Solid foundations will keep Scotland's international ambitions on track
Our interim Managing Director, Neil Francis looks ahead to the trade and investment environment in 2021
The recent announcement of a further national lockdown due to COVID-19 was a difficult start to 2021 for many, including those involved in international trade and investment.
While the decision was rightly taken for public health reasons and not to overwhelm our NHS, it was a further obstacle for companies to navigate after what had been a tumultuous 2020.
However, as a result of our world-class workforce and companies, the integrated ecosystem between the public and private sector and the incredible natural resources at our disposal there’s every reason to be optimistic that Scotland will remain a magnet for global investment and a leading trading nation.
COVID-19 continues to have an impact on the ability of firms to do business across borders. Whilst unlike a normal recession in terms of its cause and likely recovery cycle, it’s nevertheless reasonable to expect that at least some of the rules of engagement will have changed permanently.
This is especially the case when considered alongside other driving forces such as a renewed focus on net zero, the increasing resilience of supply chains, human rights standards, global trade disputes, the UK’s exit from the EU, consequential Free Trade Agreements and new emerging global alliances.
With this level of uncertainty and change, forecasting future outcomes is challenging. Nevertheless, there is an emerging consensus. According to the World Trade Organisation, 2020 is likely to result in a fall of between 7-10% in world merchandise trade volumes followed by growth of around 5% in 2021, returning to pre-pandemic levels in early 2022.
While the start of widescale vaccination programmes will restore consumer and investment confidence and help trade rebound, secondary impacts of the pandemic will drag into 2021. Transport capacity will take time to unwind and as the recovery progresses, support packages from governments across the world have the potential to create an uneven playing field for exporting firms.
And although the UK was able to reach a deal with the European Union on future post-Brexit trading arrangements, the full impact will take months to unfurl which may lead to increased friction. We also know that confidence levels vary from sector-to-sector, with food and drink companies particularly unsure as to how the new trading arrangements will affect them.
According to the United Nations Conference on Trade and Development (UNCTAD), global Foreign Direct Investment (FDI) flows are forecast to decrease by up to 40% in 2020, from their 2019 value of $1.54 trillion. This would bring FDI below $1 trillion for the first time since 2005.
In addition, FDI is projected to decrease by a further 5-10% in 2021 before beginning to recover in 2022, led by global value chains (GVCs) restructuring for resilience, replenishment of capital stock and recovery of the global economy.
The pandemic continues to be a supply, demand and policy shock for FDI, slowing down significantly existing investment projects. The prospect of a deep recession will lead multinational enterprises (MNEs) to reassess new projects and policy measures taken by governments will again have the potential for creating market distortions.
With this context in mind, we’ve been using scenario planning to help ensure our strategic plans and delivery models can remain effective in the face of several disruptive shifts. While the COVID-19 pandemic is the most significant, we also considered other trends shaping the future of trade and investment including technology advances, climate change and geopolitics.
We collaborated with leading futurists in Deloitte and Salesforce and tailored their global scenarios (A World Remade) to the Scottish context. We also consulted with a cross-section of partner organisations across Scotland, using a structured process to stretch thinking around new opportunities or hidden risks which is intended to drive better decisions.
We’re now using these insights to inform our internal decision making and help Scotland transition to a more resilient economic model. As a small, outward-facing nation, Scotland needs a strong global outlook to continue to thrive. But supporting a green economic recovery that delivers improvements in individual wellbeing will be more challenging in the face of ongoing turbulent global trends.
However, even in these difficult times there were many inward investment successes in Scotland during 2020:
- UserTesting, a leading global provider of on-demand human insights to many of the world’s leading brands, announced an R&D project that will create as many as 70 high-value, technical roles in Edinburgh
- GC Exchange, a technology company specialising in digital assets, opened a new facility in Glasgow that will create 26 real living wage jobs
- US software development company, AdInMo, chose Scotland as its global headquarters in a move that will create at least 20 jobs over the next three years
Indeed, Scottish Enterprise figures for 2019/20 showed that more than 6,500 planned real living wage jobs had been generated by inward investment projects into Scotland. Of these planned jobs, almost 2,000 were high value jobs, with salaries around 20% higher than the Scottish average.
In total, there were 128 inward investment projects for 2019/20, an increase of 20 compared with the previous financial year. Almost 40 of these were new investor projects choosing to locate in Scotland for the first time.
This strong performance backs up the EY Attractiveness Survey that showed Scotland remains the leading UK location outside of London for FDI.
And Scottish exporters have continued to find opportunities overseas for their products and services:
- Mowi Scotland shipped the first Scottish Salmon to Saudi Arabia in more than a year-in-a-half
- Kays Curling stone secured an agreement with Shanghai’s Greenland Holding Group Company Limited to distribute its iconic products to dozens of new curling centres that are opening across China
- Intelligent Growth Solutions, the agri-tech company, announced a significant export deal with French urban agriculturalists, Jungle
Scottish Enterprise trade specialists have worked tirelessly to support our exporters through our global network of offices, connecting them to more than 500 international buyers with specific opportunities.
Everyone with a stake in Scotland’s economy is determined to ensure we remain an open and globally engaged country. In the coming year, we will be redoubling our efforts in trade and investment via a values approach based upon wellbeing, net-zero and inclusivity as a means of building back better.
The Scottish Government’s new inward investment strategy does just that. Published in October, Shaping Scotland’s Economy: Scotland’s Inward Investment Plan takes a targeted approach to driving the creation of highly skilled jobs across all regions of Scotland in key sectors where our country excels, such as energy transition, space and digital financial services.
This strategy compliments the work of A Trading Nation, the Scottish Government’s plan to grow Scotland’s exports, and lays the groundwork for its Capital Investment Plan that will be published later this year.
Near the end of last year, I wrote about the focus for International Trade how markets will recover at different rates and the emergence of new opportunities. The ability to match these to the ambition, capacity and capabilities of our exporters is essential and we are creating market plans to do this.
And in partnership with our fellow economic development agencies and the Scottish Government, we will continue to provide guidance and support to companies regarding the new post-Brexit trading arrangements.
While 2021 will have its challenges, we will see further successes in trade and investment that will underpin Scotland’s economic recovery. With the eyes of the world on Glasgow later this year as it hosts COP 26, this will be a unique opportunity to bring together all that’s important to Scotland in one incredible showcasing platform.
Notes to editors
- In 2019/20, FDI projects generated 6,564 planned real living wage jobs for Scotland
- Scotland was the top UK location outside London for the attraction of FDI projects in 2019 (EY Attractiveness Survey Scotland 2020)
- NB the SE inward investment results consider projects and planned jobs announced during the financial year 2019/20, whereas the EY survey relates to projects and jobs announced during the 2019 calendar year
- SE counts planned and safeguarded jobs confirmed by inward investors through SDI/SE/HIE and DIT inward investment interventions. This evidence is then validated and is subject to audit procedures.