Meeting of the Parliament (Hybrid)

Meeting date: Tuesday, March 16, 2021

Official Report 1141KB pdf

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Global Capital Investment Plan

The next item of business is a statement by Ivan McKee on a global capital investment plan. The minister will take questions at the end of his statement, so there should be no interventions or interruptions.

15:36  

Today, the Scottish Government is publishing its first global capital investment plan. I am pleased to outline to Parliament how we intend to pivot to a purposeful and values-led approach to increasing levels of capital investment in our economy.

“Investing with Purpose: Scotland’s Global Capital Investment Plan” is the third of three pillars that are focused on internationalising the Scottish economy. The first pillar is “A Trading Nation”, our export growth plan, and the second is “Shaping Scotland’s Economy”, our inward investment plan. All are framed by our vision for trade, which sets out our principles underpinning the trade and investment relationships that we want Scotland to have now and in the future.

At this stage, I take the opportunity to thank the team who have worked on the plan in the past months for the tremendous effort and work that they have put into what I believe is a productive and essential document.

Private capital investment is the deployment of internationally mobile finance into a project or business in Scotland. It is different from inward investment, or foreign direct investment, which seeks to attract foreign-owned companies to directly set up or expand operations in Scotland, and so merits its own plan and focus.

I am also clear that private capital investment does not replace the crucial role of public investment or ownership. There are areas of our society that can, should and will remain funded solely by public sector investment, but we need to recognise that public sector investment alone will not be enough to respond to the challenges of the 21st century. This is not policy for its own sake; it is needed to deliver on our wider ambitions, particularly net zero.

Capital investment directly impacts immediate economic outcomes, which then impact the Scottish economy in the longer term. The supply of private capital can help businesses to realise their growth ambitions by removing key barriers to expansion. That impacts on productivity through better quality infrastructure as well as through companies growing and having competition or demonstrator impacts on their sector. There are further impacts through supply chain and wider economic activity. Like the rest of the United Kingdom, Scotland has suffered from historical underinvestment, which is seen as a key driver of slow productivity growth over the past decades.

Although it is hard to measure, as a percentage of gross domestic product, the direct impact of increasing private sector business investment to the overall level seen among Organisation for Economic Co-operation and Development countries could permanently increase the level of GDP by around 1.9 per cent by 2030, which is more than £3 billion a year at current prices. That could then increase average earnings in Scotland by almost 5 per cent, which is around an additional £1,400 a year to the average Scottish employee at today’s prices. Delivering on the plan would therefore have real economic consequences for Scotland’s people and communities. In other words, it would be a significant boost to recovery and a further long-term boost to Scotland’s economy and wellbeing. To marshal that potential into a real investment-led recovery will require us to understand and engage with what makes a project, a business or a location viable in the eyes of the market.

The plan seeks to increase the effective supply of capital by better understanding and targeting different sources of funding. It also seeks to put forward our best market-ready opportunities by using the strongest internationalised areas in the economy to create demand for investment. Finally, it seeks to bridge the gap by taking action to increase the viability and fit of what private capital markets want to invest in and the attractiveness of our investment propositions.

I go first to the industry that we need to work with. There is a wide range of investor categories and, within each type, a variety of individual investors, each with their own risk-and-reward preferences, timescales and investment mandates for individual funds. Our aim is to deepen over time our understanding of the needs of those different investors, in order to offer better tactical and strategic matches to individual projects.

Global investors frequently seek a local investment partner, which gives reassurance and helps to overcome information asymmetries. We must not underestimate the importance of the Scottish National Investment Bank in that space, or of making much stronger connections with the investment management sector that is based in Scotland, which already manages £590 billion of assets.

Scotland is already in a strong position to pivot towards impact, ethical or environmental, social and governance—ESG—investment. Scotland-based investment funds manage 11 per cent of the UK’s responsible investing market, compared with a 7 per cent share of the conventional market, and that has formed a significant part of the sector’s strong growth in recent decades. The time is right for us to become a global hub for ethical investment.

Our inward investment plan identified the sectors in Scotland’s economy that are globally competitive, crisis resilient and likely to offer growth that benefits the broader economy and society as well as the business itself. New analysis on capital investment has identified broadly the same sectors, underscoring them as the best opportunities that we have to use the global economy to build our domestic strengths.

The plan summarises those opportunities into four sectoral themes: low-carbon transition; health and life sciences; digital; and high-value manufacturing. Those four sectors are the most likely drivers of future economic demand in the economy. They are broad, and that is deliberate. Although the focus has to be on sectors that can drive growth and recovery precisely because they are already strong, the approach leaves space for different sub-sectors to develop and come to the fore over time and for particular regional clusters of expertise to be brought out.

From the beginning, we have set out to align with and help to deliver the private capital element of the investment needs that were identified in the infrastructure investment plan, the climate change plan and housing to 2040. Our commitment to net zero must underpin all that we do. We should no longer be putting public resource into originating, structuring and promoting investments in Scotland that are not aiming at net zero. By focusing on our priority sectors and employing a net zero and place focus, we can start to build demand that leads to viability. We can bring alignment between investments in business growth, infrastructure and commercial real estate, with a focus on the development of assets rather than simply changing their ownership. In other words, we will be building markets instead of individual investment opportunities.

We will expand and strengthen initiatives such as the green investment portfolio and the cross-organisational work to define projects for carbon capture and storage, heating and hydrogen. We should seek systematically to turn those into opportunities that are both commercially sound and structured in a way that supports a just transition.

I am aware that we are launching this plan while economic uncertainty around Covid-19 still remains, but now is not the time to sit back. We must be bold and support our businesses and projects with an investment-led recovery. Here and now, investment is flowing into exciting and innovative companies, infrastructure projects and real estate. For example, European venture capital funds invested into Neurolabs, an early-stage computer vision start-up that is pioneering the use of synthetically generated data to develop object recognition models and opening up computer vision to a much wider range of applications. Further, although the real estate sector has been hit hard by the pandemic, major investments are continuing, such as the £81.5 million investment in the Candleriggs build-to-rent development in Glasgow.

Our ambitious plan contains 30 individual actions on how we will improve our approach to leveraging in private capital. They include proactively engaging with ESG investors and with sources of capital that are new to Scotland, such as green bonds, to help us achieve our net zero and wellbeing ambitions; establishing a new series A fund for innovative companies; strengthening the pipeline of investment opportunities across the public and private sectors; and targeting a programme of domestic and international events and activities that will help us to build new investor relationships.

Through the plan, we recognise Scotland for the forward-looking and collaborative nation that it is. Together with partners in business, academia and the public sector, we can shape markets that are attractive to investors. I encourage all partners to get behind the plan and help to make it a success.

I am delighted to present “Investing with Purpose: Scotland’s Global Capital Investment Plan” to Parliament, and I am happy to take questions on it from members.

The minister will take questions on the issues that are raised by his statement. I intend to allow around 20 minutes for questions, after which we will move on to the next item of business. I remind members who have questions to press their request-to-speak buttons now.

I thank the minister for advance sight of his statement. I welcome the Scottish Government’s focus on attracting private capital investment to help grow our economy post Covid. We are very pleased to be able to support that ambition, although I wonder how many international investors will be attracted to a country whose Government is proposing another independence referendum in the course of 2021, with absolutely no certainty as to what currency they might be investing in should independence come about.

I will ask two questions of the minister. First, what due diligence will be done on potential investors, given the recent unhappy experience that we have seen with the GFG Alliance group, which is in serious financial difficulties? Secondly, although I welcome the emphasis in the minister’s paper on green growth, the oil and gas sector is still a very important part of the Scottish economy and a major employer, particularly in the north-east of the country. Can the minister assure us that nothing in the new plan will discourage international investment in oil and gas?

I thank Murdo Fraser for the questions. The answer to his first point is, of course, the pound.

With regard to due diligence, the GFG scenario has impacted both Scotland and the rest of the UK. Due diligence is clearly in place when opportunities in which the public sector is engaged are assessed. I make no apology for the fact that we work practically with investors to support and maintain industrial capacity in Scotland, with mitigating steps in place. We will see that as the process moves forward.

The oil and gas sector is well aware of and fully engaged in the just transition to renewables, as I am sure Murdo Fraser is aware. The focus is clearly on the transition to net zero, and the sector understands that. We engage closely with the sector to support the investments that will lead in that direction. The majors in the sector and the supply chain that supports them are fully engaged with and active in those investments in renewables.

I thank the minister for advance sight of his statement.

At a time of global pandemic, looking forward and looking towards investment are hugely important. Although I welcome the report, I am concerned about the lack of detail, both on the measurement of the potential size of such investment and, critically, on learning lessons.

As we have seen from previous foreign direct investment experience—Timex, Michelin and the Caley rail works—industry can be left at the mercy of decisions that are made elsewhere, and, when capital is removed, there is no long-lasting footprint in terms of jobs or industry.

Will the Scottish Government set out clear measures of the value that it seeks to gain and more specific targets for global investment? Given the issues with FDI and the recent collapses of partnerships that the Scottish Government has been involved in—notably with GFG—what work will be undertaken to learn lessons and apply them to global investment partnerships that the Scottish Government enters into? Finally, how does the plan for investment square with the Scottish Government’s decision in the budget that was passed just last week to reduce the level of funding for the Scottish National Investment Bank from £240 million to £205 million?

Measurement is, of course, hugely important for tracking progress. Mr Johnson will be well aware that I always endeavour to ensure that that is part of any plan that we produce. If he looks at actions 2 and 26, he will see a commitment to put in place measurement metrics that will enable us to track our progress against the targets that we have set for Scotland’s economy with regard to the capital investment that we attract—that is taken care of.

As for the investments that take place, we are talking about private sector investment and private sector opportunities, and the private sector takes its own due diligence approach. In situations where the public sector is also engaged, we would take steps to put due diligence in place—as we do.

That does not mean that every investment is always successful. By its nature, investment is a risk business. It is about understanding the balance between risk and reward and how to approach them. It is also about having the thorough due diligence that allows people to assess risks, take appropriate action and put in place mitigating measures to deal with any issues that arise with investments. Someone who wants a risk-free approach to investment never invests—that is the reality.

I welcome Mr Johnson’s comments encouraging the process, and I would welcome his commitment and support for what we are trying to achieve, recognising that, as we come out of Covid, these steps are hugely important for the development of Scotland’s economy.

I am grateful for advance sight of the minister’s statement on global capitalism: it was all very much in character.

The minister says that he wants Scotland to be

“a global hub for ethical investment.”

Does that mean that he will not be courting the interests of business entities that make any use of tax havens?

I am not quite sure where Patrick Harvie is going with that question. The reality is that private capital investment is hugely important to Scotland’s economy. We recognise that we are not in a position—nor would we want to be—where every investment in every business or piece of real estate, every housing investment or every piece of infrastructure in the private sector is funded by the Government. We recognise that private sector investment is important to Scotland’s economy, and any business that is seeking further investment from the private sector would clearly recognise that, too.

Of course we are opposed to tax havens: that is not an approach that the Scottish Government welcomes. If Patrick Harvie is alluding to our green ports, which I am very happy to talk about, we are clear about all aspects of the green ports, and we will not proceed with them if we do not have conditions around fair work criteria—fair work first—or commitments on robust plans for the transition to net zero, or if there is not proper governance and enforcement in place to ensure that the current environmental, workplace and tax enforcement standards are in place, as with the rest of the economy.

The minister is right that Scotland can offer good opportunities in ethical investment. That strategy might have been of assistance when the Scottish Government signed an agreement with Peter Zhang and SinoFortone, which promised a £10 billion investment in Scotland, although there were unanswered questions about human rights abuses abroad.

What concrete steps has the minister taken to ensure that the Government does not get drawn into such an embarrassing situation again?

Willie Rennie follows these matters closely, so he will be aware that we recently published “Scotland’s Vision for Trade”, on which I answered questions in the Parliament. It addresses those matters in great detail. We have made it clear that that vision for trade underpins all three of our internationalisation plans for Scotland’s economy: our export plan, our foreign direct investment plan and the global capital investment plan.

Taking steps to ensure that human rights abuses are addressed as part of the due diligence process is something that we have clearly articulated in our vision for trade, and we will take that forward at every stage where we are engaged, as the public sector, with investors who are seeking to come and invest in Scotland.

I ask for succinct questions and answers, please. I will try to get everyone in.

I warmly welcome the statement.

Scotland has long suffered from chronic underinvestment, which impacts on productivity, employment growth and prosperity, as the minster touched on. Which factors does he believe have most contributed to that? How will they be tackled if Scotland is to build a much more resilient economy?

“Investing with Purpose: Scotland’s Global Capital Investment Plan” identifies the sectors in Scotland’s economy that have demonstrated the greatest resilience during periods of economic crisis and downturn, and those are the sectors that have a real international comparative advantage that is mapped to strong global demand. The plan sets out how we will pivot our approach to target more ESG or ethical investment.

Globally, there is a strong move towards responsible investing, and the growth of such funds has even accelerated during the Covid-19 pandemic. By focusing on those funds that have demonstrated not only resilience but growth during the pandemic, we can increase the likelihood of a steady supply of investment being available to Scottish businesses, which in turn will support wider economic resilience.

The minister said that part of the plan is about

“taking action to increase the viability and fit of what private capital markets want to invest in and the attractiveness of our investment propositions.”

Does the minister believe that the threat of an independence referendum this year makes Scotland an attractive investment proposition?

Absolutely. Investors will be attracted by the opportunity of a Scotland that is able to chart its own course in the world. When they look at the top 10 economies around the world by GDP per capita, they will realise that although those countries are the same size as Scotland, none of them has the strengths that Scotland has in terms of natural resources, the capacity that we have in the industrial sectors that we have identified in the plan, and the skills base and university excellence that we have. None of those countries has those advantages. Investors will recognise that a Scotland that had the ability to chart its own future in the world would be a tremendous proposition for them to invest in, and that they could partner with us in a successful Scottish economy in an independent Scotland.

The minister mentioned green ports. Could he expand on that point? Is he particularly looking for investment in green ports? What would the relationship be with the proposed capital investment programme?

Clearly, it is a private capital investment plan to support the structures whereby investors would seek out and be aware of investment opportunities in Scotland. That applies across business investment and real estate investment, and infrastructure investment in green ports might be part of that. There is an obvious synergy between the global capital investment plan and green ports, both of which are underpinned by our commitment to net zero and fair work.

As John Mason knows, we are seeking to adapt the UK Government’s free port model to better suit the Scottish context. We need to direct public resource into originating, structuring and promoting investments that support our transition to net zero and create new, high-quality fair work opportunities through infrastructure such as green ports. The plan can help us to attract the right investments for green ports.

We cannot make any more progress on the publication of our applicant prospectus for green ports because of an inordinate and unacceptable delay by the UK Government in finalising its parts of the plan. There is now a real risk that the pre-election period in Scotland will begin without the applicant prospectus being launched because of the UK Government’s delay and prevarication, for which we see no obvious reason.

I am concerned that the delay suggests that the Tories’ free port policy might be about a race to the bottom, because they have failed to commit to the requirements that, for us, are red lines—fair work first and the transition to net zero. I make it clear that we in Scotland will not allow such a race-to-the-bottom model and that we remain firmly committed to ensuring that fair work first and net zero are at the heart of, and underpin, any green port model in Scotland.

The communities that would arguably benefit most from capital investment are peripheral rural areas that suffer weaker economic indicators, such as Dumfries and Galloway, which is the lowest-wage economy in Scotland. What action will the Government take to seek to direct capital investment to those areas? How will the effectiveness of such action be measured, so that the warm words on inclusive growth start to become a reality for local economies that are being left behind?

The regional aspect is as central to “Investing with Purpose” as it was to our FDI plan, “Shaping Scotland’s Economy”, which we produced at the end of last year. If Colin Smyth reads it, he will see that there is a focus on regional aspects throughout the plan.

The plan is about understanding what the regions of Scotland have to offer and where their strengths lie, and working with them. I have had great meetings with councils, economic development partners and others across Scotland to understand where those strengths are. We have articulated those in the plan so that we can take those offers to the global capital market. The plan allow regions such as South Scotland, which the member represents, to have a route to market. By articulating the opportunities that they have for capital investment, we will be able to reach the whole of team Scotland through the plan’s work, thereby helping to attract investors to that region.

I listened carefully to the answer that the minister gave to Colin Smyth. Will the minister provide further information on what steps can be taken to ensure that the opportunities and benefits of such capital investment are spread across the whole of Scotland, in particular to places such as Stirling, which—from the point of view of location and transport links—is fantastically well placed to benefit from such investment, and is Scotland’s first gigabit city?

I thank Bruce Crawford for his question, which allows me to reinforce the centrality of the regional approach to the capital investment plan.

Global capital investment already impacts not only the major cities and the central belt, but all regions of Scotland. The plan has a specific focus on place and supporting economic opportunities that could be catalytic for local and regional economies. The place-based approach will further encourage investment in regions where there is already a sectoral advantage, and build clusters in priority sectors in which we know that there will be future demand, such as the aquaculture and life sciences cluster in Stirling, and the other sectors that Stirling’s economy already has to offer, which Bruce Crawford mentioned. We will work to increase viability in those clusters and that, in turn, will bring investments to all parts of Scotland, including Stirling.

The minister will be well aware that the Scottish Government’s track record on investing in private businesses is decidedly ropey. It is so bad that the Auditor General for Scotland called on the Government to set out its future criteria for investing in companies. The plan does not appear to do that, so when will the minister publish such criteria?

It is a private capital investment plan, which is about attracting private capital into Scotland’s economy. If he has read the plan, Graham Simpson will know that the role of the Scottish National Investment Bank is a key part of it, and that the bank is taking on the role across the public sector of pulling in all the other vehicles that have been used to invest public money in private businesses.

Graham Simpson talked about our track record. Across Scotland, there are many businesses—I meet such businesses every week—that are very supportive of the fact that the public sector in Scotland has supported them on their growth journey. As a consequence, there are many great success stories.

Graham Simpson will also be aware that, as part of its operating mandate and mechanisms, the Scottish National Investment Bank has criteria for assessing and evaluating its investments.

What steps can the Government take to ensure that investments will translate into high-quality jobs for the people of Scotland? In line with the questions of Bruce Crawford and Colin Smyth, I make a plea on behalf of my constituents in Kilmarnock and Irvine Valley, which has high levels of unemployment, that we might reasonably expect a share of those quality jobs.

Capital investment creates jobs in the economy, and the plan focuses our collective efforts around the four key sectors that our analysis has shown are the most likely drivers of future economic demand. Jobs in those sectors are primarily high skilled and high value, and pay higher-than-average wages. The focus of our capital investment plan is to attract investment into those sectors to create more job opportunities. For example, in the digital sector, the plan aligns with and supports the recommendations of the Logan review, which highlights the importance of upskilling at all levels and upskilling traditionally underrepresented groups.

Willie Coffey will know that I am fully aware of the opportunities that Ayrshire has to offer, and I miss no opportunity to signal to global investors that they should come and have a look at Ayrshire, along with all other parts of Scotland.

How will the Scottish Government help to facilitate the shift from what risk being high-carbon stranded assets to the sectors of the future? Will there be guarantees that recognise the just transition imperative and ensure low-carbon outcomes? I appreciate that that might be difficult, given that we are talking about private investment, but what robust measures and criteria will be in place?

Claudia Beamish will be aware that the transition to net zero is at the core of the plan. We make it clear that the focus of anything that we do in that regard must be on ensuring that the transition moves forward. As I said earlier, the sector is hugely engaged with and supportive of the transition. We work closely with the sector to ensure that the transition takes place in a way that allows businesses, communities and individuals and their families in different parts of Scotland to refocus their skills and efforts on the renewables sector.

The same applies to private capital investment. We are explicit that the focus is on attracting private capital investment in the transition to net zero. We work hard to identify such investors, engage with them and attract them to Scotland, which is leading the world in many aspects of the transition to renewable energy.

In response to an earlier question, the minister mentioned GDP, which we know is not the only measure of economic success. In my mind, the recognition of wellbeing economies, which is shared by Scotland, New Zealand, Ireland and Wales, is of paramount importance. How will the global capital investment plan fit with the Scottish Government’s work to deliver a wellbeing economy?

The choices that are set out in the plan explicitly seek to focus effort on attracting investment that generates wider spillover benefits and that aligns with our values on good global citizenship, tackling climate change and increasing wellbeing. Such investment creates high-quality jobs, which, in turn, support our inclusive growth ambitions and improve wellbeing. Private investment in innovative businesses and infrastructure can have an impact on wider social goals by, for example, improving digital connectivity and supporting health innovation.

In addition, increasing and sustaining direct investment in a low-carbon economy will accelerate the transition to net zero. That will not only reduce the impacts of climate change but create new industries and improve air quality and health outcomes. In addition to the projected impacts on GDP, increased private capital investment will bring wider spillover community impacts and will support greater wellbeing.

That concludes questions on the statement.

In a moment, we will move to the next item of business. I remind members to follow social distancing measures in the chamber and beyond, particularly when accessing and leaving their seats.