7 minute read 31 May 2022

Scotland is well positioned for further growth in investment opportunities in a post-COVID-19 world as UK’s second FDI destination. 

Glasgow skyline

How Scotland has become a strong and established investment choice

Authors
Ally Scott

EY Scotland, Head of Strategy and Transactions and Managing Partner

Managing Partner for EY Scotland. Leads the Scotland Strategy and Transactions team. Corporate finance advisor. Recognised dealmaker with more than 30 years’ experience. Keen golfer.

Peter Arnold

EY UK Chief Economist

A passionate leader and trusted advisor. Over 20 years of experience in economic policy, regulation and competition. Optimising client strategies through the use of analytics and economic analysis.

7 minute read 31 May 2022

Scotland is well positioned for further growth in investment opportunities in a post-COVID-19 world as UK’s second FDI destination.

In brief
  • FDI projects in Scotland increased by 14% in 2021, with four years of continuous growth and the highest share of UK projects in the past decade.
  • Scotland has ranked second in 2021 for employment, with an impressive 125% increase in job prospects.
  • Scotland has seen strong performance in the digital, utilities and manufacturing sectors, and is a firm second choice for digital investment beyond London.

The EY Attractiveness Survey Scotland 2022 has revealed another year of an impressive performance, as its foreign direct investment (FDI) figures are a clear standout, even when compared with the bounce back of UK and Europe. The country secured an investment increase of 14% in 2021, as UK and Europe FDI projects in 2021 failed to match this elevated picture, with their total number of projects still being below their 2019 levels — albeit an increase from their 2020 figures.

With a double-digit increase in terms of market share for UK projects, Scotland recorded its highest ever level of the past decade — far outpacing the growth and recovery of the rest of the UK and Europe following COVID-19. With Scotland expanding its share from 11% in 2020 to 12.3% in 2021, UK and Europe trail behind with an increase in projects at 5.4% for Europe and only 1.8% for UK. Scotland’s FDI performance has been impressive for some time now, as it recorded more than 100 projects in six of the last seven years — a statistic that only one other UK region outside London has ever surpassed, the North West, and even then, it only happened once in 2017.  

Scotland remains second as the UK favoured destination for FDI, beaten only by London once again, with new projects reaching an all-time high of 122. This performance also cements the fact that Scotland has recorded an increase in projects for four years running, which was achieved during very turbulent conditions — given the geopolitical uncertainty and COVID-19. It is clearly tenacious and able to respond to the ever-changing environment due to being a very well-established location for FDI.

Scotland had five cities in the UK’s top 20 FDI cities outside London in 2021, with Edinburgh in joint-1st place with Manchester, Glasgow in 4th, Aberdeen in 8th, and Dundee and Livingston in joint-15th. Two clear sector performances were from Edinburgh, as it secured 17 digital projects and Glasgow, which secured six business services projects — with both results being only second to London.

  • First place: Edinburgh (31 projects)
  • Fourth place: Glasgow (23 projects)
  • Eighth place: Aberdeen (14 projects)

2021 Scotland FDI project performance

122

The number of inward investments projects secured.

Data on employment is not as comprehensive as the data recorded for FDI projects, but the 2021 figures show an equally positive picture for Scotland. Scotland regained second place behind London as the number of new Scottish jobs generated by FDI projects rose from 4,500 to 10,000 in 2021. This marked an increase of 125% and is Scotland’s highest ever annual total for employment gained from inward investment.

Scotland has reinforced its position of great strength as a top destination for FDI and can take pride that its proposition is aligned with investor demand, expectations and sentiment.

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Chapter 1

Leading origins, activities and sectors for Scotland

Scotland’s variety of results showcases a diversified economy.

The US remains the leading origin of inward investment into Scotland, higher than the percentage of projects for the UK, as US represented 29.5% of the projects for Scotland, followed by 24% for the UK. A similar picture is displayed by Germany, Canada, Denmark and France — with higher investment into Scotland than into the UK as a whole. One other standout was Spain, with the 12 projects recorded being the highest secured in the last decade into Scotland.

Business service projects were the leading activity for Scottish FDI, as the country secured 55 projects, representing 27% of the Scottish FDI projects in 2021, followed by manufacturing projects at 35. This shows a welcome return to growth for manufacturing (which includes investment into utility production sites) as Scotland recorded their highest total number of projects in this area for the past decade, with an increase of 106% from 2020. Scotland was impressive in comparison against the UK’s performance, as it secured 24.1% of all UK manufacturing investment projects.

In 2021, the top four leading sectors generating inward investments into Scotland were digital technology (33 projects), utility supply (18 projects), business services (14 projects), and machinery and equipment (14 projects). The standout success story was with the markedly high increase of digital projects as it rose by 73.6% in 2021, contrasting against a 7% fall for Europe and only a 7% increase in the UK overall from 2020. This also puts Scotland in second place in terms of the top location of digital projects, behind London. In general, Scotland has shown to be particularly strong in the areas of future growth and high investor potential, which lays foundations as a long-term destination of high FDI attractiveness.

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Chapter 2

Scotland’s attractiveness in the UK reaches record levels

Scotland has recorded a notable figure of 15.8% for perceived attractiveness in 2021.

Scotland’s FDI performance in 2021 showcases another strong year — from record increases of projects and market share within UK, to abundant employment prospects. The annual study of overseas investors’ perceptions of the UK, countries and regions further stabilises this positive view, as 15.8% of the investors now rate Scotland as the UK’s most attractive FDI location. This is Scotland’s highest ever result, increasing from the 15% recorded in 2021, widening the gap from the rest of the UK and chasing London for first place.

The ‘levelling up’ agenda appears to be reflected in the investor’s receptiveness of investing in other parts of the UK outside London. In the last three years, London’s score has fallen from 46% (nearly half) to 26.9%, whereas Scotland’s score has more than doubled — from 7% to 15.8% as it stands. If the Government support is available, it appears investors would be more than willing to invest in other UK regions outside the capital, with 59% stating their consideration. 

If Scotland keeps track of the revolving factors at play for attracting FDI, it stands to capitalise and maintain its leading position outside of London.

As a whole, the UK’s attractiveness as an investment destination over the next three years is positive, with 49% of the investors stating the UK will be even more attractive, which enhances Scotland’s future prospects for investment as well.

Our perception survey also shows that 58% of the investors in our UK survey are intending to invest in the UK in the coming 12 months — up from the 41% recorded in 2021. This is the highest level of investor intention ever recorded and is also above the investment intentions for Europe at 53%. The positive message shows a sharp rise of investor confidence into UK when compared with the pre-COVID-19 levels of 21% in 2020 and 23% in 2019. 

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Chapter 3

The outlook for Scotland’s FDI position

Scotland has shown strengths in the areas with the most future potential.

One other important finding gathered from the perception survey was with the themes likely to drive investors’ investment decisions following the recovery from the COVID-19 pandemic. Sustainability and climate change came in top place, followed by deglobalisation and the changing model of city centres to round up the top three. These main priorities put Scotland in a very strong position to capitalise on growth opportunities, as we have shown clear intentions with our sustainability strategy — including the 26th UN Climate Change Conference of the Parties (COP26) being hosted in Glasgow — with equally great stories to tell in the other areas.

Scotland has also proven to be strong in some of the fastest growing sectors, as when asked in the survey, investors placed digital, health, real estate and cleantech as the top four sectors where they saw the most future potential for UK FDI. Digital, health and cleantech are all within Scotland’s top six high performing sectors, with Scotland leading the way in two of these areas — particularly with digital — within UK. 

Summary

Scotland can look forward with confidence as it, once again, increases its share of FDI projects in 2021 and its relative FDI attractiveness in the UK reaches a new record high. The country’s share of FDI projects is also rising compared with Europe and the rest of the UK, with opportunities to increase the share even more. Scotland has shown its strengths in key business areas and fast-growing sectors, painting an optimistic picture for the years ahead.

About this article

Authors
Ally Scott

EY Scotland, Head of Strategy and Transactions and Managing Partner

Managing Partner for EY Scotland. Leads the Scotland Strategy and Transactions team. Corporate finance advisor. Recognised dealmaker with more than 30 years’ experience. Keen golfer.

Peter Arnold

EY UK Chief Economist

A passionate leader and trusted advisor. Over 20 years of experience in economic policy, regulation and competition. Optimising client strategies through the use of analytics and economic analysis.