’ for UK investment after London – a position it has held since 2014.

Foreign Direct Investment projects

94

The total number of FDI projects in Scotland in 2018

Perception

While a number of external factors can be cited for a more cautious market in real time, the study of global investor perception showed that when asked which region of the UK they see as the most attractive to establish operations, Scotland’s attractiveness more than doubled.

Significantly, this bodes well for Scotland’s future FDI flows, especially since – unusually – companies yet to invest in the UK are as keen on Scotland as those who have already done so. This perception is supported by Scotland’s stronger result for new FDI projects in 2018, which declined by only one project on last year’s results.

Cities and towns

Scotland’s ‘big three’ cities remain in the UK top ten outside of London. While Edinburgh and Aberdeen retained their places in the ranking, project numbers have reduced. However, Glasgow has bucked the trend and has seen a 19% increase in projects from 2017. With only one project difference between Edinburgh and Glasgow. As Scotland’s largest city, its economic performance has the potential to impact the overall performance of the Scottish economy.

Honourable mention goes to Dunfermline which, having secured three FDI projects last year, becomes Scotland’s fifth most successful location for FDI.

Sizeable projects were also recorded in the Highlands and Islands and South of Scotland, which are predicted to see the combined creation of 450 jobs.

Sector performance

Digital and business services both generated the highest numbers of inward investment projects into Scotland in 2018. These were also the leading two sectors for the UK as a whole, accounting for 34% of investment into Scotland. Sales and Marketing projects performed the strongest in 2018, with an increase of 20%.

Most trends in sector project declines were mirrored across the UK as a whole. The sharpest decline in Scotland was seen in R&D, down 13 projects (59%).

Scotland will need to build on its proven strengths, and re-double its efforts to attract investors and FDI from across the world

What next?

Scotland’s continuing resilient performance in securing FDI projects provides a solid base from which to navigate a path. To do this successfully it will need to build on its proven strengths, and not just maintain, but re-double, its efforts to attract investors and FDI from across the world.

When we asked respondents to rate the factors that influence them to choose one region of the UK over another, the top criteria was the availability and skills of the local workforce. The availability of business partners and suppliers also remains an important consideration, as is the quality of infrastructure.

At an uncertain time nationally and internationally, companies want to be sure they are going into a region that offers an environment conducive to their investment. Our figures on both FDI projects secured and investor perception suggest that the Scottish Government’s investment in its network of Innovation and Investment Hubs in recent years and its reorganisation of Scottish Development International (SDI) may be both well-timed and bearing fruit.

Summary

Efforts now must focus on ensuring the talent pool is skilled and agile, fed by an appropriate pipeline, in order not just to maintain, but also step up, Scotland’s efforts to attract investors and FDI from across the world.

The opportunity is clear – and Scotland needs to continue to seize it.

About this article

By

Mark Gregory

EY UK Chief Economist

Committed to using economics to drive informed decision-making in the public and private sectors. Helping rebalance the UK economy. LinkedIn Top Voice. Sports mad. Loyal supporter of Stoke City FC.

Related topics Growth Attractiveness Brexit