Scotland bucked a UK and European trend by attracting more foreign direct investment (FDI) projects in 2020 than in 2019.
A report from EY also revealed the country has reached its highest ever attractiveness level for investment and bolstered its position as the UK’s most attractive FDI location outside London.
The 2021 Attractiveness Survey showed that Scotland secured 6% more FDI projects in 2020 (107) than in 2019 (101), against a backdrop of UK FDI projects falling 12% (from 1,109 to 975) and European FDI projects falling by 13% (from 6,412 to 5,578) over the same period.
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).
Scotland has been the UK location with the second highest number of overseas-backed projects – after London – in every year since 2014.
New projects in Scotland, as opposed to reinvestments, have bounced back to their highest level for five years (61 projects), after three consecutive years of decline.
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.
Scotland’s ‘big three’ cities of Edinburgh, Glasgow and Aberdeen were all ranked in the UK’s top ten cities for FDI projects outside London – with Edinburgh placed first – while digital tech and agri-food topped the sector leader-board.
As part of the research, EY surveyed a representative panel of 570 international decision-makers, 15% of which said that Scotland was the most attractive part of the UK in which to invest – double the proportion saying the same in 2019 (7%) and, compared to the rest of the UK, behind only London (25%).
Ally Scott, EY Scotland managing partner, 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.
“Scotland has now narrowed the gap significantly with London, which continues to lead as the most attractive region to establish operations,” Scott continued.
“The scale of this two-year shift is illustrated by London’s vote as most attractive region almost halving since 2019, while Scotland’s has more than doubled.
“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. ”
A Scottish Government spokesperson responded: “Scotland’s leading position was underpinned by strong investment in renewables, clean technology, life sciences, fintech and agri-food.
“This supports the approach of the Scottish Government’s Inward Investment Plan to further internationalise the economy by focusing efforts on our existing global strengths.”
Data on employment involved in each FDI project is less consistent and so levels associated are more volatile from year-to-year, due to relying on reported figures.
Available figures indicate Scottish jobs generated by FDI projects in 2020 was 4,499 – slightly below a decade-long average of 4,650 jobs a year.
This represents a decline of 30.1% from 2019 – with the UK falling 31% in the same period – however, 2019 was the high point of the decade for FDI generated employment in Scotland.
As a result, Scotland’s total UK employment share generated by FDI fell from 17.5% in 2019 to 16.1% in 2020 – but remains Scotland’s third-highest proportion of UK FDI employment over the ten years.
The three leading sectors generating inward investments into Scotland in 2020 were digital technology (19 projects), agri-food (14 projects) and business services (11).
These diverse sectors overtook last year’s top sector – machinery and equipment – which fell out of the top five (with four projects).
Oil and gas ranked fourth (nine projects), with utility supply fifth (eight projects) – underlining the continued importance of energy projects to Scotland in 2020.
Sales and service projects (49 projects) were the leading activity for Scottish FDI, followed by research and development (23 projects) in second place.
Manufacturing projects slipped to third with 17 projects, from 32 projects in 2019. 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 US proportion of the overall UK market.
Ireland was the second biggest source of projects into Scotland with 10 projects, followed by the Netherlands with eight.
Scotland’s big three cities were all ranked in the UK’s top 10 cities for FDI projects outside of London in 2020.
Combined, they accounted for 70 of the 107 projects secured by Scotland in 2020: Edinburgh – 1st place, (36 projects); Glasgow – 5th place, (23 projects); and, Aberdeen – 7th place, (13 projects).
Edinburgh overtook Manchester (34 projects) to record the highest number of projects outside London (383).