The report identified nine key areas where Scotland has already made its mark, and which are therefore believed to have the greatest potential to attract inward investment flow. These are energy transition, 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.
About inward investment
The plan defines inward investment as “a company or institution headquartered outside of Scotland that establishes a base of operations within Scotland, creating jobs and associated capital investment” and the purpose of the plan is to attract both foreign direct investment (FDI) and investment from the rest of the UK.
It’s designed to build on Scotland’s track record in attracting this kind of investment, which is already impressive; according to the latest EY Attractiveness Survey (released June 2021), Scotland is currently the most attractive location for inward investment in the UK outside of London – a position it has held since 2014. Scotland has enjoyed a 5.9% increase in FDI projects, in contrast with incoming projects across Europe as a whole, which fell by 13%, whilst projects into the UK declined by 12.1%.
The plan’s authors believe that this level of success is just the beginning and that the initiative has the potential to increase GDP by £4.2 billion, boost exports by £2.1 billion over the next two decades and add up to £680 million a year to government revenues.
Business consultant and ICAEW Scotland Business Resources Representative, Stephen Westwood, sees the report as a largely positive move. “I’m a big fan of inward investment, with the proviso that it is properly understood and targeted to enable the growth of more sustainable enterprise. It is not just about creating jobs, using a relatively less costly labour force supported by government money,” says Stephen.
“The focus of this report is on future growth sectors in which Scotland already has meaningful strengths – in those terms, it is a good business plan for Scotland. The key thing is how to optimise these opportunities. Inward investment in the form of capital, a larger customer base, access to a larger development resource and more intellectual capabilities can be a real benefit,” he adds.
A cautious response
The figures highlighted in the report sound promising, and whilst many have welcomed the initiative it has, however, also raised some concerns.
Whilst the plan states that inward investment can complement Scotland’s existing industrial base, some members are worried that the success of the plan could create additional challenges for emerging and growing companies in Scotland, especially those in sectors where there is already a war for talent.
Some members working within these homegrown success stories say that they would prefer to see more support for Scottish firms to help them grow, rather than efforts being focused on attracting already successful companies to set up in Scotland.
Home and away
Anne Lanc, Chief Financial Officer of Ionburst, a data protection solution that uniquely transforms valuable data into meaningless fragments – works closely with businesses in the digital financial services and digital healthcare sectors.
She feels that whilst the support is there for businesses to trade overseas, the challenges arise closer to home. “The UK in general – through The Department for Digital, Culture, Media & Sport, and Department for International Trade; and the Scottish Government through Scottish Development International and Scottish Enterprise – have some fantastic support to help companies break into overseas markets. We’ve been supported throughout our journey by great partners like Business Gateway and Scottish Enterprise. More recently, we’ve worked on a regular basis with Scottish Development International across Europe and the US to identify opportunities and make introductions. For example, thanks to SDI, we pitched to manufacturers in Switzerland who are interested in cyber security, and to a healthcare panel in the US which included Microsoft and Blue Cross Blue Shield” explains Anne.
“However, despite this support for Scottish companies abroad, we find it almost impossible to engage directly here at home in Scotland with the Scottish Government itself and the wider agencies and departments such as NHS Scotland and Police Scotland. This is despite the fact we have world leading tech that can address critical problems they are facing right now, and which they wouldn’t have to change their tech or security to use,” she adds.
“It’s especially frustrating in light of our recent win at EIE2021, the premier technology investor showcase for the most promising innovative, data-driven high growth companies, which is ironically co-sponsored by Scottish Enterprise,” says Anne.
Anne adds that these challenges come at a time when SEPA are still handling the aftermath of a ransomware attack. “SEPA has spent over £800,000 and is still trying to recover 1.2GB data after the attack – it would cost less than £20.00 per month to protect and restore this data using Ionburst – but the Scottish Government told me that they are “not currently aware of a Scottish Government requirement for the article you describe” when I asked to engage with Ionburst,” she says.
Ross Haworth – a business consultant in the medical sector, specialising in healthcare technology, digitisation, systems transformation, and organisational optimisation – echoes Anne’s views.
“There are a number of issues with the procurement systems across the NHS in Scotland, and that means there is a perceived barrier to selling to the regional Health Boards and at a national level amongst Scottish SMEs. Whilst there is significant interest from both local and international investors to invest in Scottish based health tech businesses, these barriers to entry into the Scottish health service put them off investing in these otherwise viable businesses,” says Ross.
Ross explains that, like Anne, he would like to see more support for homegrown talent from the Government and worries that opportunities may be missed without more support.
“If the Scottish Government are serious about this sector, they need to create co-investment programmes and much leaner public sector procurement processes to de-risk things for SMEs and other private sector investors to deploy capital fast so that they can make the most of these unique and highly innovative business opportunities emerging in Scotland” says Ross.
Scotland reaches for the stars
It may be surprising to some people that space was listed as one of the areas of opportunity – but it’s a sector that boasts what may be one of Scotland’s most unexpected success stories as Luke Harris, Group Finance Director of Ecometrica (who work with the Scottish Earth Observation Service [SEOS] in conjunction with the European Space Agency and utilize satellites as part of their data capture projects) explains.
“In the past decade, the space sector in Scotland has gone from almost nothing to a thriving – and still expanding – one. The announcement of the spaceports and the development of full mission capability in Scotland are amazing milestones and to have got this far this fast is something we can really be proud of.”
“Ecometrica is seeing a great strengthening of downstream space and the analytics of the data we are getting from the satellites. From the rest of the sector there has been an explosion in the construction of cube sats – such as Spire in Glasgow – and I believe Glasgow is still the biggest producer of small satellites in Europe,” says Luke.
Luke believes there are still many opportunities to be embraced, particularly if we can feed all the increase in downstream space knowledge into a strategy for where we need to put the next generation of satellites – ie, downstream data driving upstream space.
Like Anne and Ross, he feels that access to funding may have an impact, “space is a very large sector and has quite long time horizons so long term funding issues and how we can compete with the huge budgets competitors have in say California, are something we need to be aware of,” he says of the potential challenges for the sector.
Whilst Luke is optimistic about the opportunities that the plan may offer, he’s still keen to see what the practicalities of the plan will be. “My initial thoughts are that it is generally a very positive move – we have already seen US companies successfully coming to the UK, but really, in terms of what this plan means for Scotland, it is still too early to really tell. Hopefully over the coming months we will find out much more about the Inward Investment plan and will better be able to understand the impact it may have,” says Luke.
It seems that while such an ambitious plan feels like a positive step, as with so many things, for those most closely involved, the devil is in the detail and that it is still too early to say what the true impact of the plan will be.
Join the conversation
ICAEW members will have the opportunity to discuss the Inward Investment plan with Ivan McKee MSP, Minister for Business, Trade, Tourism and Enterprise, at an online roundtable “What inward investment means for Scotland” hosted by ICAEW Scotland on 23 September.