Scotland outpaces UK in foreign investment projects

The latest EY Scotland Attractiveness Survey has revealed that Scotland has bolstered its position as the UK’s most attractive foreign direct investment (FDI) location outside London.

The survey showed Scotland secured 6% more FDI projects in 2020 compared to 2019, against a backdrop of UK FDI projects falling 12% and Europe FDI projects falling 13% over the same period.

However, the report said data on the employment involved in each FDI project “is less consistent and so levels associated are more volatile from year-to-year.”

EY said “available figures” indicate Scottish jobs generated by FDI projects in 2020 fell to 4,499 — below a decade-long average of 4,650 jobs a year — representing a decline of 30.1% from 2019, the high point of the decade.

As a result, Scotland’s total UK employment share generated by FDI fell from 17.5% in 2019 to 16.1% in 2020.

“The rise in projects into Scotland within a shrinking UK marketplace saw Scotland’s share of all UK projects increase from 9.1% in 2019 to 11% in 2020 – a proportion exceeded only once in the past decade (2015),” said EY.

“Scotland has been the second biggest recipient of UK FDI after London in every year since 2014.

“New projects are at the highest number for five years (61 projects), after three consecutive years seeing a fall in projects.

“This performance ensured Scotland increased its market share of all new projects coming into the UK from 5.9% in 2019 to 8.4% in 2020.”

Edinburgh, Glasgow and Aberdeen were all ranked in the UK’s top 10 FDI cities outside London in 2020, with Edinburgh placed first behind London, Glasgow fifth and Aberdeen seventh.

Combined, these three cities accounted for 70 of the 107 projects secured by Scotland in 2020, up by six projects from 101 the previous year.

EY said the 2020 top three leading sectors generating inward investments into Scotland highlighted diversity, with digital tech (19 projects), agri-food (14 projects) and business services (11 projects) leading the way.

These sectors overtook last year’s top sector – machinery and equipment – which fell out of the top five. Oil and gas ranked fourth, with utility supply fifth – underlining the continued importance of energy projects to Scotland in 2020.

Sales, marketing and service projects were the leading activity for Scottish FDI (49 projects out of the total of 107), followed by research and development (R&D) projects in second place. Manufacturing projects declined, slipping to third position.

The biggest percentage increase was in logistics projects, which more than trebled from three projects in 2019 to 10 in 2020, taking fourth place.

The US remained the single biggest originator of FDI projects into Scotland, accounting for 35.5% (38 projects) – slightly above the UK proportion as a whole.

US projects into Scotland have increased in each of the past two years, and the country is substantially ahead of the next largest origin, with Ireland as the second biggest source of projects into Scotland with 10 projects, followed by the Netherlands with eight.

Ally Scott, managing partner at EY Scotland, said: “Amid arguably the most challenging environment for FDI in living memory, it’s clear that Scotland has put in an impressive performance over the past year.

“Beneath the headline figures, there are further reasons for optimism almost everywhere you look: the one-third rise in ‘new’ projects; the diverse spread of sectors attracting FDI – with digital tech leading the way; or, compared to last year, the fact that more than twice as many investors cited Scotland as the UK’s leading FDI destination.

“With investment intentions into the UK overall also at a record high, there’s every prospect of Scotland winning a healthy proportion of a resilient pipeline of investments in the coming months and years.”

He added: “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.

“While our findings suggest Scotland is getting a lot right, the global market for FDI will only become more competitive, making it vital to keep listening and responding to what investors want.

“Our report shows that this includes the availability and skills of the local workforce, the strength of business networks locally, and access to regional grants and incentives for investment and R&D.

“There is also a rising focus on sustainability and cleantech – areas where Scotland’s strength is exemplified by Cop26 taking place in Glasgow later this year.

“Whatever the challenges, there’s no denying the good news in this report.

“Scotland bucked the trend and, in doing so, laid down a strong base for future FDI.

“Now it’s time to build on that and to capitalise on the attractiveness of our country as a place to do business.”