Top UK location outside London

Companies such as Xilinx of the US continue to invest in Scotland

Scotland remains remains second only to London for foreign investment projects for the sixth year in seven, against a general slowdown across the UK.

However, there is a warning in the latest EY Scottish Attractiveness Survey published today that the UK risks becoming “Branch office Britain” – a place to sell to, rather than invest in.

Foreign direct investment (FDI) projects into Scotland was below the level achieved in 2017 – down from 116 to 94 – reflecting a declining trend across the UK. This followed three consecutive years in which Scotland’s number of FDI projects set records for the past decade, in what EY Scotland’s incoming managing partner Ally Scott calls ‘an unprecedented run of success’.

Mr Scott, pictured, said: “While the overall picture is more subdued than in previous years, there is some good news across Scotland – three of our cities are in the top ten UK towns and cities outside London for attracting inward investment, with Dunfermline, Highlands and Islands, and South of Scotland attracting sizeable projects.

“It’s important to consider these figures in context. Scotland has had three consecutive years of record-breaking FDI numbers – an unprecedented run of success.

“The number of companies making their first investments dropped by just one project from 2017. This maintains a long-term upward trend in Scotland’s share of new UK investment projects over the past decade.

“Make no mistake – this is a picture of a resilient Scotland standing tall in a challenging UK-wide environment to secure inward investment, set against an unsettled European economic landscape. Given the uncertainty of Brexit and the resulting cautious market conditions we are seeing, both in this year’s Scottish Attractiveness Survey findings and in talks with clients, these figures demonstrate the strength of ‘brand Scotland’.

“Efforts now must focus on ensuring the talent pool is skilled and agile, fed by an appropriate pipeline of talent, in order for Scotland to compete in the market and attract high-paid, lucrative projects.”

Mark Gregory, EY’s chief UK economist adds: “What’s key in the 2019 survey is to look at how regions are performing outside of London. When we do that, we see very similar trends emerging and in that context Scotland is standing ground.

“While FDI projects in London held firm in 2018, the decline in projects across most regions of the UK appeared to reflect the uncertainty surrounding Brexit. Fifteen percent of companies in the 2019 survey of international investors said they have put UK investment plans on hold as a result of the vote to leave the EU.

“The US continued to contribute the most Scottish projects of any country in 2018, but there were some interesting shifts lower down the ranking with Danish, German, Swiss and Japanese projects all increasing.

“If the trends evident in our Attractiveness reports continue then the UK risks becoming ‘Branch office Britain’ – an attractive market to sell to, but not one that companies will commit to manufacture or research and develop in.

However, with the right policies in place, the UK could strive to become ‘Interconnected Britain’, seizing on the digital opportunity to modernise manufacturing and services, and become a leader in innovative cleantech technology and applications.”

Scottish Trade Minister Ivan McKee, welcomed the report. He said: ““It is hugely encouraging that the perception of Scotland being an attractive investment destination is growing among investors – this is a significant achievement given the intense competition for inward investment and an indication our efforts to increase our international presence are paying off.

Ivan Mckee: ‘significant achievement’ (pic: Terry Murden)

“However, the significant uncertainty created by Brexit has played a part, with the UK looking increasingly less attractive to investors. That is why retaining Scotland’s position is such an accomplishment.”

Paul Lewis, managing director, Scottish Development International, said the survey “highlights Scotland’s enduring ability to attract global investment.” He added: The country remains second only to London for projects secured for the sixth year in seven – a great achievement given the intense competition for inward investment.

“Encouragingly, the perception of Scotland as a place to invest has more than doubled among foreign investors, bucking the UK trend. The report suggests this can be attributed to the strength of ‘brand Scotland’ and the way the country is marketed on the international stage.

“The survey also shows that we can’t take hard-fought successes for granted. Scotland’s public, private and academic institutions must continue to collaborate and build on the country’s reputation and international connections. This will help attract even more inward investment and consolidate Scotland’s position as a location of choice for global investors.”

Key findings from the 2019 Scottish Attractiveness Survey:

94 foreign direct investment projects were secured in 2018, down by 22 (19%) from 116 projects the previous year

Scotland still ranks second to London in attracting FDI projects, with Scotland’s ‘big three’ (Edinburgh, Glasgow and Aberdeen) in the UK top ten cities outside of London for attracting projects. Edinburgh, Glasgow and Aberdeen generated 20, 19 and nine FDI projects respectively.

When investors were asked to cite which region of the UK they perceive as the most attractive in which to establish operations 7% named Scotland, more than double the 3% in both 2016 and 2017

Top countries for FDI in Scotland are United States (34%), joint second Germany (8%) and Switzerland (8%), and Norway (7%)

The top three sectors generating the highest numbers of FDI projects in Scotland are Digital and Business Services, both with 16 projects (Digital up from 14 projects in 2017 and Business Services down from 23 projects), and Machinery & Equipment with 12 projects (from eight in 2017)

The three sectors witnessing the sharpest decline are R&D which is down by 13 projects, logistics down by six projects and manufacturing down by five projects

London continues to attract the most FDI projects with 458 projects, only seeing a drop of 0.2% from the previous year