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We are running slightly over time, but the cabinet secretary’s office has indicated to us that he can remain with us until around quarter to 1. I hope that that is the case.
In the interests of time, I would be delighted to move straight to questions.
Thank you.
I very much agree with the committee’s perspective on the importance of internationalising the Scottish economy. That forms a fundamental part of the Government’s economic strategy, and it is one of the focal points of the Government’s economic recovery plan. Encouraging more Scottish companies to be involved in export activity and international activity, and implementing measures and mechanisms to support that are important parts of the Government’s agenda.
I know what you are saying about the export figures, but the reality is that although the value of Scottish exports has risen, for whatever reasons the volume of exports continues to decline. Generally speaking, apart from a slight blip, there has been a steady decline. The overseas trade figures that we have received from SDI show that there was a decline in exports between 2002 and 2007, followed by a slight improvement in 2008. We do not have the 2009 figures. That does not suggest a long and steady improvement in our exporting. Have we got the strategy right or is there more that we should be doing?
Over the past few years, we have seen an improvement in export performance, which is welcome. The Government takes encouragement from the fact that the approach that has been taken is to give assistance to the private sector, but I accept that we must engage more companies in the process of internationalisation. Many companies feel that it is a big step to get involved in such activity, so we must tackle and challenge that perspective to ensure that more companies aspire to internationalise their business activity, and we must provide them with the support to enable that to happen.
Ernst & Young described Scotland’s performance on exporting as “dismal”.
All sorts of people say all sorts of things. I certainly take comfort from the fact that independent assessments of the performance of Scottish Development International have been very positive about its success and effectiveness. On the way ahead, we should be positive about the data that show an improving performance on exports and about the fact that Scottish exports have risen while exports across the United Kingdom have been falling.
We are told that it is important to have ministerial leadership in trade delegations and Government visits to various important new markets. How effective do you think the spending for ministerial visits abroad has been in recent times? Do you think that it is more effective than it was under any previous Administration?
The value and effectiveness of the expenditure is a fundamental issue. In 2006-07, there were 51 ministerial external visits at a cost of £104,236. In 2008-09, there were 59 visits at a cost of £92,139, so the average cost of these visits is coming down. Having taken part in a number of visits, my feeling is that ministers should be involved so that they can reinforce particular contacts that our people out in the field have developed. Many of the opportunities, particularly for inward investment, are the product of a great deal of patient activity to build up a relationship with a company that is based in another market, to encourage the development of that relationship and to encourage other economic possibilities for Scotland. Ministerial activity in that regard should be focused on adding value to the contacts that have been cultivated over time.
Do you have any measurement to compare outcomes with those for other countries, given that Scotland is quite successful at inward investment? For example, SDI and ministerial efforts bring in £X per £1 invested. Do you have any comparator figures for competitor inward-investment countries?
A number of surveys and studies are undertaken to assess our comparative performance. The assessment of Scottish Development International has emanated from those. I am quite happy to share any detail on that that we have not already shared with the committee.
I invite Wendy Alexander to ask the next question, as she has to leave soon to be elsewhere.
Thank you. I have just one question on governance. SDI is a Government joint venture, not a non-departmental public body. How long has the post of chief executive of SDI been vacant and when do you expect it to be filled?
The post has been vacant since Lena Wilson became chief executive of Scottish Enterprise about seven months ago—she left in November. David Smith has been the acting chief executive of Scottish Development International. He has appeared in front of the committee. The selection process to appoint a chief executive is under way. I cannot give a definite time for when the process will be concluded, but I want it to happen as soon as possible.
So the post has been vacant since the start of November, and we do not yet have a date for a replacement.
We have an acting chief executive in post.
Thank you.
You talked about export statistics that were released last week and with which you are pleased. Where are those statistics from?
They are in the national statistics quarterly UK regional trade update from Her Majesty’s Revenue and Customs.
Those statistics showed that 2009 was, indeed, better than 2008. What did you make of the statistics that were published by the same organisation on the same day about the performance in 2010 so far?
Clearly, we are in very difficult economic territory. We have to look at complete years to compare the relative performance, and the Government will do that when we have the comparative data.
What did you make of performance in the first quarter?
As I said, we are in a challenging environment. If we select one quarter and make a final judgment based on its being indicative of where we intend to end up, we are not looking at the issue with the perspective and according to the timescale that we should use.
On that basis, do you think that it is better to look at a long-term trend than a one-year trend?
At the very least, we should look at year-on-year trends, because they will determine whether we are making progress.
I ask that because the actual statistics behind the press release show that the quarter 1 performance in 2010 was worse than any quarter in 2009, 2008 or 2007. I accept the argument that we should not look at one quarter in isolation, but when performance is down about 10 per cent on the first quarters of previous years, I find it surprising that you have only quoted the 3.5 per cent increase comparing 2009 and 2008 and have ignored the statistic, which I think is worrying, that shows that it is the lowest figure in any of the national statistics data.
Essentially, we are comparing a like-for-like position on an annual basis. It is difficult to select individual quarters and arrive at a position. As I have said to Mr Brown already, we are in very challenging economic territory, and we have to look at the information on a like-for-like basis, which is exactly what the Government will do.
What else does the Government intend to do in trying to overcome the long-term trend? The convener referred to the ITEM club report, which was covered in most of the Sunday newspapers last week and which basically painted our performance since 2000 as disappointing—the convener used the word “dismal”. How are we going to achieve a step change in our performance?
Part of what we have to do is to recognise the absolute requirement to motivate and support more companies to be involved in export activity. That lies at the absolute heart of the Government’s economic strategy and economic recovery plan. We do that by increasing the collaboration between the organisations that are involved in company support. For example, Scottish Enterprise and Highlands and Islands Enterprise are actively involved in company support and development. From that work, and working closely with Scottish Development International in the process, we need to identify the key candidates that contribute towards export development and growth in Scotland. That is the effort that we need locally.
My final question is on the smart exporter project. Do we have a precise date for when that will go live?
It will be the end of August 2010.
I have three questions, but first I have an observation on the point that Gavin Brown made about performance in the first quarter. It might be interesting to examine the first quarter of, let us say, 1946, 1963 and 1979, which were quarters in which there was terrible weather. Having been stuck in the Borders for a week myself this winter, I can imagine that getting export goods to points of dispatch—harbours and the like—must have been pretty freakish at times. Perhaps that could be factored into the analysis.
The cautionary words that Professor Harvie expressed on quarter 1 are interesting. The retail sales figures for January were undoubtedly affected by the bad weather. In quarter 1, we also had issues with volcanic ash, which affected the ability to move goods and services. That is why the cautionary words from Professor Harvie about one quarter versus another are apposite.
My second question is about small and medium enterprises, with which we have had a few evidence-taking sessions. Probably everyone on the committee is impressed by their energy and resilience, particularly in marketing things that have a natural connection with Scottish raw materials. One of the points that emerged from the foodstuffs businesses at our Aberdeen session was their preference for exports over the domestic market. If you export, you have a greater chance of getting a good return on your product, whereas, internally, you tend to be at the mercy of an oligopoly of big supermarkets whose interests are to keep the manufacturers’ return at the lowest possible level in order to pile it high and sell it cheap. Is it worth keeping an eye on that? I observed that although many of the couthy exporters are now shovelling out substantial outputs, it is not in a way that would be regarded as terribly orthodox according to our usual pattern of sales and markets.
SMEs play a critical role because they represent the overwhelming majority of the company base in Scotland. If we are not reaching and motivating SMEs to take part in exports and international activity, we are clearly missing an enormous opportunity. The committee has been advised of figures from SDI that show that 90 per cent of businesses supported by SDI are SMEs.
When we were in Aberdeen we talked to supply companies that are currently involved with North Sea oil, but which have the potential to work in other areas of renewables. We were struck by their response to our questions that what impressed them about their experience of working with North Sea oil was that they had a single agency buying and supplying out to production platforms, for example. It would initially have been the Offshore Supplies Office and then the British National Oil Corporation. Despite those real examples of local capitalism, the witnesses thought that having one agency was an excellent idea because it simplified who you dealt with. A strong view was put forward that renewables required a similar agency of a public-private nature that could undertake that role and that SMEs would thrive under such control, rather than having a face-off under the extremely fluctuating control of big multinational concerns whose policies can vary intensely depending on their world commitments.
One of the interesting points about the experience of the oil and gas sector has been how the sector has developed its production phase in the north-east of Scotland into having a new and further strand of activity that is concentrated on the exporting of intellectual capability and products that have been developed in the North Sea sector for which people are now seeking wider application. The diversification of the sector from core production activity to the exporting of products, skills and intellectual capability has been an interesting journey, and it has contributed to Scotland’s export performance.
Ought we to be thinking about some sort of golden share arrangement with an organisation called statewave or Scotwave, or something like that, that could give us some steering potential and which could be equivalent in size to a multinational company? The companies involved around the world are sympathetic, but they are also enormously committed to projects around the world. I am thinking about discussions that have been taking place with E.ON in Düsseldorf, for instance. People are very well informed about North Sea oil and the various projects that are going ahead, but one felt that there was a need for something that was, after all, common to Ted Heath and Tony Benn—the idea of a substantial agency that could negotiate with companies strategically.
That is an interesting proposition, and I understand exactly the motivation behind Professor Harvie’s suggestion. We have to be able to capture this economic opportunity in an effective way for the Scottish economic interest. Whether that must involve a structural solution of the type that has just been advanced by Professor Harvie, or the use of public resources to focus and encourage development in various locations, which would generate a greater degree of entrenched economic activity as a consequence, is a question that the Government will have to consider carefully. We want to encourage and motivate as many private companies as possible to get involved in this area of activity, to be based in Scotland, and to use Scotland as a base for developing their contributions to the renewables sector here as well as for exporting further afield.
I completely understand your view that policy should not be based on response to a single quarter’s results. Nonetheless, given Professor Harvie’s suggestion and your comments about the effects of the bad weather and of the volcanic ash cloud, have you sought advice from officials about possible explanations for the disappointing fall in exports in the first quarter of this year?
We will undertake that piece of work. We examine the relevant data regularly. In commenting on analysis, I have mentioned the importance of taking into account all factors, and we should continue to take that approach to the data.
So your references to the weather and to the volcanic ash are made prior to an examination of the data and to receiving advice from officials—they were not based on such advice.
We keep the issues under consideration so that we can properly examine all the questions arising from the data that come to us.
We have already heard questions about oil and gas services this morning. In your view, and that of SDI, how significant a part of the Scottish export scene does the oil and gas services sector appear to be?
It represents a very significant element of Scotland’s export activity. The data in front of me indicate that in the past eight years the proportion of international sales in the oil and gas supply chain increased from 28 per cent to more than 40 per cent, which is a very welcome contribution.
The statistics for Scottish economic activity sometimes overlook the scale of the oil and gas sector’s contribution. How would you estimate its significance relative to other important export sectors in the Scottish economy as a whole?
As far as Scotland’s exporting performance is concerned, oil and gas form part of the second most significant export industry, which is the chemicals and petroleum sector. Based on the latest data, its value represents about half the volume of export activity in the food and beverages sector.
So, in summary, our exports are essentially whisky and oil.
I entirely accept the importance of promoting an export mentality across the economy, which is why the internationalisation proposals are at the heart of the economic recovery plan, why exporting activity is very much implicit in the Government’s economic strategy and why all that is not only reflected in the role of SDI but percolates through the responsibilities of and approaches taken by countless other public sector organisations. We have to act in a fashion that encourages the internationalisation of the Scottish economy.
The committee has received what might be described as an uneven response from business organisations with regard to the priority that should be given to internationalisation. Does that concern the Government? In other words, do you, as the relevant minister, think that it is an agenda item significant enough to raise with business organisations?
Do you mean that some business organisations are equivocal as to whether exporting is a good idea?
Perhaps they attach less importance to it than you do.
Exporting and international activity in general are very important to the Scottish economy and are key elements in improving its productive strength. As such, they are very much at the heart of my priorities.
Is it part of Government’s role to communicate that message to private sector partners?
I think that we do so. Indeed, I have to say that, no matter whether I am on a public or private platform, there are very few occasions when I am doing anything other than arguing for the greater internationalisation of the Scottish economy. For example, internationalisation was the theme of the most recent meeting of the national economic forum, which took place a couple of weeks ago at Heriot-Watt University. We were treated to a magnificent address by Sir Bill Gammell of Cairn Energy. As a case study, Cairn Energy’s performance in international activity has been quite extraordinary, and we had excellent feedback from those who were there to hear Sir Bill’s contribution on that occasion.
Earlier in the meeting, I mentioned the committee’s delegation to Catalonia. One of the key things that we noted on that visit is the Catalans’ willingness to promote greater co-operation between Catalonia and Scotland. The fact that there are, once again, direct flights between Edinburgh and Barcelona has helped to open up the transport links. Does SDI focus too much attention on Asia and elsewhere, rather than targeting countries and areas that are closer to Scotland?
There is always a balance to be struck in the focus of SDI’s activities. If I read my newspapers correctly, the Government has been criticised for some of its external spending—I noticed that in the media the other day—based on the analysis that was undertaken by the Parliament’s European and External Relations Committee. However, the biggest element of the expenditure on overseas engagement is the spending on SDI, which has been a focus of the Economy, Energy and Tourism Committee’s inquiry, and which I assume it considers to be a good thing. If we spend money in the field, we will undoubtedly face some criticism for doing so.
I was about to come on to UKTI. What is your understanding and impression of SDI’s working relationship with UKTI? I pose that question because we heard in Barcelona that there had been no contact between the SDI representative in Paris and the UKTI Barcelona representative for more than 10 months, which struck me as a wasted opportunity.
I am happy to address specific points from Mr McMillan, but my information is that SDI personnel have been involved in dialogue with UKTI in Barcelona in the recent past—in February and March this year. Dialogue has certainly taken place.
Before I ask Gavin Brown to come in, I will follow up on that point. One of the fundamental questions that has arisen in the course of this inquiry—I am not sure that we have a clear answer to it—is whether we are better to have locational offices or whether bricks and mortar are of no relevance and what we need is people on the ground working in a particular area. The case of Barcelona highlights that, because it is served from the Paris office rather than having someone who is permanently based there who knows the local economy and how the system works and can provide direct advice to people who wish to come in. The committee has not reached a conclusion on that issue, but it is of interest.
Obviously, we are interested in what the committee thinks. It is immersed in the inquiry, and we look forward to reading its thoughts on the issue. We must keep the matter under review, because we must ensure that our resources are deployed in areas that can deliver maximum benefit. Those areas will change from time to time, because at particular stages some economies provide greater opportunities and have a greater propensity for us to make progress than do others. We have to consider where our resources are deployed and be confident that they are deployed in effective locations.
A related issue on which we have heard some evidence is the option of co-locating with UKTI or locating within UK Government consulates or embassies. When I was in Beijing with SDI in October, I met the Scottish Government representative there, who felt that it was of great benefit to be located in the British embassy because it gave her access to information about what was happening on economic development. Some SDI offices are co-located with UKTI in India. Might there be benefits in considering locating SDI staff in more embassies or UKTI offices?
We should be perfectly prepared to do that, convener. There are clearly opportunities that suit in certain circumstances. There may be other considerations, but we should certainly keep an open mind on that question.
Cabinet secretary, I accept entirely your point that you cannot set too much store by one quarter’s results, but I urge your office to consider the figures for the first quarter of this year and to try to establish why they were the lowest in three years. I sound a note of caution on the weather, because the weather was a UK-wide issue, but the UK had its best first quarter in the three-year series, so I am not sure how much the weather explains Scotland’s performance. I am also a little cautious about blaming the ash cloud. It was around in April, so I am not sure how much it affected quarter 1 exports.
I am interested that Mr Brown suggested that we should not focus too much on one quarter when, in fact, he focused almost all his questions on one quarter. We are happy to explore the matter.
I will pick up a couple of other issues that have come up in the inquiry and on which the committee might reflect. The first is whether the business support field is too cluttered. We have SDI, the SCDI and Scottish Chambers International, which is SCI. Are too many organisations involved, are they working effectively together and do we need some other initials besides S, C, D and I?
With the greatest respect, I fear that the committee should go into that territory more courageously than I should.
One other issue that has come up in some of the evidence is that, on FDI, looking after the companies that are already here in an effort to ensure that they continue to invest is almost as important as trying to attract new companies. Are you satisfied that the aftercare service that we provide to parent companies in their home countries through Scottish Enterprise, Highlands and Islands Enterprise, SDI and UKTI is sufficient to ensure that we are aware of what those companies might want to invest in worldwide, with a view to encouraging them to make such investment in Scotland?
Yes, but we must be mindful of the fact that companies can change their priorities and their focus. From time to time, companies that are located here may consider whether this is the most appropriate place to be and whether they want to develop their operations here. We have had some difficult news from foreign direct investors that have been based here but which have taken the view that their prospects lie elsewhere. The key to addressing that issue is to ensure that we have very regular dialogue with the companies involved. That is the core part of the account management function of Scottish Enterprise and HIE. Through them, we must ensure that we are aware of all the considerations of FDI companies and are supportive of their plans.
In our dialogue with the Flanders authorities when we visited Brussels, a point came up about the opening of the north-east passage. Flanders is, of course, an extremely prosperous area—I will not go into the complexities of Belgian constitutionalism, but the relationship between Flanders and Belgium is not dissimilar to the situation in Britain—and it has the second-largest port in Europe, Antwerp. It came up in dialogue that the opening of the north-east passage—in which climate change has been a factor—for, I believe, about two months of every year enables Chinese goods to come to the west round the top of Russia, which lops about 4,600km off the length of the alternative route. Break bulk possibilities exist in Scapa Flow and Sullom Voe, whereby such cargoes could be broken down and put on to 1,000 tonne boats that could then go south, directly into the European river and canal system. The Flandrians are just about to open another link in their canal chain that will enable such boats to sail right through to central France. That possibility intrigued them, and we could make a bit of cash out of it.
That is another opportunity to add into the discussion about a transhipment hub in Scapa Flow. The Government has been encouraging Orkney Islands Council—not that it needs much encouragement, if my discussions with the council on Monday are anything to go by—to pursue the idea of a transhipment hub in Scapa Flow, which can be seen as a readily accessible point for the cargoes of significant vessels to be broken down into smaller units. The proposal opens up significant economic possibilities for the Orkney Islands, so there is merit in it.
As there are no other points, I thank the minister for giving evidence, and I also thank Ed Payne from SDI, whom I forgot to introduce. I suspend the meeting for a few moments to allow the minister to depart.