Meeting of the Parliament (Hybrid)

Meeting date: Tuesday, October 27, 2020

Official Report 1141KB pdf

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Inward Investment Plan

The next item of business is a statement by Ivan McKee on Scotland’s inward investment plan. The minister will take questions at the end of his statement; there should therefore be no interventions or interruptions.

15:14  

Today, the Scottish Government publishes “Shaping Scotland’s Economy: Scotland’s Inward Investment Plan”. I am pleased to outline to Parliament how it will help to shape Scotland’s economy.

The plan is the second of three pillars that focus on internationalising the Scottish economy. The first pillar was the export growth plan—“Scotland: a trading nation: A plan for growing Scotland’s exports”—and the final one will be our international capital investment plan. All three will be framed by our trade principles paper, which will emphasise the importance of values and of building a fairer Scotland.

Scotland has a strong track record in attracting inward investment. For the past seven years, Scotland has attracted the most inward investment projects of any United Kingdom nation or region outside London. Inward investment has a positive and significant impact on Scotland’s economy. It provides 624,000 jobs, which is more than a third of total employment. It contributes almost £42 billion in gross value added and represents 50 per cent of business turnover. It also generates more than 60 per cent of our business spending on research and development, and more than three quarters of Scotland’s exports.

Because there is a strong positive relationship with productivity, with innovation and with trade, inward investment also strengthens and complements domestic business. It helps to transfer skills, build innovative capacity, support local supply chains and spur exports, thereby creating a more open and outward-facing economy. It also gives local businesses access to global technology, talent and markets. The time is right to build on those strong foundations and to optimise the opportunities and benefits that inward investment brings to our economy and society.

“Shaping Scotland’s Economy: Scotland’s Inward Investment Plan” sets out the actions that we will take to help to create a net zero economy that is built on the principles of fair work and inclusive growth, to create opportunities for women and men across Scotland.

The Covid-19 pandemic has highlighted the need for greater resilience in our economy and the need to build back better. The inward investment plan therefore represents a fundamental shift in focus.

Investors assess key factors including availability of skills, strength of supply chains and access to technology when they make decisions about establishing or expanding their operations. In Scotland, we have been successful at persuading a range of companies that were interested in locating in Scotland to do so.

We now want to apply a more strategic approach, whereby we will focus on the sectors in which Scotland has genuine global strengths, set out our stall confidently to those whose values align with ours, work cohesively across Scotland’s regions to attract inward investment that builds on our many local strengths, and be laser-focused on maximising wider economic and social benefits for local economies and communities. Scotland’s strong position as a progressive, inclusive and outward-looking country will be central to our partnership offer to investors. We want to attract companies, entrepreneurs, businesses and workforces who share our values and can help us to progress our economic ambitions.

Our robust analytical approach has identified nine opportunity areas in which Scotland’s genuine global strengths—many of which are built on our academic excellence—align with global investment opportunities, and offer the most potential for maximising economic benefits across Scotland. Running through those opportunity areas are our focuses on net zero emisisons, digital, and high-value manufacturing. The first of those areas is energy transition—the shift from fossil fuels to renewable energy sources, and use of decarbonisation to reduce emissions across a range of energy-intensive sectors by leveraging our natural resources and deep-water expertise.

The second area is decarbonisation of transport, with a focus on low-carbon powertrains, primarily in heavy-duty vehicles.

The third area is software and information technology—from software development and IT services to games development and telecommunications. That will involve leveraging our globally recognised excellence in informatics and artificial intelligence.

The fourth area is digital financial services, through innovative application of new technology and data to transform how financial services and products are delivered, thereby building on our world-leading fintech cluster.

The fifth area is business services. The global business services sector has experienced a period of significant change from delivery of transactional services to delivery of more complex and higher- value services.

The sixth area is Scotland’s world leading space sector, which is already manufacturing more satellites than are being manufactured anywhere outside California. There is ambition to deliver an end-to-end solution for small-satellite manufacture, launch and data analysis, with a focus on tackling environmental challenges.

The seventh area is health tech, including integrated digital health technology that utilises data capture and analysis, sensors and AI, alongside our world-leading expertise in precision medicine.

The eighth area is transformation of chemical industries, including industrial biotechnology, which is an emerging clean technology that can support the transition from petrochemical-based industries to sustainable manufacturing, using renewable feedstocks.

The final area is innovation in our world-renowned food and drink sector. We will contribute to our ambition for Scotland to be a good food nation by developing food production systems that help to achieve the net zero emissions target. We will do that by introducing advanced manufacturing technologies that improve productivity and sustainability, and by creating healthier food and drink products.

We will build regional clusters of expertise around specific strengths to make Scotland a more attractive proposition for potential investors, and to ensure that all parts of Scotland benefit. Space, for example, is a future opportunity area for Shetland, Moray, Edinburgh, south-east Scotland, Glasgow, the Western Isles and Sutherland.

Food and drink innovation is already strong in the Highlands and Islands, the north-east, the south of Scotland, Glasgow and Argyll and Bute, and there is significant potential for growth across all those regions and more.

Although there remains uncertainty about the long-term impacts of Covid-19, independent analysis suggests that our opportunity areas are likely to be among the more resilient throughout and beyond the pandemic. We will seek investment opportunities that offer higher spillover benefits for the domestic economy, so that inward investment contributes to economic recovery as well as helping to shape Scotland’s future economy.

The revised approach seeks to deliver 100,000 jobs over the next decade. The focus on wider spillover benefits could deliver significant additional benefits to Scotland’s economy over the next two decades, including a £4 billion increase in annual gross domestic product, a £2.1 billion increase in exports and a 1.2 per cent increase in Government revenue, which would represent an additional £680 million a year, at current prices.

That will ensure that indigenous businesses throughout Scotland have the opportunity to benefit, and that we can develop strong domestic supply chains and provide new skills and job opportunities for Scotland’s people. Delivering additional high-value jobs is a key benefit for our nation. Scotland’s skilled workforce is its number 1 asset, so we now need to ensure that our workforce has all the skills that are needed to attract greater flows of inward investment, and so that we benefit from the new jobs that will be created.

We will undertake a digital skills drive to increase the number of people with advanced digital skills. That will also help to retrain and re-employ people who have been losing jobs in other sectors due to the pandemic, which will help the wider economy, as well as individuals, their families and communities.

Home working is not a new concept, but it has become more significant in response to the Covid crisis. There will be a strong role for Scotland to play in the pivot to a remote-working or distributed-working model. Aligned to development of our “Moving to Scotland” resource, we will focus our effort on promoting Scotland as a global leader in the creation of a supportive environment for remote, distributed and local working.

Our targeted approach to inward investment creates significant potential for innovation and enhanced research and development. We will build on existing activity—including Interface, our seven innovation centres, the new National Manufacturing Institute and our industry leadership groups—to further strengthen the ties between academia and industry, and to ensure that our higher education institutions maximise their contribution to attracting inward investment. A key aspect of supporting stronger ties between academia and industry will be work with universities to agree a collective approach to stimulating inward investment and innovation, including through handling of intellectual property.

We need a clear-sighted laser focus to succeed in delivering on the ambitions in “Shaping Scotland’s Economy: Scotland’s Inward Investment Plan”. We will focus on strategic investments that will shape places and deliver high-value jobs, with the ultimate aim of allocating £20 million per annum to that work. We will streamline and align our approach across the entire team Scotland international effort behind this new strategic direction. That will include supporting specific “Scotland is now” marketing activity to promote our nine opportunity areas to international audiences, and to get the message across that Scotland is open for business to everyone who shares our vision and values.

I am acutely aware that I am launching the inward investment plan at a time of huge uncertainty. Here in Scotland and around the world, Covid-19 continues to create economic harm, and to have dreadful impacts on people’s health and wellbeing. Although many businesses are focused on simply keeping afloat, we are determined to build back better and to use the disruption that is being caused to address vulnerabilities and fragilities—not least in global supply chains. Despite the pandemic, companies continue to choose to invest in Scotland, including, in recent months, tech businesses Trustpilot, Illuminate Technologies and AdInMo. Only this month, the global life science business Thermo Fisher Scientific announced the creation of another 200 jobs at its site in Perth.

We also face Brexit at the end of the year. Whether there is no deal or a bad deal, all the analysis shows that Brexit will harm many parts of Scotland’s economy. We must work even harder to put across the message that Scotland is not the UK, and that our values and ambitions are different from those of the UK Government. That backdrop makes Scotland’s inward investment plan all the more urgent and vital. Leaving things to chance would risk the progress and success that we have had to date. To put it simply, I say that now—more than ever—we need to have in place a plan for inward investment that targets effort and resource strategically, to shape Scotland’s economy in the future.

I am therefore proud to be the minister who is presenting “Shaping Scotland’s Economy: Scotland’s Inward Investment Plan” to Parliament today, and will be happy to take members’ questions on it.

We have about 20 minutes for questions. I ask members who wish to put questions to press their request-to-speak buttons now.

I thank the minister for advance sight of his statement. Any move to create jobs in Scotland is to be welcomed, especially given the economic disruption that our country is experiencing. However, although I applaud such efforts, I am sceptical about the promises that have been made.

Today the minister has promised to boost digital skills, yet the digital growth scheme has managed to pay out only 13 per cent of the funds that were promised in relation to it. He has also promised to create 100,000 jobs, but the Scottish National Party Government has managed to deliver only 2,000 of the 28,000 green jobs that Alex Salmond promised. In fact, there could have been 260,000 extra jobs here in Scotland if the SNP had matched the UK Government’s job creation rate since coming into office.

With such a track record of broken promises and economic failure, can the minister provide any assurance that today’s promises will be delivered?

I simply point to Scotland’s track record. As I said in my statement, Scotland holds the record for being the best-performing part of the UK outside London. It is better at attracting inward investment than the northern powerhouse, the east or west Midlands or any other part of the UK. Scotland has proudly held the record for doing so not just in the past year, the year before or the year before that, but in each of the past seven years.

The plan focuses that approach on sectors in which we genuinely have global strengths, of which Scotland has many. Its contents are based on analysis and are achievable and deliverable. The Government is committed to delivering what needs to be done to make such growth happen for Scotland’s economy.

I, too, thank the minister for prior sight of his statement. The plan is full of aspirations that cannot be argued with, but unfortunately the minister did not say much about how they will be delivered. The aspiration that the energy transition will lead to jobs is welcome, but it rings hollow given this week’s news that Burntisland Fabrications has been unable to secure any contracts. Why has the Scottish Government withdrawn its support for BiFab, leading to the bid for work on Neart na Gaoithe being withdrawn?

Rhoda Grant will be aware that my colleague the Cabinet Secretary for the Economy, Fair Work and Culture spoke to members on that subject this morning. The cabinet secretary will be making further statements in the chamber on the specifics of the situation, so I will not comment further on those aspects, given that it will be her place to do that when she is able to do so.

Eleven members want to ask questions. I want to get to them all, but we must stop at 3.45 so I ask for short questions and succinct answers please.

I warmly welcome the cabinet secretary’s statement. In response to a question that I asked on 2 September, the First Minister said:

“The decommissioning of Hunterston B power station raises challenges, but it also raises opportunities in relation to our energy mix and community and economic regeneration. It is important that we work collaboratively to seize those opportunities.”—[Official Report, 2 September 2020; c 24.]

In the eight weeks since then, what steps have been taken to take such opportunities forward, specifically with a view to attracting inward investment to Hunterston Port and Resource Centre and its environs?

Kenny Gibson is right to highlight Hunterston, which offers exactly the sort of opportunity that we envisage for the new plan in helping to shape Scotland’s economy. We are all aware of the huge potential that Scotland has in its renewable energy resources, which is why energy transition is one of the nine opportunity areas identified in the plan. We will therefore work specifically to attract inward investment in that area, which will benefit Hunterston Port and Resource Centre, with the aim of creating much-needed high-value jobs and prosperity for north Ayrshire.

Although the ambitions set out in the statement are admirable, we are still remarkably short on detail—particularly on how we might make the digital economy a growth sector for all of Scotland.

The Logan review noted that 17 per cent of Scottish secondary schools do not have computer science teachers. Meanwhile, courses at CodeClan cost £6,250 for 16 weeks, which is particularly prohibitive for those without sufficient resources. When those students do—

Please ask a question.

What reassurances can the minister give investors that Scotland can grow and retain a workforce that has sufficient skills to build a digital economy?

I spend an awful lot of time talking to investors here and to investors who are looking to come to Scotland. Their admiration for the skills pipeline that we already have in Scotland shines through. The plan specifically recognises the issue. Should the member choose to read them, she will see that there are 18 actions, one of which is about digital skills and growing the digital pipeline from 4,000 to 10,000 individuals per year, which is more than double.

We are clear on the specifics of what needs to be done. The plan works alongside a suite of the Scottish Government’s other plans, including, as the member rightly recognises, the Logan review, which goes into quite a bit of detail on strengthening the digital skills pipeline and other aspects to help build and strengthen Scotland’s already world-leading digital economy.

The minister will be aware that the Covid-19 pandemic has had a huge economic impact and that it has affected inward investment. How will the investment plan support a green recovery from the pandemic, particularly in areas such as mine, where the economy was already suppressed pre-Covid?

On successful inward investments, last year I visited Diodes Incorporated, where I met with the team that made a significant inward investment in a strong business in the member’s constituency.

Of course the Covid-19 pandemic is having a significant impact on the economy here and around the world. Our analysis identified the nine sectors before Covid and we reviewed that analysis on the basis of the Covid impact. Independent global research points to the fact that all of the nine sectors that we identified where Scotland has genuine global strengths are either resilient to the Covid pandemic in relation to their economic potential or have potential to grow as a consequence of the economic shifts that have happened due to the pandemic. Therefore, we are confident that our choice of sectors is strong and robust and that Scotland is in a good place to develop and build on that success.

There is such a thing as collective responsibility, so I am afraid that the minister cannot dodge questions about BiFab, where there was inward investment by DF Barnes from Canada. The minister says that energy transition is an important area of inward investment, and I agree with him. Why, therefore, did the Cabinet Secretary for the Economy, Fair Work and Culture tell BiFab on 19 September that it should go into administration?

That is not actually a question on the statement.

I am happy to answer the question. Jackie Baillie is absolutely right: of course energy transition is an area where we want to focus on inward investment. To answer her question directly, what she suggests is not the case—the cabinet secretary informs me that she did not do that, and she will give full information to Parliament on the specifics of the BiFab situation and members will have the opportunity to respond.

An International Monetary Fund study in 2019 found that 38 per cent of foreign direct investment was phantom investment used for tax avoidance. At the same time, a Fraser of Allander study showed that £9.2 billion of economic value—5.5 per cent of gross domestic product—created in Scotland left Scotland in 2017. I see no analysis of that in the plan. Could the minister tell me what plans he has to ensure that FDI does not involve phantom investment or billions of pounds of outflow in economic value?

The reality is actually the opposite. I have gone through the numbers. More than 600,000 jobs in Scotland are dependent on inward investment, it is a significant contributor to business turnover; and it supports more than three quarters of exports and more than 60 per cent of business research and development. Inward investment is a very significant component of Scotland’s economic performance, and it is to be welcomed where it aligns with our values and our target sectors. Andy Wightman talks about phantom investment, but I am talking about businesses that invest to create jobs and build assets in Scotland’s economy. The member’s analysis does not stand up, given what we are talking about. Inward investment creates the jobs and builds the businesses in Scotland that create value for Scotland’s economy.

What has the minister learned from the so-called “Scottish shambles” in 2016 when the Government signed a £10 billion agreement with a Chinese company and all it owned was a pub in Oxford? Fourteen years ago, when Jim Wallace was the enterprise minister, life sciences were a priority sector; why is that no longer the case?

On that last point, life sciences are very much a priority sector. If the member had been listening to my statement, he would have heard that health technology is central to the plan. We have identified the huge strengths that Scotland has in the life sciences sector, and particularly in precision medicine. I am proud to be a co-chair of the life sciences industry leadership group, which goes from strength to strength. I continually have meetings on inward investment in the sector. As I mentioned in my statement, Thermo Fisher Scientific is creating 200 jobs as part of the strong life sciences sector in Scotland. That sector is very much part of the plan.

On the specific point that the member raises, he will find throughout the plan the strong theme on the importance of Scotland’s values. We want to build a wellbeing economy in Scotland and talk with investors that share those values. That is very much at the core of the message that we take to investors and at the core of the activities on which we want to work in partnership with investors to help to build a strong wellbeing economy in Scotland.

Five members still want to ask questions, so let us move along.

How has Scotland performed on inward investment in the past and what effect will the strategic approach to attracting investment, through measures such as the Scottish growth scheme, have on Scotland’s economy?

Emma Harper represents another area of Scotland that has particular strengths in the food and drink sector. We want to build on innovation in that sector as part of Scotland’s strategic approach to inward investment.

As I said in my statement and in answer to an earlier question, for the past seven years, Scotland has been the best performing part of the UK outside London in attracting inward investment. We recognise that we can do more to maximise the wider spillover benefits of that investment. If Scotland maximised our performance in that respect, we would be able to generate over £4 billion more in GDP per year in Scotland; an extra £2 billion in annual exports from Scotland; 100,000 jobs over the next decade; and more than £600 million in annual tax revenues as a consequence. Therefore, the prize is large and it is real, and we are focused on delivering it through the execution of the actions in the plan.

The minister’s statement makes no mention at all of free ports, and nor does his plan. Does the minister accept the benefit that the UK Government’s plan for free ports in Scotland could have and is he willing to work with the UK Government for the benefit of Scotland’s communities that could be boosted by such ports in the coming years?

The member should be aware, if he has been briefed properly, that engagement with the UK Government on free ports continues. Officials are engaging regularly. In the past few weeks, I had a meeting with Steve Barclay, the Chief Secretary to the Treasury, specifically on that point, and I also gave evidence on the issue to the House of Commons International Trade Committee.

Perhaps the member does not know what is happening; Alister Jack certainly does not, because I saw him on television on Sunday and, frankly, he did not understand the level of engagement that has been taking place. He has clearly been badly briefed, too.

The problem with free ports is that the UK Government has not yet told us, other than in a flashy headline, what the substance of those will be. The UK Government has not explained what the tax incentives will be, either through customs regulations and tariffs or through reserved taxes. We do not know what the proposal is down south for what would be devolved taxes and how much we would have to fund on that basis. The UK Government has not given us a range of other information that we have asked for on economic impact and the potential for economic displacement.

As a responsible Government that is looking at Scotland’s economy in a responsible way, we want to understand what the risks of free ports are as well as the opportunities before we determine what makes sense and whether we should or should not take them forward.

The member should of course recognise that free ports are a sticking plaster on the gaping wound that has been caused by the economic self-harm as a consequence of the UK Government’s decision to plough ahead with a completely misjudged exit from the European Union at the end of this year.

The minister mentioned the nine opportunity areas. Can he say how those were chosen, given that some people might be surprised that, for example, space is one of them?

With pleasure. It was done through a piece of analysis working on three axes. One of the axes was Scotland’s demonstrated comparative advantage in various sectors; the second was the flows across Europe of inward investment in each of the sectors; and the third was the potential impact through wider economic benefits and how we maximise those. A considerable piece of analytical work was done to crunch through the numbers and come up with the priority sectors.

As I said, the final lens that the issue was viewed through latterly was the international analysis on the impact of Covid in each of the sectors. When we looked at all four axes, those nine priority sectors stood out strongly.

Space is a small sector, but it is growing very quickly. John Mason will be aware of the additional 600 jobs in the sector that have been announced in the past few days, many of which will be in our island communities. The space sector already employs 8,000 people. As I said, it is growing very quickly. I never fail to enjoy telling people that Glasgow produces more satellites than anywhere in the world apart from California.

We can fit in Colin Smyth and Rona Mackay if they are both brief.

The plan states that the benefits of employment by inward investors are felt across all of Scotland, but the Government’s own figures show that the proportion of jobs that are supported by foreign direct investment across local authorities varies from close to 30 per cent to less than 5 per cent, with those low levels often being in rural areas.

What will the plan do to deliver inward investment specifically in rural communities, which are often low-wage communities? What information will be gathered to show whether that approach is more successful than the current strategy has been?

If the member reads through the plan, he will see that, for each of the nine opportunity areas, we identify specifically Scotland’s assets. We provide nice wee graphical maps that show the parts of Scotland that would benefit in each of the nine opportunity areas. The south of Scotland figures largely in that, as do all parts of Scotland. The fact that we have been keen to focus on a regional approach is highlighted by a number of the actions that are mentioned in the plan.

It is a case of identifying the strengths that already exist in the regional economies of Scotland and understanding how we take those to market to attract investment that can work with each of those regional economies to develop our global strengths. Scotland is blessed with regional strengths right across our economy in many of the key sectors, and I look forward to working with regional partnerships to deliver on those strengths and attract jobs and investment right across Scotland as a consequence of the plan.

Does the minister agree that the knowledge and expertise that we have used to attract investment in the past will be very helpful in attracting investment in the future?

I very much agree. As I said, we have been successful in this area, but we recognise that there is more that we can do. The team Scotland approach is hugely valuable. In the export plan, we identified who we should work with. Scotland has a range of international assets that have already been deployed, formally and informally, including our trade envoys, our globalscot network, the Scottish Government’s footprint, Scottish Development International’s footprint, the wider diaspora, our many businesses, our universities and our alumni. Through our Scotland is now marketing campaign, the team Scotland approach leverages those assets to make sure that they are all deployed to target the inward investors that we want to attract to Scotland, which share our values, which are in the target sectors that we want to focus on and which can maximise the opportunity for economic development and job creation across all of Scotland’s communities.

That concludes questions on the statement. I thank the minister and members, as we managed to get through all the questions.

There will be a short pause before we move on to the next item of business.