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Foreign money undeterred by Brexit

Overseas investors pour record funds into Scotland

Evelyn Macdonald and Callum Murray Amiqus

Evelyn Macdonald and Callum Murray of Amiqus which has benefited from overseas investment


 

Foreign investment is continuing to flood into Scotland at a record rate in spite of warnings that Brexit would deter overseas interest.

For the third consecutive year Scotland has attracted a record of Foreign Direct Investment (FDI) and set a new ten-year high, according to new data from EY.

There were 7% more projects last year – 116 from 108 – a rate of growth higher than the UK as a whole at 6%. Scotland’s share of UK FDI projects increased to 9.6%, which is above its historical average of 9.3%.

However, there were signs of Europe gaining ground on the UK. Paris was named by foreign investors as the most attractive city to invest in, overtaking London for the first time since the survey of 450 key business decision-makers began in 2004.

Mark HarveyMark Harvey (right), EY Senior Partner, Scotland, said: “Scotland has demonstrated an outstanding ability to attract and drive sustained growth of FDI. However, the performance of the UK as a whole within Europe is a signal that competition for FDI projects is intensifying and our previous levels of attractiveness are not guaranteed to continue.

“If Scotland hopes to attract more FDI in the future we must acknowledge and address the challenges that face businesses here.

“For example, economic growth is positive, but sluggish, and access to labour is a recurring challenge that makes it more difficult to expand operations.”

Scotland’s strengths

The sector attracting the greatest number of FDI projects to Scotland in 2017, as in 2016, was Business Services with 23 projects, a 10% year-on-year increase, which contrasts to the sector’s performance across the UK as a whole, where project numbers declined by 10%.

Digital also performed well and accounted for the second largest number of projects generated by any sector in Scotland, with a substantial 56% increase in project numbers in 2017 compared with 2016.

The most noteworthy activities in 2017 were manufacturing and R&D. Manufacturing generated 30 investment projects, the second highest number on record in the last decade, as a result of a 25% increase on 2016. For the second consecutive year Scotland emerged as the UK’s premier destination for R&D FDI with 22 projects representing a 70% increase from 2016 and accounting for the lion’s share (24%) of all UK R&D investments.

Scotland is also performing increasingly well in securing headquarters (HQ) projects. In both 2016 and 2017, HQ projects in Scotland were at their highest level for the past decade, at a time when the UK has recorded a declining share of HQ projects (a 25% decrease in 2017).

EY’s UK Chief Economist, Mark Gregory, commented: “The UK’s FDI landscape is changing. The pace of growth of inward investment into London, and the UK as a whole, is slowing, impacted by the decline in Financial and Business Services projects, and the drop in the number of HQ investments into the UK – an indicator of a country’s FDI performance.

“However, Scotland and the English regions of the North West, the East and South East all had a strong FDI performance in 2017 driven in part by an increase in the number of digital projects locating there. Across the UK there is also a correlation between the growth of FDI in university cities, including Edinburgh, with a reputation for digital and R&D. In an increasingly digital world, the UK will need to accelerate and maximise its transformation into a digital economy or risk losing out on growth opportunities.”

Jobs and cities

The total number of jobs secured as a result of FDI into Scotland rose by 104% from 3,131 in 2016 to 6,374 in 2017. This is the highest number of FDI jobs created in Scotland in any year in the past decade and has been driven by a shift towards more large scale projects.

The largest FDI project in Scotland in 2017 by employment was from Norway into the oil and gas sector, with the creation of 700 jobs.  After that, the mix of projects was varied with Business Services accounting for three projects creating to more than 200 jobs. Edinburgh and Glasgow secured four of these large projects each.

Livingston makes an appearance inside the UK top 20 for the first time, which could be linked to Edinburgh City Region Deal.

Edinburgh overtook Glasgow as the highest ranked Scottish city for FDI in 2017, with 29 projects, which was a rise of 45% on 2016,

Sources of Scotland’s FDI

Not only did the US maintain its position as the country responsible for the largest number of FDI projects in Scotland, it also increased the number of investments by 16% to 36 in 2017 from 31 the previous year. Also in the top five countries were, in descending order, Norway, France, Ireland and China all of which increased the number of their FDI projects in Scotland. Of particular note is the sustained increase in investment from China.

Investors’ perceptions: outlook stable in the short-term, but longer-term threats visible

Scotland’s FDI attractiveness is holding firm amid current uncertainties while the UK’s overall attractiveness has declined, relative to its competitors in Europe.

When asked how their investment activity in the UK has changed since the EU referendum, 6% of investors said they had reduced it, 7% said they had increased it, and 8% had put their plans on hold.

In line with historic trends, albeit low, 24% of investors said they intend to establish or expand operations in the UK in the coming year, compared to 28% who cited Germany. This suggests a stable short-term outlook for the UK.

Long-term, investors appear to become increasingly concerned with 30% of those surveyed saying they expect the UK’s attractiveness for FDI to improve in the coming years, whilst 36% expect it to decline – the lowest level of confidence ever seen in the nation’s future appeal.

According to EY’s report, confidence in the UK as a place to invest would be improved if the Government were to articulate a long-term vision for the UK, including: how it proposes to drive growth of the UK economy, emphasising a pro-business environment, and outlining its approach to immigration and foreign investment to encourage people and businesses to come to the UK.

Paul Lewis, managing director of Scottish Development International, said: “This survey illustrates that Scotland is now firmly established as a location of choice for global investors. To be the number one UK location for R&D investment and the number one UK FDI location behind London generally is a tremendous achievement.”

Economy Secretary Keith Brown said: “While these strong investment and employment figures reflect the continuing attractiveness of Scotland, the full report shows the damage Brexit is already doing to the UK’s reputation as a location for investment, with Paris replacing London as the top city location.‎

“Our continuation in the single market and customs union post Brexit is crucial for business and investment.”



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