Shaping Scotland's economy: inward investment plan

8 Policies: Supporting Inward Investment Projects and Enabling the Ecosystem

8.1 What Investors Want and How We Will Provide It

In previous sections we have set out our ambition for Scotland, our priorities in terms of our nine opportunity areas where Scotland’s strengths meets global demand and the platforms we will use to promote Scotland.

In section 4 we looked at Scotland’s current strengths and what support investors need from government. Here we turn our attention to meeting those investor needs by supporting both inward investment projects and enabling the ecosystem. As we saw in Section 4, this support is specifically around the skills of the workforce, the business environment, infrastructure reliability and quality of life as key factors.^[76] This section of the Plan identifies the changes in policy we will make to meet investor expectations and to deliver the shift in focus set out in this plan. Some of these policy changes are already underway and others are new.

To ensure alignment across government, and the wider economy ecosystem, this Plan has been developed with reference to a wide range of other policy work either published or under development, including the Infrastructure Capital Spending Review and forthcoming Infrastructure Investment Plan, Scotland’s Digital Strategy, Future Skills Action Plan, Climate Change Action Plan, the Technology Ecosystem Report prepared by Mark Logan and links to the recommendations of the Benny Higgins Advisory Group on Economic Recovery and is also aligned to the operational plans of the contributing government agencies.

8.2 Further Strengthening our Skills Pipeline

As we saw in Section 4 not only is the availability of skills a key determining factor in attracting inward investment, but it is an area in which Scotland scores highly compared to our competitors. Across the range of the sectors and technologies we have identified as priorities, Scotland is already well served by our skills pipeline. However to further improve our performance in attracting inward investment, and importantly to maximise the wider spillover benefits, we have identified the skills pipeline as an area where additional policy initiatives can make a significant difference. This manifests itself not only in terms of attracting inward investment, but also of course in providing more jobs, of higher value, in the economy and in increasing tax revenues as a consequence.

The skills required to deliver and maximise the opportunities presented in each of the nine opportunity areas are also cross cutting. Innovation, self-management and social intelligence are the foundations of the workforce as we move into the 4th industrial revolution. Agility and transferability of digital skills, critical thinking and analysis of data are integral to each area and Scotland’s skills system responds through the implementation of innovative approaches to academic and work-based learning provision. Our skills system is designed to build capacity, transferability and flexibility across multiple industries.

Digital skills in particular is an area where there is a need for significantly upscaling the skills pipeline to keep pace with global trends in technology and to provide the quantum of skills required to support our ambitions to increase both inward investment to Scotland and the growth of Scottish technology businesses. Digital skills directly support a number of our target sectors – including software and IT, Digital Business Services and Digital Business Services – but they are key across all nine of our identified target sectors. Scotland already has a key focus in this area. Scotland’s Digital Skills Academy, CodeClan is an industry and public sector initiative which provides a targeted and effective process to upskill and add to the digital labour skills pool.

Across the range of the sectors and technologies, we have identified as priorities Scotland is already well served by our skills pipeline

In May 2020, former Skyscanner COO Mark Logan was commissioned by Kate Forbes, Cabinet Secretary for Finance, to undertake a short-life review into how Scotland’s technology sector can contribute to the country’s economic recovery after the Covid-19 pandemic. The review’s recommendations are primarily concerned with stimulating and accelerating the maturity of Scotland’s “Technology Ecosystem” and identifies three fundamental supporting areas upon which the performance of the Technology Ecosystem depends.

• Education and Talent: at school level, at university (and parallel access paths), and at start-up/scale-up level.
• Infrastructure: including physical co-location environments for start-ups and the social infrastructure required to support a vibrant technology ecosystem.
• Funding: including grant funding, public and private investment regimens.

The report presents a blended portfolio of interventions, combining those that provide immediate performance benefits with others designed to significantly improve the long-term performance of the ecosystem. The report has been endorsed by key figures across business, technology and academia as potentially transformational.

This will be further underpinned by the refresh of the Scottish Government’s Digital Strategy which is underway.

A key part of this expansion of skills will include upskilling of traditionally underrepresented groups in the sector, including women. There has been growth in female employment across digital technology roles but women are still significantly underrepresented – the factors contributing to the gender imbalance are summarised in ‘Tackling the Technology Gender Gap Together’.^[77] There have been a multitude of robust and influential studies and reports that show why not only gender but all types of inclusion and diversity in the workplace matter, demonstrating impacts on higher productivity, increased innovation and better financial performance, such as outlined in McKinsey’s report, Diversity Wins: How Inclusion Matters. Both the public and private sectors must strive to drive greater inclusion and diversity in the workplace.

Work based learning is well understood and a prominent feature in the sector to ensure it has access to and develops the skills required. Modern Apprentices are an integral part of the talent pipeline into the sector and employers are increasingly embracing related Foundation and Graduate Apprenticeship programmes – including a newly developed Foundation Apprenticeship in Digital Manufacturing.

A multitude of robust and influential studies and reports show why not only gender but all types of inclusion and diversity in the workplace matter, demonstrating impacts on higher productivity, increased innovation and better financial performance

Demand is also increasing for upskilling the existing workforce in all aspects of Digital Manufacturing, including robotics, IoT, data, additive manufacturing, composites and artificial intelligence. The NMIS Manufacturing Skills Academy will play a vital role in delivering this Continuous Professional Development.

The Inward Investment Plan identifies Scotland’s affordable skilled workforce as its number one asset. Higher levels of digital skills are needed across all sectors and are key to attracting greater flows of inward investment to Scotland.

• 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.

8.3 Improving the Business Environment

In Section 4 we outlined Scotland’s current strengths in providing a Business Environment that is attractive to inward investors. Here we outline our policy plans to further enhance these strengths and address gaps. As we have reflected earlier in the document, global exposure spurs innovation and improves productivity. We also highlighted our intention to focus primarily on attracting resource seeking investment which aligns with our values and strategic direction. We do not compete primarily on the cost of our labour, but on the skills of our people.

Across a number of areas we have identified opportunities to further improve Scotland’s offering to investors by resolving particular obstacles in key sectors

Partnering with Investors: Planning, Regulation and Intellectual Property

Investors seek clarity when making decisions. They expect, and deserve, clear communication on what our expectations are, the high standards we uphold across a range of aspects where inward investment can interact with wider society. And they expect planning and regulatory decisions to be made as rapidly as possible. Investors can work with decisions, what is difficult is uncertainty. Across a number of areas we have identified opportunities to further improve Scotland’s offering to investors by resolving particular obstacles in key sectors. These include:

• Energy transition – where we seek to influence UK legislation around known industry issues such as the structure and longevity of incentives, e.g. Feed In Tariffs, and the costs of connecting new and dispersed energy developments to the grid.
• Health tech – Scotland has a significant strength in a single collated NHS data set, and ensuring that access to this is simple and safe, with proper data safeguards in place, would be a major attractor for the health tech sector There are also international regulatory models to explore around the point at which clinical human trials lead to payment to the company which can provide an incentive for companies to locate here without compromising safety or clinical standards.
• Software and IT/digital services – digital services and software are both part of the everyday and increasingly posing a challenge to models of governance, ownership of and use of data. Understanding that most companies will wish to use data responsibly, and seeking to establish ground rules around what that looks like in practice could act as a ‘stamp of approval’ for data-led products and services developed in Scotland, and therefore as an attractor for companies looking to develop them.
• 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.

Any such review should include the environment and our natural capital, align with our values and enhance our quality of life proposition.

Scotland has a strong record of attracting inward investment, especially R&D, with the highest level of projects of any part of the UK (including London). The University sector makes a very significant contribution to this. Overseas companies are attracted by factors including talent, IP and the ability to support research. Universities benefit from this in many ways, from student recruitment and retention to funded research and consulting. Where the Universities currently operate separately, there is an opportunity to strengthen their collaboration, and offer the totality of the sector and expertise in Scotland as a single accessible package. In the opportunity areas identified in this plan, this could relate to for example nano-technology: Edinburgh University has its strengths in software, and Glasgow University in hardware, and so between them offer an exciting and compelling opportunity for companies looking to develop across both. Working collaboratively to convert knowledge into commercial opportunity, as separately recommended in the Muscatelli report on using Scotland’s universities to boost the economy, could increase Scotland’s success in competing for innovation-rich projects.

• 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.

8.4 World-Class Infrastructure, Digital Connectivity and Our Natural Capital

In Section 4 we outlined current strengths in Infrastructure and Digital Connectivity. Here we outline our policy plans to further enhance these strengths and address gaps.

Infrastructure

The second Strategic Transport Projects Review (STPR2) will determine the Scottish Government’s future transport investment priorities over the next two decades, it is critically important that we take the correct decisions, particularly in a post-Covid world.

The outcomes from STPR2 will help achieve the outcomes of our National Transport Strategy by making it more accessible for residents, visitors and business and create better connectivity with sustainable, smart and cleaner transport options, highlighting the vital contribution that transport investment can play in enabling and sustaining Scotland’s economic growth.

We intend to establish an international rail cluster in Scotland to unlock supply chain opportunities. We want Scotland to be a leader in the innovation and manufacture of net-zero rail products, services and solutions, including integration of circular economy principles into efficient design, supply, maintenance and end-of life use within the rail sector.

The cluster, which we aim to establish at Longannet, will be built around existing strengths in rail in Scotland and will seek to enhance the innovation and supply chain in the decarbonisation of our rolling stock and wider network.

The value of investing in infrastructure goes beyond the physical roads, railways, homes, schools and hospitals delivered. It has the capacity to unlock economic potential, support jobs, and enable our businesses and communities to grow. Infrastructure can provide the largest GDP boost of any Scottish Government investment – that is why we committed to our National Infrastructure Mission to increase annual investment by 1% of 2017 Scottish GDP by end of next Parliament.

This will mean that annual investment in our hospitals, schools, houses, transport, low carbon technology and digital connections, will be around £1.56 billion higher by 2025-26 than 2019-20. The Mission will bring a level of investment in our vital economic and social infrastructure that will protect and create jobs in the short term, and support growth and productivity in the long term. Infrastructure investment also has a key role to play in our wider economic response to the pandemic, both in the short and long term. We know that infrastructure projects already underway have been subject to significant adjustment in the light of Covid-19.

To support the delivery of the National Infrastructure Mission, we are publishing the Infrastructure Investment Plan in September 2020, which provides the strategic framework for the next 5 years’ pipeline of projects and programmes to boost our inclusive economic growth, build sustainable places, and increase delivery of our climate and environmental ambitions.

That in turn ensures we provide the necessary market confidence, and send a clear message that Scotland is open for business.

• Action 14: We will focus on infrastructure that will 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 to support inward investment attraction. This investment will be targeted to boost inclusive economic growth, build sustainable places, and increase delivery of our climate and environmental ambitions.

The value of investing in infrastructure goes beyond the physical roads, railways, homes, schools and hospitals delivered

Digital Connectivity

The Scottish Government is investing £600 million to extend superfast broadband access to 100% of premises across Scotland through our Reaching 100% (R100) programme. This funding will be delivered through three contracts covering the whole of Scotland, with a broadband voucher scheme available for any premises not reached by the R100 contracts or commercial build.

The R100 programme builds on the success of our £400 million Digital Scotland Superfast Broadband (DSSB) programme which, over the past seven years, has connected over 950,000 premises to fibre broadband – around 110,000 more than originally anticipated. It is estimated that the DSSB programme will generate over £2.76 billion of total benefit over 15 years, with every £1 of public funding expected to generate £12 of benefits to the Scottish economy.

The Scottish Government is investing up to £25 million to deliver 4G mobile infrastructure and services in up to 40 “notspots” – areas with no mobile coverage – in rural Scotland through our Scottish 4G Infill Programme. The first mast went live in February 2020 with delivery continuing until 2022/23. We have published a 5G Strategy and established the Scotland 5G Centre to put the right conditions in place to facilitate widespread investment in, and deployment of, 5G in Scotland.

The Scottish Government is working with the Scottish Futures Trust and partners on the development of a strategy with the datacentre and international connectivity industry to encourage new investment
in sustainable Scottish data hosting facilities.

• 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.

Enhancing our Natural Capital

The Environment Strategy for Scotland sets out our vision for Scotland’s environment, and recognises that the environment is vital to our economy. It supports the productivity of many sectors, supplying energy, resources and essential natural processes.

By delivering its Regulatory Strategy, One Planet Prosperity, the Scottish Environment Protection Agency (SEPA) is changing the way it works to help as many businesses as possible to go beyond compliance, reducing energy and water use, waste and emissions. The most successful businesses in the 21st century will be those that are able to reduce energy and resource use across everything they do, and manage their environmental impacts effectively. By working across whole sectors - and with other partners such as the

finance industry - SEPA is aiming to help the most ambitious businesses to achieve these aims and enable them to be successful, one planet businesses.

8.5 Enhancing Quality of Life

In Section 4 we outlined Scotland’s current strengths in Quality of Life. Here we outline our policy plans to further enhance these strengths and address gaps. As part of the review outlined we will include the environment and our natural capital to enhance our quality of life proposition.

Distributed Working

Home working is not a new concept but has become a core component of corporate operating models in response to the Covid crisis. Scotland, particularly across the Highlands & Islands region, has been at the forefront of supporting remote working for over 15 years. We have supported pioneering projects with companies including BT, Serco and Sykes to successfully test and adopt multiple approaches to remote working.

There will be a strong role for Scotland to play in a pivot to a remote or distributed working model accelerated by Covid whereby companies rethink their corporate real estate footprint and engage a dispersed workforce in particular geographic skills hubs. This model will support further economic development across Scotland’s regions and aligns with our plans to increase our investment in digital infrastructure and skills to enable remote working and bring digital social equity. We will align with other Scottish Government activity around workplace transformation.

• 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.