Scotland's appeal to foreign investors bucks trend
- Published
Scotland's appeal to foreign investors bucked the sharp downward trend during the Covid crisis last year, according to an annual survey by accountancy and consulancy firm EY.
The number of foreign direct investment (FDI) projects that came to Scotland last year was up from 101 to 107.
That 6% rise compared with a 12% drop for the UK as a whole, to 975 projects.
Much of that was from the reduction in digital technology going to London. Europe's total FDI haul was down 13%.
While London was the city that continued to attract the biggest number of UK projects - down from 48% to 39% of the UK total - Edinburgh knocked Manchester into second place with 36 projects.
Glasgow, with 23, came behind Birmingham and Belfast, followed by Leeds and then Aberdeen, with 13 projects.
The UK figures run counter to downbeat assessments of Britain's appeal to international investors following Brexit. Sentiment about investment in the UK rose significantly between a survey last autumn and the spring survey for EY.
However, the pattern over the years since the Brexit referendum point to the UK's dominance in this field being challenged by Germany and France. Paris emerged last year as Europe's most attractive city for FDI, but London regained that position in this year's survey.
The Scottish figures also suggest the prospect of another independence referendum is not a significant discouragement to foreign investors. Scotland has consistently outperformed other parts of the UK in this annual survey, with the exception of London.
Digital technology
Asked this year which are the most attractive parts of the UK to invest, the EY survey of 570 international investors put Scotland on 15%, up from 7% in 2019, and behind only London, which had 25% support.
Much of the appeal in Scotland last year was in digital technology, agri-food and business services.
The top project activities were in boosting sales and service, reflecting the growth of online sales, plus research and some manufacturing.
However, the UK figures on inward investment in manufacturing continued to decline compared with continuing members of the European Union. It was the only sector in which Britain clearly underperformed its near neighbours in attracting investment.
That is more likely to reflect Brexit, as Britain is no longer a base from which to manufacture with seamless access across Europe's market.
Inward investment, which used to be seen as a source of large numbers of jobs in assembly plants, has shifted in Europe and the UK towards higher value jobs, but fewer of them.
The countries that were source of the most investment into Scotland continued to be led by the USA, with 38 of the 107 projects, followed by Ireland (10) and the Netherlands (8).
Narrowed gap with London
Some 61 of them were new investment projects and the others were re-investments, as existing FDI companies extended and deepened their commitment to operations in Scotland.
It is harder to tell the impact of the raw project numbers on jobs, as these are less clear, they can take years to reach employment targets, and they can be skewed from one year to another by big factory investments or takeover deals.
The EY analysis of the numbers available suggests a decline in the number of jobs supported by new FDI in Scotland, down from a 10 year average of 4,650 to 4,500 last year.
Ali Scott of EY commented: "Scotland has now narrowed the gap significantly with London, which continues to lead as the most attractive region to establish operations.
"The scale of this two-year shift is illustrated by London's vote as most attractive region almost halving since 2019, while Scotland's has more than doubled. As well as being firmly established as the UK's second biggest recipient of FDI projects behind London, Scotland is now also in second place in terms of attractiveness, well ahead of third-placed south-east England.
"But this is no time for Scotland to rest on its laurels. As we look to the economic recovery from Covid-19, constructive, practical engagement between business and both the UK and Scottish governments remains key to shaping the right policies, business environment and incentives to give investors continued confidence to invest".
Linda Hanna, interim chief executive of Scottish Enterprise, which co-ordinates efforts to identify and attract inward investment opportunities, argued that the figures reflect the benefit of a "team Scotland" approach across the public sector, universities and business.
She said: "Scotland's incredible workforce, competitive cost base, world-class universities and supportive business environment is what makes global companies want to locate here.
"Not only does inward investment deliver high-quality, well-paid jobs, it also provides wider benefits such as supply chain opportunities and increased R&D spending that impacts across Scotland's economy."
There is global competition to attract inward investment, using incentives such as tax, subsidy, installing infrastructure and workforce training.
Tax is seen as a key element, and the deal struck by the G7 this weekend could see significant shifts in that competition.
If, for instance, Ireland is forced to raise its basic corporation tax from 12.5% to the G7 minimum of 15%, that would make it easier for Scotland to compete with its neighbour for these projects.
The UK Government is putting a lot into freeports, intended as low-tax enclaves for industry to import materials, process and export. None have yet been chosen for Scotland, and they are meant to be for green jobs.
It could be that initiative is undermined by the G7 agreement. More often, freeports have been found to displace jobs from other parts of the country rather than creating new ones.
For Scotland to compete, it is not tax but its workers' skills that are most often the differentiating factor.
Universities are vital to this, producing graduates who stay in Scotland because its cities offer clusters of attractive technology start-ups and innovation.
The scale may not be as big as the big factories of the past. But in the wake of Brexit, retaining the in-flow of highly-productive global companies is essential to helping home-grown ones learn and compete.