Shaping Scotland's economy: inward investment plan

2 Executive Summary

Our ambition is for Scotland to be a leading destination for inward investment that aligns with our values as a nation. This plan sets out how we are going to deliver on that ambition. It fulfils the 2019-20 Programme for Government commitment to publish an evidence-led plan for inward investment. It complements A Trading Nation – our plan for growing Scotland’s exports, published in May 2019, and it lays much of the groundwork for our Capital Investment plan which will follow.

This plan recognises the value that inward investment brings to Scotland’s economy, both in terms of the direct benefits that accrue from job creation, but also the wider economic spillover benefits. It also recognises the significant benefits that inward investment can bring to Scottish businesses, in terms of access to global technology, markets, talent and finance.

Inward investment makes a positive and significant impact on Scotland’s economy. Inward investors constitute 3% of Scotland’s businesses, yet are responsible for 34% of employment (624,000 jobs), 46% of Scottish GVA (£41.7bn), 50% of turnover in Scotland (£119.6bn)^[3], 63% of business R&D spending (£782m)^[4], 77% of Scottish exports (£24.2bn), with 86% of Scotland’s top 100 exporters being foreign or rUK-owned^[5].

These businesses are also typically more productive and pay higher than average wages compared to domestic businesses. They are more likely to operate in export sectors and to have a higher proportion of spend on R&D and innovation.

This Plan recognises Scotland’s existing strengths in inward investment, with our position as the top performing region or nation in the UK, outside of London, in attracting inward investment for each of the last seven years. But it also recognises that there is scope for improvement, in particular around how we maximise spillover benefits.

Analysis by the UK Government’s Department for International Trade (DIT) compares the performance of the nations and regions across the UK in capturing wider ‘spillover’ benefits, such as supply chain benefits, spending on R&D and regional impact. In most cases Scotland is ‘mid-table’. Office of the Chief Economic Adviser (OCEA) analysis, applying DIT’s estimates, suggests that if Scotland were as successful at maximising the wider benefits as the best performing region in the UK, this could increase GDP by £4.2bn and exports by £2.1bn annually, with the potential to increase government revenue by 1.2% and add in the region of an additional 20,000 jobs. To provide an illustrative example, a 1.2% increase in onshore revenue in 2018-19 would be equivalent to £680m in additional revenue.^[6]

The plan is evidence led – it identifies Scotland’s strengths in terms of our key globally competitive sectors, assets and talents. It matches those strengths to current and projected global inward investment flows. This is demonstrated in our skills system which has the ability to respond at pace to the needs of business and to shifting wider – and sometimes unexpected – economic circumstances. Scotland provides the responsive skills system investors identify as being key to their growth ambitions.

Science and research in Scotland remains cutting edge and truly excellent in global terms. A key partner for global collaborations, Scotland produces more research papers in the world’s top 1 percent than any other part of the UK. We have 8 percent of the UK’s population, 10 percent of its researchers, yet produce 12 percent of its research output.

Scottish universities attract around £166 million per year^[7] as foreign investment into research. This is on top of their income from other types of work for international organisations (such as consultancy) as well as from fees from around 36,500 non-EU international students each year, demonstrating the important role Higher Education Institutions (HEIs) play in attracting inward investment.^[8]

Our ambition is for Scotland to be a leading destination for inward investment that aligns with our values as a nation

Scotland Is Ranked First Out Of 36 OECD Countries in Terms of High-Level Qualifications.^[9]

Scotland Proportionally Has More People Aged 25-64 Who Are Tertiary-Level Educated Than Any EU Country.^[10]

The Proportion of Scotland’s Working Age Population with a Degree or Professional Level Qualification Has Increased From 16.8% In 2004 To 29.6% In 2018.^[11]

In 2019, 83.1% Of All Employees in Scotland Received the Real Living Wage, Higher Than the UK Average and An Increase Of 2.5 Percentage Points Since 2018.^[12]

We identify nine key opportunity areas where Scotland’s strengths match global investment flows: Energy transition, Decarbonisation of Transport, Software and IT, Digital Financial Services, Digital Business Services, Space, Healthtech, Transformation of Chemical Industries and Food & Drink Innovation.

These are the areas where we see significant opportunity for Scotland to become an inward investment destination of choice, and to maximise the wider spillover benefits to our economy. This work is underpinned by rigorous analysis and qualitative data.

The plan also clearly articulates our core values as a nation, around fair work and a net zero, technologically driven, high value wellbeing economy. These values have never been more important to global businesses.

The plan describes how we will identify and target key inward investors in these sectors who share these values, investors who we believe will be open to work with Scotland to further our, and their, ambitions. It lays out the change in approach from our current largely opportunistic, although successful approach to a more targeted approach which seeks to maximise wider economic benefits and strategically shape Scotland’s economic future.

The plan identifies the importance of targeting expansion with existing investors to rapidly scale current opportunities in the immediate term as a response to the economic damage caused by Covid, but also to attract new investors and new opportunities in the longer term.

It outlines the importance of building clusters of expertise that align with the strengths of Scotland’s regional economies and that will shape Scotland’s economy into the future.

It identifies the policies we need to implement, and investment we need to make, to remove barriers to new opportunities and align the investment ecosystem to deliver our ambition.

The plan takes into account the changing landscape resulting from Covid-19 including expected impact on inward investment flows and the re-shaping of industry supply chains. The global challenges posed by the climate emergency and an ageing population, Brexit and global trade disputes have also been assessed in the analysis.

This plan aligns with wider Scottish Government strategic context, the Advisory Group on Economic Recovery and National Performance Framework and other strategic plans such as the forthcoming Infrastructure Investment Plan, refresh of the government’s Digital Strategy.

It complements and is supported by Scottish Development International’s Operating Plan and Skills Development Scotland’s Strategic Plan 2019-2022.

It highlights policy areas where there is a need for a cross-government approach to support inward investors to maximise the benefits they can bring to Scotland’s economy in particular with respect to planning, intellectual property, skills and infrastructure.

It has been developed by a multi-agency project team drawn from Scottish Development International (SDI), Skills Development Scotland (SDS), Highlands and Islands Enterprise (HIE), South of Scotland Enterprise (SOSE), Scottish Enterprise (SE), Scottish Funding Council (SFC), Scottish Government (SG) and in consultation and collaboration with key inward investors and business organisations.

The plan gives clarity and direction to our inward investment activity and it mobilises all of Scotland’s economic ecosystem to build on our success to date as a key inward investment location and to maximise the future benefits to our economy through the following actions, also set out in Appendix A to this document.

inward investment plan actions

Action 1

We will place our values at the centre of our engagement with current and potential inward investors. To ensure a strong partnership basis to our relationships around promoting inclusive growth and creating a wellbeing economy with zero carbon and fair work at its core.

Action 2

We will align our global resources and footprint to the nine priority opportunity areas set out in the Plan, and in the locations where we can maximise access to these investors. SDI has assigned lead generation leads for each of the nine opportunity areas. SDI’s specialists will spend at least 80 percent of their effort on proactive opportunities aligned to these opportunity areas.

Action 3

We will target the immediate expansion of our top 50 existing investors to rapidly scale opportunities. We will proactively strengthen and deepen our relationship with these investors – both in Scotland and at their global HQs – with a view to maximising the additional investment and job creation opportunities through a deeper understanding of their strategic direction and positioning the role Scotland can play to support those objectives.

Action 4

We will identify and proactively target 50 leading global companies we want to attract to Scotland across our nine opportunity areas. Where these do not already exist we will build strategic relationships with these businesses to understand their global expansions plans and the role Scotland can play in these plans. We will keep this list under review to monitor new entrants and shifts in global industry dynamics.

Action 5

We will ensure that our strategic inward investment efforts align with regional growth plans and with Scotland’s Enterprise Areas, building on the strengths and assets each region in Scotland has to offer to create regional clusters of expertise and secure the benefits from inward investment across Scotland.

Action 6

We will focus resource on more strategic investments that shape places and deliver high value jobs, aiming ultimately to allocate approximately £20 million per annum to this work.

Action 7

We will align with the Scottish National Investment Bank (SNIB) and other sources of capital to support incoming companies to grow.

Action 8

We will position a better Scotland by investing in targeted Scotland is Now activity to support the nine opportunity areas.

Action 9

We will align and galvanise Scotland’s international network behind the Plan and give them the tools to promote Scotland effectively.

Action 10

We will develop Regional Prospectuses to highlight the strengths and attractions of Scotland’s regions, aligned with the international strengths and assets identified in this plan. These will be showcased on a global stage to increase visibility and attraction to inward investors.

Action 11

We will increase the number of people trained in Scotland in advanced digital skills from 4,000 to 10,000 every year. This creates a very strong credible proposition for Scotland to market internationally, as well as helping retrain and re-employ people losing jobs in other sectors. We will align with the actions relating to the skills agenda being developed as a consequence of the Logan Review recommendations.

Action 12

We will work with partner organisations to review the regulatory environment around the nine opportunity areas (restrictions and levers) to create the right enabling environment for investment projects and to attract inward investors.

Action 13

There are strong links between Scotland’s University knowledge base, inward investment and innovation. We will support stronger ties between academia and industry in Scotland, by working with Universities to agree a collective approach to stimulating inward investment and innovation, including through the handling of IP.

Action 14

We will focus on infrastructure to enable inward investment decision making with our Infrastructure Investment Plan which provides the strategic framework for the next 5 years’ pipeline of projects and programmes – with expected value of around £32 billion over 5 years. This investment will be targeted to boost inclusive economic growth, build sustainable places, and increase delivery of our climate and environmental ambitions.

Action 15

We will continue to invest in Scotland’s digital infrastructure by investing in superfast broadband to extend superfast broadband access
to 100% of premises across Scotland.

Action 16

We will focus effort on promoting Scotland to inward investors as a global leader in the creation of a supportive environment for remote, distributed and local working, and aligned to the development of our Moving to Scotland resource.

Action 17

We will review the process used by our enterprise agencies to ensure the return on investment criteria encompass both direct, and wider, spillover benefits in our economy.

Action 18

We will benchmark our current response timescales against comparable international standards to understand where we can make improvements to remove any unnecessary barriers to inward investment.