Official Report 437KB pdf
Item 2 concerns scrutiny of the 2014-15 budget, on which we agreed that the committee would take follow-up evidence from the enterprise agencies. Accordingly, I welcome Lena Wilson and Iain Scott, respectively the chief executive and the chief financial officer of Scottish Enterprise; and Alex Paterson and Forbes Duthie, respectively the chief executive and the director of finance and corporate services of Highlands and Islands Enterprise. It is a change for the committee not to be discussing Scotland’s constitutional future, and we will try to steer away from that subject this morning, if that is at all possible.
Good morning, everyone. It is nice to be back. I will provide some context about the general economy.
From HIE’s perspective, the year that has just finished was a good year for hitting our financial and non-financial targets. More than £93 million was invested in the economy of the Highlands and Islands through our resources and from resources that were brought in from elsewhere in relation to significant projects. Through the investments that have been made, more than 2,000 jobs will be created; there has been a significant growth in turnover, a third of which involves export markets; and many good community projects have been progressed.
Thank you. In our questions, we would like to follow up some of the observations and recommendations in our previous budget report that relate to efficiency savings in particular. We will then open up the discussion to broader issues about how you will use your budget for the current year to develop some of the ideas that you just talked about.
Yes.
What is the £20.3 million figure that is along to the right and at the bottom of the “Disposals” column in the table? How does it relate to the other figure?
The £20.3 million figure in the table is the accumulation of three of the columns—it is the sum of the cost of the assets and the addition of any other costs that we have incurred on the assets since we bought them minus the assets that we have disposed of partially or in full. The figure shows the net cost of those three aspects.
Thank you for that clarification. Is the list of assets the totality of your property disposals for the year?
No. Although the list applies to this year, it sets out what we determine to be non-strategic assets. We have legacy assets that have been around for a while. The sale of those assets would not impact negatively on any investment that we would want to make.
I will look at a different section of the figures that we considered as part of our budget scrutiny work. Your strategic forum savings target for 2014-15 is £17.3 million. According to the breakdown that you have provided, property asset disposals represent £14.8 million of that amount. Is that correct?
Yes.
That is another £14.8 million on top of the £27 million in the table to which I referred.
No. Iain Scott will respond.
The £14.8 million is the element of the £27.5 million that is required to meet our strategic forum savings target. The total target is £17.3 million. The £14.8 million is the element of the £27.5 million that we are likely to sell that can be attributed to the strategic forum savings target. We will generate more income than the strategic forum savings target total. Some of that will be based on the asset sales; some of those asset sales will go to other income.
I am a bit confused now. Are you not double counting? I understand that the strategic forum money is top-sliced from your budget. In addition, you need to find another £26.3 million from extraordinary asset disposals.
We do not need to find savings in addition to that figure. To manage that top-slicing from our budget, we need to generate £26 million, although the final business plan now has the figure at £23 million. This year, we need to generate that amount to achieve the total income required after taking off the strategic forum savings target.
I am not sure that I quite understand that.
Shall I have another go at explaining the position?
Yes, please.
I fear that I will just end up repeating what Iain Scott said. The convener is right that the strategic forum savings are top-sliced from the budget, but we have to balance that budget and show how we will make those savings. Contributions to those savings come from various sources, such as reduced head count, reductions in premises or any number of other efficiencies, as well as generating additional income through the disposal of assets.
Committee members probably do not have in front of them the financial summary in our business plan, but that might make it easier to understand how the figures work, because it starts with the grant-in-aid income baseline that we got for our budget from the Government this year. We take the strategic forum savings amount from that figure to come to the net figure that we get from the Government. We then add back on the income that we need to generate to get to our total income for the year, which is used for expenditure. That shows the £17.3 million reduction in our grant in aid and adds back on the property disposal income to get to our total income for the year. That summary might help the committee to understand the figures.
We are seeking to be incredibly transparent, so I want to ensure that that is the case.
I am just trying to understand the figures. In the table of all the assets that are to be disposed of, which is on page 16 of paper 1, the first asset listed—Prestwick international aerospace park—has an estimated income of £1 million, but its cost is £2.3 million. Does that represent a pretty substantial loss?
I will explain that. The columns show that the market value is £1.05 million, which is why we think that we will get £1 million. We bought the asset for £2.3 million back in 2005-06. We have had a partial disposal of the asset of £600,000, so a loss is not involved there. We disposed of that bit and got money for it. However, we are looking at a valuation adjustment reduction of about £685,000—that is the reduction in value since 2005-06 for the land that we have left, which we will dispose of this year. The market value today is only just over £1 million, so that is what we think that we can get for it.
That is balanced out by other properties and assets on which we will have gains so, as the market operates, it is a question of swings and roundabouts to an extent.
That is true, but perhaps if you were not in effect being forced to sell in the current year to meet the shortfall in your income, you could have held on to the asset for a few years until the market had improved.
We could always hold on to something and find ourselves in the same situation. You are right—this is a judgment call, based on lots of years of experience, on when the right time to sell is. One never really knows except with hindsight.
When were the market valuations done?
They were done as part of our year-end accounts exercise for this year, so they are valid as of the end of March.
Who did the valuations?
Our independent valuers—I can send you the details.
We have talked about the numbers and I am confused already. The forum saving is listed as £17.3 million. In the schedule that we have, part of the income generation is disposals of £14.8 million. The table that shows the published plan versus the current income projections shows the contribution of the strategic forum savings—the £17.3 million that I mentioned. Further down, it lists another £4 million of property disposals. Why have you differentiated the two property disposal savings in showing when they contribute to the strategic forum savings?
I do not know exactly which table you are looking at, but the fact is that we will generate income of about £23 million from selling our assets. The target for strategic forum savings is less than that, so we have allocated an element of that £23 million to explain how we will meet that target. We could equally have put the £23 million into the strategic forum savings target table and it would have shown that we could have a total of about £26 million—at one stage we did put it in that table.
Why did you take it out?
We were asked how we would achieve the £17.3 million target, so we have shown how we will achieve that target. I could equally have said that we will exceed it by another £9 million from the further property sales that we will have.
I understand the cosmetic presentation.
Our business infrastructure team has accepted the challenge from us to generate that level of income this year. We all know that the target is challenging. The team has put the property on the list as it believes that it is a non-strategic asset that can generate that value this year. Until we sign the deal that sells the asset for that amount, I cannot say with 100 per cent certainty that we will do that, but the team is confident that it will deliver the list for us this year.
How much will the property agent get if he or she sells the park?
I do not know the detail on that. If we use a property agent, we will pay the normal level of fees.
Your submission says that
I cannot give you the exact figure, because I do not know it, but I am sure that it will be competitive in comparison with market sales for such property. As the submission says, we procured the agent openly, so we will pay a competitive price.
My questions are for Alex Paterson and Lena Wilson. In Lena Wilson’s submission, she talks about the problem of ensuring best value in selling property, given that the market has not recovered. Selling property now rather than waiting a couple of years until the market picks up might entail a loss. I absolutely accept that, but to what extent do you consider the wider economics of property disposal? If you have one big shed and you sell it to a sitting tenant and then use the resources to build another big shed, a greater public good is being provided than if you wait a couple of years to get another 10 per cent in the disposal of the property. To what extent do you undertake such analysis before deciding whether to sell and which properties to sell?
Are you asking about the cost of selling or not selling?
I am trying to put it in layman’s language, rather than economic terms. I think that the question is also pertinent to Alex Paterson. In your disposals, do you look at the wider economic impact?
Absolutely—that is fundamentally important. I explain to the committee that we no longer build many big sheds. We built the inovo building in Glasgow for a particular need and sectoral opportunity in renewables, but Scottish Enterprise is much more about incentivising the private sector to operate and develop sites, so a lot of the sites are legacy sites.
To give us a more general feel, what proportion of the overall value of the properties that you hold will you dispose of?
The total value in this year’s year-end accounts will be in the region of £140 million or £150 million. If we disposed of £20 million of that, that would be a seventh or an eighth. That is the kind of proportion that is involved.
Correct me if I am wrong, but I think that you said that you hoped not to dispose of properties that have strategic importance. What proportion of the remaining properties will you ring fence and not dispose of because of their strategic importance?
The ratio is 80:20—20 per cent is non-strategic and 80 per cent is strategic.
This year, we are maximising the non-strategic side of things. By default, what remains will pretty well be on the strategic list.
Am I correct in assuming that part of next year’s savings will be realised from future property sales?
That is most likely.
I will raise another fairly critical issue. Iain Scott mentioned the Prestwick situation, which involves a significant hit. Perhaps Alex Paterson can respond to my next question. Reducing regional inequalities is a part of Scottish Government policy. To what extent are you affected by those inequalities when you make property investments in areas that are growing, such as Inverness, which gives rise to higher property values, as opposed to areas where the economy is languishing and property values are therefore lower? In a sense, the difference in values is seen not in the sheds that are put on top of the ground but in the land that is under the sheds.
I will comment on a number of points from HIE’s point of view.
Another important element is market failure. If, for argument’s sake, somebody builds something in the Western Isles, the reality is that it often ends up costing more to build something there than the property is worth as a commercial operation. If we did not step in, the private sector would not come in.
I am getting the picture.
That is the claimant figure.
And you would agree with me that it understates unemployment to the extent of 50 per cent or so.
There are two different measures. I consistently use the claimant count one, but it is lower than the other one.
If John Swinney is listening, I would hate him to form the impression that everything is rosy and that that represents the true figure for unemployment. I would hate him not to recognise that we export a lot of our unemployment in the Highlands and Islands, or that a different picture might be presented were it not for the significant degree of renewal of oil and gas activity in Shetland. I thought that it was worth putting it on the record that the 2 per cent figure really does not represent a true picture of the Highlands and Islands.
There are two different measures, and I have used the claimant count one. However, in 17 out of the 18 travel-to-work areas across the Highlands and Islands, unemployment fell between last April and this year. There is an underlying reduction in unemployment, which is good. Let us not pretend that everything in the garden is rosy—there are challenges—but that is not a bad position to be in.
I have a brief question on that, just because we are looking at the figures. If I remember the figures correctly, there was also a 7.5 per cent increase in the population. Is that population growth due mainly to people coming in from the skills sector, or are there other reasons?
It is a combination of things. We have a wee profile of the population changes in the Highlands and Islands, and there are issues underneath the change. The population of the Highlands and Islands is marginally older than in the rest of Scotland. We still have an imbalance because young people leave for higher education, which is why the University of the Highlands and Islands and so on are so important. In every other age range beyond that, there is a net growth.
There is an increase in the population figures, though.
Yes, there is. It is not universal, so in places such as Argyll and Bute there has been a decline, whereas in Highland Council area, the Western Isles, Orkney and Shetland, there were significant increases in the most recent population census.
If I may come back to Alex Paterson and Forbes Duthie. By the way, I should have said “Good morning” earlier.
The baseline is that we will not sell below asset value. That is the starting point; we then look at what price the market will pay for different properties. You are right to ask the question—we have also asked ourselves whether the asset values are correct. They are done independently as part of the annual accounts in Audit Scotland, and we are comfortable with that approach. However, the baseline is that we do not sell below asset value. I do not think that we are even allowed to.
No, we are not.
You are not, which is why I made the point about valuation. Does Scottish Enterprise have the same policy?
Yes, absolutely. It is the public finance manual policy that we cannot dispose of something below market value. Clearly, all of the costs that you outlined will form part of that independent valuation.
We need to move on and talk about other issues but, before we do that, I will go back and try to get some clarity on property disposal.
I am still trying to find the table that you are talking about, convener. I am sorry.
For the record, I got an A in O grade arithmetic, but it was a long time ago.
I am sure that the numbers add up. I am happy to come back to you in writing on that, if that would help.
Will you help us by telling us exactly what table you are looking at, convener, so that we look at the same thing?
We will get a copy to you. It is from your submission to the budget.
I have got it. That was the original submission that we made before our previous appearance at the committee.
Yes, that is right. I am looking at the second column, which is the draft budget for the year that we are talking about. I am saying that you have £17.3 million of strategic forum savings, of which we know that £14.8 million is asset disposals. Below that, you have a subsequent line for property disposals of £4 million and then you have £26.3 million of additional income. I make that an aggregate of £45.1 million in property disposals. Is that correct?
No, it is not correct. You cannot add those together. As I outlined, there is a -£17.3 million—sorry, am I looking at the right figures?
Yes.
That £17.3 million comes off our grant in aid, so it reduces the amount of grant in aid that is available to us from the Government. To try to make that up to maintain our expenditure levels, we then add back on the property disposals that we will make. As per that table, you would be right to add the £4 million and the £26.3 million at that time to say that we need to generate about £30 million from the disposals.
No, I am sorry—I simply do not agree with your arithmetic, Iain. I think that you are double counting. It is a simple mathematical equation. In fact, it is not even that: it is an arithmetical equation. You are right that the £17.3 million is top-sliced off, but you make it up by £14.8 million in property disposals. You cannot count the same figure twice.
I do not see a figure of £14.8 million.
The £14.8 million is included in your figure of £17.3 million. The information that you gave us was that your £17.3 million was made up of £14.8 million in property asset disposals and property income. Will you come back to us about that, because we need to get an understanding of it?
Yes, I am happy to try to explain that. The £14.8 million is definitely included in the £26.3 million.
In that case, I think that you are double counting it. You cannot count the same figure twice.
We are definitely not double counting it.
We are not double counting it. I am happy to come back to you on that.
Okay. Thank you very much. What is the total value of Scottish Enterprise’s property holdings?
I think that we will probably have about £140 million to £150 million in our year-end accounts.
Right. So you are selling off quite a large chunk this year.
Forbes Duthie normally turns over about 10 per cent of HIE property; we normally turn over a bit less than that. It has been about £4 million or £5 million for the past few years. The three-year business plan that we published shows that we are increasing that significantly next year because of the additional reductions of up to £23 million, but then it goes down to about £8.8 million and about £3.4 million the year after that. The figure is probably in the region of £6 million a year if the figures are averaged out. However, we are significantly increasing that next year because of the additional reductions that we have.
Okay. You would expect your strategic forum savings for next year to be another £17 million.
At the moment, we think that they will be. We expect that, but there has been no confirmation of what any savings next year would be.
I presume that that will require more property disposals.
There will be some property disposals. The plan that we published shows that we are looking at a figure of £8.8 million next year. There will be an increase in the investment disposals next year. We hold equity in companies and believe that we are now at the stage at which we can get some return on those assets, as well. Therefore, there will probably be more on the equity side than on the property disposal side next year.
Right. Okay.
I can tell that there is disquiet about those figures among at least some members of the committee. It is not our intention to create that—we seek to be very transparent. There is no double counting. I wonder whether, between committee meetings, we can find a way to iron out some of that disquiet so that we do not sit here sometimes not all looking at the same tables and figures. That is not in anyone’s interests. I would be willing for us to be as open as possible and to sit with members and go through everything so that we do not have that scenario, which we seem to keep coming back to. That is not satisfying for anyone.
Okay. We can follow that up with you separately.
Thank you.
Unless anybody wants to follow up that matter further, we can move on to talk about other issues.
Good morning. Highlands and Islands Enterprise has a very ambitious and aspirational programme for the future. How much of the future projection of income generation is attributed to the roll-out of broadband?
The income that we will get from the roll-out of broadband is not in the figures in the budget table in our submission. That is over and above them. Superfast broadband, community broadband and our contributions to the Scottish land fund are in addition to what is noted there. Equally, the expenditure is net of those figures.
Do you see broadband as an opportunity for bringing in additional business to the Highlands and Islands?
I think that the roll-out of broadband is the most important thing that we are trying to do in the Highlands and Islands, because it will transform what current businesses can do and make the region more attractive to inward investment. We know that that is an important factor. It will make distance and geography issues less relevant, as people can do things with digital connectivity.
I will come back to you on that.
That is right. We are working a lot with the Scottish Government’s digital team on that front. Access to that speed and capacity of connectivity is a key to competitiveness.
How much does that impact on future development? How off-putting is the situation for encouraging business to come in? Can you give a figure for that?
So far, I do not think that any inward investment has not been able to come to Scotland because of a lack of connectivity—that has not hampered any investment. It would not be fair to say that I can put my hand on my heart and say that it has not stopped any business growing, and we certainly talk to businesses a lot about their communications issues. In the way that we did with the banks, we intervene with the providers to influence on the businesses’ behalf—we do all that with our account managers. However, to my knowledge, we have not lost any investment to Scotland because of a lack of connectivity.
Scottish Enterprise is basically looking at increasing its global market, which includes exports. I think that you referred to the smart exporter programme. Will you explain what that is?
That is a programme that runs throughout Scotland, and it is one of the reasons why we have been able to almost double our activity. We have reached thousands of businesses that did not pay any attention to exporting, and this is the programme that will get new exporters exporting. As we have said to the committee before, the issue is that most of our exports come from a couple of big sectors and too few companies are exporting. This is an initiative for awareness raising, market development, product development and advisory services. We want to reach as many companies—often very small companies—as possible.
So you are looking at innovation and new entrepreneurial developments.
Yes. We are looking at everything from the basic awareness of how exporting is done, to awareness of the markets that can be exported to, how the product could be packaged, and the technical side of exporting, such as guarantees and licences. The programme is really a step-by-step approach that will open up minds to exporting. All our research tells us that companies think that exporting is more difficult than it is. When they become more aware and meet people from other companies who are doing it, they are more likely to do it themselves.
How fragile is that situation? In your submission, you say that a lot of that approach is based on partnership and collaboration.
I do not think that it is fragile at all. The fact that we are collaborating and that there is such robust support throughout Scotland from the business gateway all the way up is a very good thing. There is a joined-up, team Scotland approach to making Scotland much more international. The collaboration is much stronger than it ever was.
That is great. HIE also seems to be hoping to develop new export opportunities. Is that right?
There are two basic strands to our exporting approach. One is to help those who are currently exporting to do more, and the second is to help companies that do not export to consider doing so. As Lena Wilson said, the smart exporter programme is designed to help companies take their first steps towards exporting. Our twin track approach to internationalisation support is to grow what we already have into new markets, and to encourage and support those who do not export to look at doing so. As Lena Wilson said, the risks are often overemphasised and the benefits underemphasised.
There are traditional companies that export, which you are continuing to support, and you are looking at new opportunities. Is that right?
Yes.
Is that primarily with the food and drink industries?
It is across the board. Food and drink is important, and we are in the access to market programme for food and drink companies. However, we work across the board.
Scottish Enterprise is looking at the export markets in new areas such as China and the Asian sub-continent. Your submission mentions the fact that, although you are still looking at the European market, you are also looking at other markets for exports, because of the problems with the euro.
Our strategy is a both/and strategy, not an either/or strategy. Some of the European markets, such as France and Germany, are still important for Scotland. If you look at what is happening to Scotland’s sectors, you will find massive internationalisation of oil and gas. With Scottish Development International, we now have an office in Calgary and one in Ghana, and we are opening one in Kenya and another in Perth, Western Australia. We are following the market opportunities where the sectors are growing. The approach is, and will continue to be, very opportunity led.
What will its value be?
It is very hard to say. We will not turn everything round in a year. We are talking about some quite frontier stuff—about building capacity in some quite challenging markets. There are lots of opportunities, but the markets are difficult to work in.
You are talking about ambition, not aspiration.
Absolutely, and that is shown by some of the results that we have seen. We have tens of Scottish companies in Perth, Western Australia. TRAC Oil tells us that, but for the support that it got from us, it would not be in Australia. That is very important, particularly in challenging markets such as west Africa.
Could you give any projected income figures?
Yes. For example, we could look at what Scotland exported to Ghana last year and what it will have exported to Ghana in two years’ time. We should be able to tell quite quickly, year on year, how many Scottish companies are getting into that market.
Is HIE also looking at new areas in the global market?
Yes. We work in partnership with SDI. We know that the European market is still vitally important for Highlands and Islands businesses, but the Asian market and other emerging markets, particularly in relation to oil and gas, are as relevant to us as they are to the rest of Scotland.
Has Scottish Enterprise restructured its account management profile?
Yes. We have brought in an approach that is even more differentiated and which looks at value. It is about putting the best resource where it is most likely to have value and focusing on high growth and internationalisation. We have embedded that approach just recently. It is about going a step further in segmentation, if you like.
Do you anticipate that that approach will give you a high return at the end of the day?
That is what we are looking for. We had quite a record year in terms of increased turnover in our account-managed companies. We did a big evaluation of account management that showed us that there is 70 per cent satisfaction with the approach, that the companies that we work with are likely to grow at a much faster rate, and that 70 per cent of those companies are small and medium-sized enterprises. We used all that evaluation—again, in an obsession with evidence—to allow us to differentiate and segment even further. If a company is looking at the international market, it will often have not just the Scottish Enterprise account manager but a global account team, involving SDI personnel and sector specialists, that the account manager will lead. It is about putting as much resource as possible behind Scotland’s greatest opportunities, which will yield greater economic impact.
You mentioned that this year is particularly important and that you are taking full advantage of it.
We are. We have had £20 million-odd of business already from the Commonwealth games and a range of Scottish companies have already got business through the Ryder cup. Significantly, the proportion of business is much higher than what came through the Olympics, when we also did well. We now get about £5.50 of GVA for every £1 that we spend on account management, which is very significant. The aim is to increase that figure as the years go on.
The convener has been very generous in allocating time to me, so I will stop there.
I have been exceedingly generous, deputy convener. We move on to Margaret McDougall.
I, too, wanted to ask about account-managed companies, but my questions have been partly answered by the information on the proportion of SMEs on your books compared with national and multinational companies. You said that 70 per cent of your account-managed companies are SMEs. Is that correct?
SMEs make up 76 per cent of our portfolio.
Does that mean that 24 per cent are multinationals? What is the figure made up of?
Unfortunately, companies in Scotland that are beyond SMEs are often not quite multinationals, although some of them could be. For example, Scottish Enterprise account manages FMC Technologies, which is a company in the oil industry from Houston in Texas. We have helped FMC to create hundreds of jobs in Scotland through, for example, a research and development centre in Bellshill. FMC gets the same service as the other account-managed companies get. I think that I have said to the committee before that when such a company operates in Scotland we regard it as a Scottish company and want to see it expand. A lot of inward investment comes to Scotland so that we can then export from Scotland. That is a very important part of Scotland’s internationalisation.
Is Amazon one of those companies?
Yes. It is a company that we support.
How do you balance that, given that Amazon is one of the companies that do not pay all the taxes that they should?
I think that we covered that extensively at the committee previously. I will give the same answer. Obviously, we do not set company taxation rates—that is not a matter for Scottish Enterprise. What is really important to me is the economic impact in Scotland of companies such as Amazon. Amazon is a big contributor to the Scottish economy in terms of jobs. It has a service centre in Edinburgh in addition to its fulfilment centres in the country. The taxation element is beyond me.
It is a pity that such issues are not looked into when consideration is given to funding organisations such as Amazon.
The criteria for regional selective assistance are very clear and, in relation to the nature of the jobs that it was creating, Amazon met them all.
How many new account-managed companies have you taken on in the past year?
I will have to put my glasses on to find that information. In the most recent year, 273 companies came into the portfolio, which has around 2,200 companies in it. As I have told the committee previously, we want to keep growing that number. Interestingly, 183 companies left the portfolio. That churn is very important; it is not a static portfolio. We are looking for new companies that are growing to come into it, but there might be some companies that are not growing as quickly as is necessary, that do not have the required ambition or that do not want to work internationally, and it is important that they leave the portfolio. In the most recent year, 273 companies joined the portfolio, which was an increase of more than 10 per cent.
On entrepreneurship, how many companies have you helped? I saw some figures on that and they did not seem terribly high—I think that you had helped around 50 entrepreneurs. Is there any way in which you could boost that number?
I hope that we can boost it. I have said to the committee on previous occasions that I will never be hampered by the amount of resource that we can put into companies that can grow—I will find resource from somewhere. The key is that Scottish Enterprise is about high-impact entrepreneurship.
Do you have a good working relationship with the business gateway?
We have a very good working relationship with the business gateway throughout the country. That is extremely important. The business gateway should be the source of a huge proportion of the new companies that we work with.
Could you give us an example of the new entrepreneurial companies that are being established?
A range of Scotland’s key sectors are covered, including life sciences and energy. In the food market, Angelic Gluten Free Ltd got £50,000 to start up. Start-ups tend to follow market opportunities and new trends, such as premium and gluten-free foods. A range of entrepreneurial companies are being established.
Some of the work that you do relates to banking. You help SMEs to get loans and other forms of finance. Do you find the banks helpful?
I have been very impressed by the extent to which the banks want to work with us. As I have outlined to the committee previously, we began an access to finance programme a couple of years ago. We have specialist access to finance advisers. We have worked with several of the banks to get their relationship managers together with our account managers. We have made all our information available to them and have run seminars on how businesses grow. I have been extremely impressed by the extent to which the banks want to engage. We have seen steady improvements in the range of companies that apply for finance and in the number that get it.
It is good to hear that the banks are lending when they should be.
All of them? Oh blimey.
Do not feel that you have to answer all of them.
I will pick up on one or two of them. We have formed good relationships with a lot of banks over the past year or 18 months. There is more liquidity in the banking system than there has been for a long time. When we ask our businesses what the big issues are for them, access to finance is still there, but it is not as big an issue as it was a year or so ago. I would not say that the problem has been fixed—for those for whom it is a problem, it is still a major problem—but the extent of the problem seems to have diminished somewhat.
Thank you.
I will pick up on the Amazon question. I understand Lena Wilson saying that it is not for Scottish Enterprise to decide whether giving money to Amazon is a good thing, but there seems to be an assumption that it is a good thing. We might give funding that comes from the Scottish taxpayer to a company and help it to buy property and so on, but we do not appreciate that the taxes of those who are employed by Amazon go to the Exchequer and we have to boost poor wages through tax credits and so on. Who would have the information overall?
I am not sure whether we gave Amazon any money last year; I would need to clarify that. We gave evidence to the committee about a year ago and I am not sure that Amazon has had anything since then.
I have other questions convener—I do not know whether you want to come back to me later.
I will come back to you in a little while, because I want to bring in a couple of other members.
Lena Wilson mentioned the success of Scottish Enterprise’s focus on exports and growth, and she talked about the SDI network. How has the network grown in recent years?
We have opened five new offices in the past couple of years. SDI services both Scottish Enterprise and Highlands and Islands Enterprise. We have almost 100 people in a network of 28 offices throughout the world—for example, in Calgary, Ghana, Kenya and Saudi, and we have a second office in Shenzhen in China.
On the balance between the SDI network, global Scots and the use of embassies, which would you say is the most useful in delivering for Scottish businesses?
Our activity is mostly through our network of 28 overseas offices and our staff throughout the world. That is their job. They are our foot soldiers, our sales force and our eyes and ears. The global Scots all have day jobs. They do a tremendous amount for us and they are an extension of our workforce, but they are not our workforce. So, absolutely, first and foremost, our activity is through our office network.
So the SDI network gives you the most bang for your buck.
Absolutely.
You mentioned that a far greater number of Scottish companies have benefited from the Commonwealth games than benefited from the Olympics. Do you have any idea of why that is the case?
The Commonwealth games are on the doorstep, so I think that it is easier for some smaller companies. Also, we learned a lot from the Olympic games. We have had a lot of workshops and heard that Scottish companies did well at the Olympic games, but we have learned a lot from that. We have had a relentless focus and have run event after event. We have had communications and marketing campaigns and ensured that every account manager and business gateway office understands the programme. We have had a real team-Scotland focus on that.
Your focus on sectors and exports has obviously been successful. Do you have a strategy for dealing with regional disparities across Scotland? Some regions are doing a lot better than others, perhaps because they have more of a focus on the sectors that you have chosen to concentrate on.
The issue of regional equity is vital. I think that I have said before that we will not have a successful Scotland if large parts of it are not participating in that. For example, we have been working with the three Ayrshire councils to look at additional account management support and to consider the impact that companies such as GlaxoSmithKline can have in the area. We have worked with East Ayrshire Council on the back of what has happened in the coal industry and have specialised programmes there. I was with the Crichton campus leadership group a couple of weeks ago, to help it to consider what assets the Crichton campus has that we can exploit.
You come from a local enterprise company background. If you compare the structure under the LECs with the structure in which you work with partners such as local authorities, have things improved under the current system, or was there a clarity with the LECs that allowed more of a regional focus?
There was certainly clarity, in that people knew that there was a Scottish Enterprise Forth Valley or whatever, but that was a ceiling on ambition. I was in Dumfries a couple of weeks ago talking about that challenge. Actually, we work with more companies now than we did under the previous system, and we have no fewer staff in the area. If the budget for Scottish Enterprise Dumfries and Galloway was £10 million, that was a ceiling, so we did not spend any more than that in the area. Now, there is no ceiling. If there are opportunities to spend £20 million, £30 million or £40 million in the area and we can help with that, we will devote that resource to it.
Margaret McDougall mentioned access to finance. During the committee’s inquiry on that topic at the beginning of the year, we looked at some of Scottish Enterprise’s account-managed companies. There were not only sectoral discrepancies but huge regional discrepancies in access to finance among those companies. What are you doing to tackle that issue?
We are putting extra resource into that area. It is not only access to finance that is important but the way in which a lot of rural companies are run, what their ambitions are and how many of them are participating internationally. We have gained 1,500 rural leaders through a dedicated rural leadership programme. Alex Paterson talked about the importance of leadership, and we will see that coming through in people’s ambition and ability, and specifically in their ability to develop a growth plan for their company.
What progress is being made through the Scottish Investment Bank? Dr Wilson talked at some length about Scottish Enterprise’s aspiration to grow the account management portfolio. Why is that element viewed as a priority, rather than, for example, investing more through the Scottish Investment Bank or Scottish Enterprise’s co-investment strategy? What decisions do you make with regard to which area provides the greatest bang for the buck in your budget?
Account management will always come first, because companies grow the economy. The existence of a Scottish Investment Bank does not do anything—we need companies to apply it to. If we grow more companies and then grow more demand for investment, we will grow the Scottish Investment Bank accordingly.
With regard to your activity in growing companies and your relationship with companies, you also have Co-operative Development Scotland—
Yes, of course.
What potential is there for further activity by Co-operative Development Scotland? What progress is being made through that activity? Can Scottish Enterprise do more to work with businesses such as co-operatives that are looking to use non-traditional alternative business models?
Last year, CDS supported 36 employee ownership and co-op ventures; that number is up on the year before. The co-operative development and employee ownership model is very important, and we will do as much as we can to support it.
That is very encouraging. Turning to the issue of account management, you have described why it is such a priority for Scottish Enterprise. You said earlier that the evaluation of your engagement with account-managed companies was published in September. It mentions several challenges that remain for Scottish Enterprise in its approach to account management.
We take the issue seriously. I was delighted that, in a debate, the Parliament endorsed the work of Highlands and Islands Enterprise and Scottish Enterprise on account management, which is our flagship way of improving the economy.
Are those improvements on-going?
Yes—they are flowing through.
You are taking on board the comments.
I am confident that the message went out to every company that would be eligible, but I do not know whether only two in the north-east benefited. I can say that not all the companies that are benefiting are in Glasgow—they are all over Scotland. I do not have the breakdown in front of me, but I could get it to the committee. I am confident that the opportunity has been available to every organisation in Scotland for which it is relevant.
I will ask a supplementary to Richard Baker’s question about the Scottish Investment Bank. The Scottish Government announced two or three weeks ago that the plans for the Scottish business development bank would not proceed. What was Scottish Enterprise’s involvement in that?
Scottish Enterprise was involved in a working group that the Scottish Government led, which looked into the feasibility of a Scottish business development bank. We provided evidence and data and we looked at the market, at what has happened through the Scottish Investment Bank and at what would be beneficial.
Were you disappointed that the plans did not proceed?
Again, I work on the evidence. I am not disappointed one way or the other. We need the institutions that we need to have an impact on the economy. If we can grow the Scottish Investment Bank even more because the market and the opportunities are there, that is a good thing.
We know that, globally, levels of company ownership among women are stubbornly low. That is a problem in Scotland, too. Among the 43 high-growth companies that we heard about, are a decent percentage owned by women?
As you refer to a decent percentage, I imagine that you will be disappointed with the answer. I often find myself to be the only female chief executive in a room.
I am sure that you do.
How we bring women through is an issue. We are working with a couple of groups on getting more women to be high-impact entrepreneurs. We are mindful of that. We are also working on whether we can tailor our support more.
I do not know the answer to the specific question, but we monitor equality issues across the companies and businesses that we work with. Among businesses that are accessing our services for the first time, the number of women-owned businesses increased from 26 per cent in 2010 to 35 per cent in 2012. That is a good increase, although there is further to go.
If that is the start-up figure, the aim would be to cover the flow-through as the businesses grow and to ensure that the 30-odd per cent continues to be captured, which would bode well for the future.
Indeed. One of your key priorities is innovation. Obviously, that has the potential to impact positively on your other key priorities. However, why do you think that it remains the case that although our universities are globally recognised for the work that they do, our businesses are not exploiting the opportunities to innovate? What is holding them back? I note that you are looking at a wider innovation approach in order to increase by 4,000 the number of Scottish companies that are actively developing new and improved products; that is a big increase. That is obviously a great challenge, but what is holding us back and how will we reach that target?
A lot of companies think that innovation is product development, prototyping or research and development. They do not think about it in terms of innovating their business model through, for example, employee ownership, inherent day-to-day innovation in the workplace or innovation around the workforce. It is about saying that innovation is not just high-falutin’ R and D, although that is really important. Our business enterprise research and development—BERD—statistic on business expenditure in R and D in Scotland is not high enough, so we work extensively on that.
On the opportunities in renewable energy, your submission states:
I think that it is enough in terms of where the market is at the moment, because a lot of this is about stimulating a market. There are a lot of uncertainties over electricity market reform and that has held back some investment. The renewable energy investment fund is really important. Again, if we have to extend the REIF figure because of demand, that is a matter for Iain Scott and I to work on in terms of our business plan. However, I think that the REIF figure is sufficient just now, given the demand and what we are doing to stimulate it.
What stage does a project have to be at to access that finance? Does it have to be so far down the road before it can tap into that investment?
No. For example, it could be a project that has just been initiated for community purposes. A lot of communities have come forward to access that investment for district heating and projects like that.
I will start with the overarching question of how we market Scotland. I bore people endlessly with the adage that the brand that has a story to tell has meaning and the brand that has meaning has an impact on business. What is the story about Scotland the brand as far as you are concerned?
I think that Scotland’s brand is about premium. It is about premium in everything—for example, it is about high-class and top-notch universities, outstanding people, fantastic natural assets in wind, wave and tidal renewables, and our larder of health-enhancing food, such as our fish and meat. Scotland’s brand is about added value and premium. We can see from the kind of foreign investment that we are getting that Scotland is known internationally for high quality and high value in our people and places, and all our other assets.
I feel very much the same way. I think that it is about the combination of natural and historical values, married with the real opportunities of the future.
If we talk about opportunities for the future, we might find that we have different views about how we feed the pipeline. Alison Johnstone referred to innovation, knowledge transfer and the universities, but we might differ in our view of the variation in the regional performances of the business gateway in feeding through the winners.
Oh, goodness. I think that I wrote to you about that after my second-to-last appearance before the committee.
One of the things that the social enterprise community is tussling with is the question of what is a social enterprise and what is not. In Glasgow, we now have 590 social enterprises. Their aspirations are not being fulfilled because they do not see where they fit in with regard to the pipeline and how they qualify. Some of them do not have the right support and do not qualify for access to finance. There seems to be a two-tier approach. I understand why the agencies put a lot of focus on the high-growth companies, given resources and so on, but I am not sure where your focus is in terms of picking up, through the business gateway, those small businesses or the many good social enterprises that will be the champions of the future. How do you pick them up? How do you engage with them?
There are two questions there. When it comes to picking up new businesses, part of that is done through the business gateway. We work with the business gateway to ensure that those businesses that come through the growth pipeline come out the other end into account management. I cannot remember the figure off the top of my head, but we take into account management a high percentage of the businesses that are proposed to us by the business gateway. However, that is only one aspect of what is going on.
That is my problem. You are investing significant sums, but how are we ensuring that we are picking the winners and are not dissipating the many funds that are available? We are looking for an investment that will ultimately provide a significant return in the form of a high-growth company that is managed by the enterprise agencies. I do not see that engagement. I know that you support social enterprises, but I do not see the feed-through. You talk about start-ups but, when I look at survival rates, it makes me more concerned about where we are placing our investments. How can we better the current situation?
Start-ups are not our core business. That is the business of the business gateway. The point that I was making was that there are some high-growth start-ups—
Forgive me, but just so that we are clear, Lena Wilson said earlier that you are responsible. In my book, you are the economic gurus. Ultimately—in my opinion, though I might be wrong—Scotland’s enterprising and economic future depends on the four people who are sitting in this room and their teams. As far as I am concerned, that includes the business gateway.
The results speak for themselves. My job and Alex Paterson’s job, on behalf of the entire country, is to invest all our tax funds wisely. We need to do that by investing in the things that are most likely to generate a return for the Scottish economy, to increase GVA and to give people high-quality, sustainable jobs. That is our role. I am unapologetic about that and I am very proud of the work that is being done. I am sure that we have lots to learn and I am not saying that we will never make mistakes but, by and large, we are getting greater value than ever out of our economic development agencies.
I am not questioning that. I am questioning how you engage with and bring through the winners from the lower tiers, if you like.
It does not matter what the business model is. If a social enterprise can be a high-growth enterprise, we are blind to what the business model is.
The proof of the pudding will be in the eating.
The proof of the pudding is in the eating, though.
We have talked about energy and renewable energy. One of the key ingredients for our economic growth is the skill of our people. How do you engage with the likes of Skills Development Scotland and co-ordinate your plans with theirs?
We work with them completely hand in glove, so for every key sector in Scotland there is now an industry skills plan. We have regional skills plans, too. For renewables, oil and gas, and energy, there is a skills plan that looks at future flow, high-level skills and number of apprentices required. That work is done hand in hand with our sector-led and industry-led industry leadership groups. It is stronger than it has ever been.
We have finished almost precisely on time, so well done. I thank the witnesses for coming along this morning and helping us with our inquiry. Perhaps we can follow up afterwards on the budget issues that we talked about at the start of the meeting.