Wanted: foreign funds, ideas and jobs

• Scotland is trying to attract a different type of foreign investor - committed to better jobs, more local supply and putting roots down into research.

• Such inward investors are one answer to a long-standing problem, underlined with two sets of new figures, with Scottish business failing to match universities' lead in innovative drive.

If innovation is the lifeblood of business growth, Scotland is looking anaemic.

The wider economy has a lot going for it in research and development, largely due to its university sector. For that, Scotland is the best in the UK's nations and regions, and in the top quarter of developed economies.

But businesses classified as "innovation active" are rarer than in the rest of the UK, and getting rarer still. Figures published by the Scottish government unpick the Scottish end of a UK survey, and it shows the past decade has seen that metric going backwards.

It fell from 45% of businesses in 2014-16 to 32% in the following four years. That's true of large businesses - down from 63% to 44% - and of small businesses, down from 43% to 30%.

Also on Wednesday, St Andrew's House published its annual survey of research and development across Scotland, and that showed business spending on that form of innovation continued to lag well below UK and international comparators.

That count is improving, and after lagging higher education R&D for most of the century so far, it is now just ahead at £1.35bn.

Innovative Israelis

Why has it been so weak? It has to do with the balance of sectors within the economy. The pharmaceutical and defence sectors have big, world-class, commercial research centres in England. The Midlands are big on automotive research.

There's not much to parallel that north of the border, other than the energy sector. Life sciences are significant, but not that big outside the universities. Food and drink firms seem better at marketing innovation than product development.

Some 83% of research and development in the West Midlands comes from business. In Scotland, it's only 50%, with universities making up much of the balance.

By international comparison, it also looks poor. Scotland spends only 1.65% of its annual output on all forms of research and development, compared with 2.38% across the Organisation of Economic Co-operation and Development. It trails furthest behind Israel and Korea, but in Europe, Sweden, Switzerland, Austria and Germany are highly placed too.

Drill down into the numbers for business enterprise R&D, and Scotland's rate - at only 0.83% - was last year precisely half the OECD average.

Scotland's golf courses, such as Carnoustie, are a major draw for business leaders.

So what can be done? Better links between business and universities have been pushed for a long time.

Another major driver of innovation and a source of funding for research is inward investment. With the stand-out exception of London, Scotland does better than other parts of the UK at attracting foreign companies to set up outposts and subsidiaries.

Those universities and the skills base are usually cited as important attractions, though foreign-based bosses also like an excuse to visit and play Scotland's golf courses.

Among other key factor: this is an English-speaking country, with a relatively flexible labour market, and it has offered unfettered access to the European Union's single market.

The result of strong inward investment has long been a source of jobs, new ways of working, and innovative culture that can spin out - both into the supply chain and the companies where inward investors' employees later go and work.

In 2018, inward investing companies represented only 3% of enterprises in the country, but they punched well above their weight. They were responsible for 34% of employment in Scotland (624,000 jobs), 50% of turnover (£119.6bn) and 77% of exports (£24.2bn).

Transport transition

With that clout and importance to the economy, it's worth noting that there's change afoot. Not only is that seamless access to the European single market being ended, but the Scottish government has revised its priorities, and this week published a new inward investment strategy.

As the Scottish government's/Scottish Enterprise's inward investment brigade, Scottish Development International has been given new marching orders by Business Minister Ivan McKee.

For those in the business of hiring people as cheaply as possible and exploiting flexible labour markets, don't expect SDI to come calling. Likewise those - and they have been successful and numerous since the 1970s - whose business is to extract oil and gas from under the seabed.

No more seeking to attract assembly plant jobs, even if they could offer many thousands of lower-skilled jobs. Energy firms are only of interest if they are in transition to renewable energy. Transport firms are welcome, if they too are in the business of transition to low emissions

Nine target areas have been identified, with Mr McKee emphasising that this is not random, but justified by evidence.

In addition to energy transition, these include decarbonisation of transport, food and drink innovation, software and IT, digital financial services, digital business services, space, health technology and the transformation of chemical industries.

The programme is to boost advanced digital skills in Scotland, from 4,000 people to 10,000, drawing on a recent report for the Scottish government by former Skyscanner executive Mark Logan.

He called for a much broader pipeline of people with capability in information technology through embedding it more firmly in schools and tertiary education, and teaching it better.

The focus is on getting the larger inward investors that are already in Scotland to commit to putting down deeper roots - developing their supply chain in Scotland and investing in research and development.

They're being expected to work alongside the Scottish government's values, which appears to mean a fair pay and work commitment. Are you listening, large warehouse-based online retailers?

It is also to get alongside the 50 companies around the world that are the best fit for the new programme.

Brexit deal

This strategy has, says Ivan McKee, the potential, under certain conditions, to create in the region of an additional 20,000 jobs, increase Scottish output by £4.2bn, boost its exports by £2.1bn, and add up to £680m in additional government revenues per annum.

The words "under certain conditions" weigh heavily on that sentence

The conditions of the economy now and for the foreseeable future of, first, surviving and then recovering from the Covid crisis mean that such targets are of limited value.

The conditions for inward investment would be helped by the Brexit uncertainty being removed, and a strong trading relationship being retained with Europe.

In addition, if the UK government is successful in securing new "global Britain" trade agreements elsewhere, that would boost prospects.

Such "certain conditions" are beyond the control of the Scottish government and Scottish business.

With a sharp rise in unemployment expected, don't be surprised if the talk of targeting and aligning with Scottish values - and particularly in oil and gas - is eroded in favour of getting whatever projects can be grabbed.