- Recent data shows that Scotland, more than any other region of the UK besides London, has a strong allure for foreign investors.
- The trade and investment agency for Scotland claims it is responsible for 8,500 jobs created in the past year, some of which were in large factories but most of which were smaller-scale jobs attracted by Scottish universities, digital expertise, and research capabilities.
- While a large portion of Scotland's success is a reflection of England's regional inequalities, there is a risk that inward investment will take the place of growing successful businesses from a Scottish base.
The Scottish economy continues to create jobs thanks to one of its more potent drivers. Foreign companies' inward investment supports and sustains employment.
Scotland continues to be the most alluring location in the UK for foreign direct investment (FDI) outside of London, according to the business consultancy EY's annual survey of this activity.
It has increased its share for four straight years and has trailed London in nine out of the last 10 surveys, despite being in a far-off second place.
The highest percentage of FDI projects, at nearly 14 percent, was included in EY's tally of 126 inward investment projects. According to a survey of people working in the FDI industry, 11% of respondents said Scotland was their top choice in the UK. This is still far behind London and lower than the 16% result from the previous year, but it still places Scotland in a strong second place.
The number of FDI projects in Scotland increased, whereas growth in the EU was only 1% and the UK saw an overall decline of 6%.
The signs are good, but does optimism portend more investment in this direction? Again, second only to London, a record high 19% of foreign inward investors intend to establish or increase their operations in Scotland.
Edinburgh, Glasgow, and Aberdeen are among the top five UK cities outside of London when viewed at the city level, giving Scotland another win.
Germany, Ireland, Canada, and the United States account for more than half of the projects, with the United States contributing close to a third. And of those American commitments, a sizable portion is looking to Scotland's research and development capabilities or its expertise in digital technology.
The Scottish government and its agencies, as well as the UK government, make extensive use of the EY "attractiveness" survey to promote and defend the nation's economic performance.
The results, in Adrian Gillespie's words, "testament to the dynamic business environment that Scotland offers to investors, including our enviable skills base, world-class universities, vibrant innovation districts, ambitious entrepreneurial communities, and the outstanding quality of life on offer.".
We work closely with businesses looking to invest here, says Vicky Grant, head of international trade at Highlands and Islands Enterprise. We assist them in finding the ideal location, finding space, assisting with hiring and training, and frequently also providing financial assistance. In addition, we continue collaborating with them to guarantee that they have access to all the resources they require for success. ".
There is, however, a disclaimer in the fine print. Such projects can be small, but they can also be large, high-value, and strategically significant. They can bring a lot of low-skill jobs to places with few employment opportunities.
Wide ranges of jobs are associated. Scotland attracted 10,000 jobs in 2021, up from 4,500 the previous year. It fell to 5,000 last year, a halving. And a lot of these projects either publish projected recruitment numbers that don't materialize or they don't provide any headcount information at all.
Scottish Development International just released another way of looking at this. Scottish Enterprise, which is jointly run by the Scottish government and its agency, says it can take credit for 8,500 jobs that were created or secured last year as a result of its efforts to build trade and attract funds.
Ninety jobs printing labels for Scotch whisky bottles were among those highlighted by deputy first minister Shona Robison earlier this month. The company has a history dating back to the 1840s in Glasgow, but it is now a subsidiary of the Italian company Eurostampa, with a new facility and a significant increase in employment.
The aerospace and biotech industries are producing much higher numbers. Pharma behemoth Merck announced at the end of last month that it would be adding 500 jobs in Glasgow and Stirling for drug testing. 1200 people from Scotland will now be employed there.
It's common to see that pattern. It is possible to persuade businesses to expand their presence in Scotland after they have tried out some inward investment. Building those relationships is a well-oiled process across agencies, frequently coordinated by Scottish Development International.
Similar to how businesses look to the next best location to expand where costs are lower after committing first to London and the South-East, which is frequently the first point of arrival. .
When that happens, Team Scotland is prepared with a package of incentives, including hard financial ones, but often closes deals by using Scotland's soft power, such as a round of golf, a trip to a nearby distillery to see how whisky is made, the history and environment of the country, more affordable real estate, and its private schools for the children of inbound senior executives.
Contrary to Merck, many of today's success stories involve smaller scale operations utilizing Scotland's talent pool for research labs rather than large plants or manufacturing.
One of the drawbacks is the flexibility of the labor pool. In Scotland, there are clusters of industries that guarantee a ready labor pool when a recruiter shows up; examples include finance, financial technology, high- and low-carbon energy, and aerospace.
Additionally, there are some weak points. Foreign investors find it difficult to commit to large-scale manufacturing for the boom in renewable energy due to a lack of engineering expertise and steel fabrication capacity.
They may find it difficult to fulfill their commitments to local content when all those offshore wind turbines are installed if they don't have that well-oiled and effective business eco-system.
The fact that businesses are purchasing British assets is also not surprising given how much the pound has fallen. Today, tourists from other countries also consider Britain to be very affordable.
The consequent impact on the economy is not entirely welcome, even though FDI's "attractiveness" seems to be a positive development.
When businesses are acquired by foreign investors, the corporate foundation from which to expand internationally competitive Scottish firms can be stripped out.
There is also the argument that relying on foreign investment and gearing government organizations toward bringing in more of it annually is a poor substitute for a domestic, self-assured economic strategy based on company growth and an export-focused focus from a Scottish base.
Brexit hastened the relative decline of the pound sterling. When the referendum results came in, the value of the pound literally fell over night. Since then, it has remained much weaker than it had previously been in relation to the US dollar, falling almost to parity during the market crash that was brought on by the Liz Truss/Kwasi Kwarteng mini-budget last year.
Positively, there hasn't yet been a mass exodus of foreign investors who can no longer use the UK as a friendly and generally business-friendly base from which to take advantage of seamless connections through the European single market.
The UK has received some inward investment to establish separate entities and distribution bases as a result of leaving the single market.
More often than not, it has compelled British businesses to establish independent entities and distribution hubs within the EU in order to avoid delays and disruptions in trade, and - particularly for the finance sector - to operate within EU rules and regulations. The cost of international trade has increased because of that process.
The UK government's push to 'level up' has coincided with the shockwave caused by Brexit. And it's at this point that Scotland's success in attracting FDI illuminates the bigger picture from the yearly EY figures, demonstrating just how important London is as a draw for inward investment and just how unimportant other regions of England are.
The EY "attractiveness" survey from this year may show indications of that shifting. The dominance of London over the rest of the UK has drastically decreased, from 49% of inward investment projects at its peak in 2019 to 32% last year.
394 projects were available in 2021; 299 were available the previous year. While there was growth elsewhere, the south-east and south-west of England experienced decline. That growth in the north of England was 24 percent, with the North-West accounting for the majority of that growth with 88 projects.
That might indicate a rebalancing of economic activity, but many other indicators will need to change as well.
Last month, a committee of MPs, with a majority of Conservatives, criticized the UK government for its failures in trying to level the playing field. They view it as being far too short-term, being motivated by bidding competitions rather than strategy, being undermined by the politicization of the funding distribution, and failing to work well with any of the devolved administrations, including Holyrood.
Although it is reportedly seen by the current Downing Street residents as a legacy of the Boris Johnson era and suffers from too much confusion over its goals and methods, Rishi Sunak is unable to abolish the policy because the north of England is politically relevant.
Scotland's success in this contrasts with England's shortcomings. It's always possible that English regions will gain more authority and organize themselves, learning from the lessons of inward investment from Scotland, Wales, and Northern Ireland.
An engaging mayor could be helpful. Although they might not increase the overall amount of investment in the nation, freeports should draw more of all kinds of investment. However, England is still waiting for the impetus and political will that will transform the economy of much of the nation beyond just the region around London.
