Foreign direct investment (FDI) in Scotland strongly outperforms the UK as a whole. In 2021, FDI in Scotland grew by about 14% compared to 2020. The figure was about 1.8% for the UK and about 5.4% for Europe. Inward investment, including foreign direct investment, has led to job creation and economic growth across Scotland. This is one of Nicola Sturgeon’s achievements.
Foreign Investment: Direct Versus Indirect
Foreign direct investment (FDI) means that a company or institution headquartered outside Scotland establishes a base of operations in Scotland. This creates jobs, economic opportunities, and investment in communities (SNP).
Foreign investments are typically either direct or indirect. FDI is when investors purchase a physical asset such as a plant, factory, or machinery in a foreign country. Foreign indirect investment (FII) is when investors buy stakes in foreign companies that trade on their respective stock exchanges. Generally speaking, the foreign country favors FDI over FII because the assets that they purchase are long-term. Therefore, they help improve the foreign country’s economy over time (Corporate Finance Institute).
Foreign Direct Investment versus Foreign Portfolio Investment
According to Business Standard, foreign investors take the FDI route when they have a long-term interest in mind. In FDI, an investor usually acquires foreign business assets, establishing ownership or controlling interests in a company. With FDI, foreign companies are directly involved with day-to-day operations in the other country. Under such circumstances, the investor company has a large amount of influence and control over the investee company. Unlike the FDI, Foreign Portfolio Investment or FPI is for short-term profit booking. Through this route, foreign investors put capital into financial assets, such as stocks and bonds. Such an investment is for short-term financial gains.
Foreign Direct Investment in Scotland
Foreign direct investment in Scotland is one of Nicola Sturgeon’s achievements. According to the SNP, the latest survey results show that 15.8% of investors now rate Scotland as the UK’s most attractive FDI location, up by 15% from last year. Scotland has also more than doubled its rating since the pre-pandemic period. Back in 2019, 7% of investors rated Scotland as their top destination. According to Ernst & Young:
- FDI projects in Scotland increased by 14% in 2021, with four years of continuous growth and the highest share of UK projects in the past decade. The UK and Europe FDI projects in 2021 failed to match this elevated picture. Their total number of projects is still below their 2019 levels — although it show a rise from their 2020 figures.
- Scotland has ranked second in 2021 for employment, with an impressive 125% increase in job prospects.
- Scotland has seen strong performance in the digital, utilities, and manufacturing sectors, and is a firm second choice for digital investment beyond London.
Scotland’s Inward Investment Plan
We can consider Scotland’s inward investment plan as one of Nicola Sturgeon’s achievements. Scotland’s inward Investment Plan says this plan focuses on maximising the benefits that inward investment can bring to Scotland’s economy. The plan supports the delivery of sustainable and inclusive growth. An inward investor is a company or institution headquartered outside of Scotland that establishes a base of operations within Scotland. The inward investment creates jobs and associated capital investment. The term ‘inward investment’ refers to both FDI and similar investments from the rest of the UK into Scotland
FDI Benefits for Scotland
The benefits that FDI can create for Scotland are among Nicola Sturgeon’s achievements. According to Scotland’s Inward Investment Plan, focusing public sector efforts more purposefully on maximising wider ‘spillover’ impacts could help speed up Scotland’s economic recovery. Analysis by the Office of the Chief Economic Adviser of the Scottish Government looks at the potential benefits of Scotland improving this performance. This analysis shows that the success of inward investment can create an additional 20,000 jobs. It can increase Scottish GDP by £4.2bn. It can boost Scottish exports by £2.1bn, and add up to £680m in additional government revenues per annum. This plan is to identify the focus sectors and actions that will maximise the value of benefits to Scotland’s economy.
Scottish Development International (SDI) says Scotland’s inclusive, values-driven approach to attracting FDI is paying off. At the 2022 World Forum for FDI, Ivan McKee announced findings which show that inward investment is driving economic growth. It is also creating and protecting jobs across the country. Ivan McKee is the Scottish Government Business Minister. Statistics from SDI show that inward investment projects have created over 7,500 planned real-living-wage jobs in the 2021/2022 financial year.
The Strengths of Scotland
According to Skills Development Scotland, Adrian Gillespie says that the EY Survey underlines the compelling strengths Scotland has to offer on the international stage. Adrian Gillespie is the Chief Executive of Scottish Enterprise. “Scotland’s incredible workforce, world-renowned universities, competitive cost base, supportive business environment, magnificent natural resources, and unparalleled quality of life on offer immediately put Scotland on the radar of investors.”
“When combined with our ‘Team Scotland’ approach, which sees public bodies, academia, and industry working together to promote the very best Scotland has to offer, this really makes us stand out from the crowd. Businesses have told us that this joined-up approach is a key reason why they choose Scotland – and EY’s survey is testament to this.”
As SDI says, Scotland secured 107 inward investment projects last year. International investors cite core strengths that give Scotland the edge over the other UK and foreign investors. The strengths include: the availability of local talent and skills, strength of business support networks locally, and access to regional grants and incentives for investment and R&D. Similarly, the BBC reports that investors ranked the availability and skills of the local workforce, the strength of business networks locally and support from regional economic advisory bodies as the most important criteria.
Top Countries for FDI in Scotland
According to SDI, the United States remains the single biggest originator of FDI projects in Scotland, followed by Ireland, the Netherlands, and France. As the Scotsman says, the US accounts for 29.5% of FDI projects in Scotland. Future Scot says three countries are the source of the most investment in Scotland. These include the USA with 38 of the 107 projects, Ireland with 10, and the Netherlands with eight.
The Managing Partner for EY Scotland, Ally Scott, has talked about Scotland’s FDI. He said: “The past year has seen Scotland continue to make great strides as a destination for FDI. It means that Scotland can look to the future with even greater confidence. However, there are problems of historically high inflation, the rising cost of living, and wider geopolitical risks. Thus, for keeping that momentum, we will require ongoing commitment and hard work (the Scotsman).”
Scottish Financial Enterprise CEO Sandy Begbie said: “The fact that Scotland remains the UK’s premier location for inward investment outside of London is hugely welcome and a clear indication of resilience despite the many challenges businesses continue to face. SFE will continue to work closely with policymakers in Edinburgh and London. SFE wants to ensure that Scotland’s industry’s voice is heard. Its objective is to further enhance Scotland’s reputation for being a leading global financial centre (Scottish Financial Review).” SNP seeks to boost FDI. The party has been very successful in attracting foreign investors. This is only one of Nicola Sturgeon’s achievements. This shows that the SNP can make an even more successful and independent Scotland.