Scotland has maintained its status as the UK’s top location outside of London for new foreign direct investment (FDI), according to EY’s UK Attractiveness Survey – Scotland.
Amid the general economic downturn and rising inflation of the past few years, Scotland secured a record 142 inward investment projects in 2023, a 12.7% rise from the previous year.
Scotland outperformed the majority of the UK in increasing its share of FDI projects, reported the EY survey. With the UK witnessing a 6% rise in FDI projects, Scotland recorded a 14.4% share – higher than the 13.6% the country achieved in 2022. This marked the fifth consecutive year of increases in FDI projects to reach the highest level in ten years.
Of the international locations investing in Scotland, the US led with 27 of the projects, accounting for 19%. Elsewhere, investments from Germany doubled to reach 20 FDI projects – the most the country has made in a decade, with clean energy understood to be one particular area of interest. This was followed by France with 10 FDI projects.
In addition, the survey’s top 10 UK urban locations for investment outside of London featured three Scottish cities. With 32 projects, Edinburgh was in second place. Glasgow came fourth with a total of 25 projects. In eighth position with 13 projects was Aberdeen.
With a multitude of commercial opportunities, a variety of government funding schemes, and a diverse talent pool across multiple world-leading universities, Scotland continues to lead as a destination that provides investors with the advantages they seek, combined with a welcoming business environment. Expertise in key industries such as energy, especially renewables, gives the Scottish economy a competitive edge over other regions. Additionally, favourable business incentives and a high quality of life are further influencing factors behind investors’ decisions.
FDI in Scotland for the energy transition
Reflecting Scotland’s leading role in the energy transition, the main sector for FDI in the country was utility supply – amounting to 40 projects in 2023 and marking an 81.8% rise in projects from 22 in 2022. The 2023 total also includes significant increases in low-carbon and cleantech projects. Notably, the 40 projects last year were also the most for any industry in Scotland in the last ten years and substantially ahead of the other sectors.
The success of utility supply is clear evidence of the Scottish economic strategy in action. The energy transition was identified as one of the main opportunity areas to transform the nation’s economy, create quality jobs, and support the drive to reach net zero by 2045 – five years ahead of most other countries.
Historically, Scotland has been integral to the UK’s energy industry, and it remains amid the global decarbonisation drive. According to GlobalData analysis, Scotland accounted for almost half (46.9%) of total FDI into the UK energy industry from 2019-23, attracting several key projects. For example, Spanish company BlueFloat LLC has partnered with Italy-based Renantis to increase Scotland’s capacity for offshore wind, with the construction of two new floating wind projects in Fraserburgh and Aberdeen. Then in May this year, German company RWE announced a major investment to develop a green hydrogen plant in Grangemouth.
The ScotWind and INTOG offshore wind leasing rounds have also attracted considerable international investment – and with a 20–30 year pipeline of projects, there are significant opportunities in the area. In addition, there are examples of international entrepreneurs moving to Scotland specifically to take advantage of the business-friendly policies in areas such as clean heat.
Digital technology followed utility supply with 14 FDI projects and had previously recorded the highest project numbers in Scotland for six consecutive years. Sectors that also recorded 14 projects in Scotland last year were transport & logistics, and business services.
In addition, EY’s Scotland Attractiveness Survey for Financial Services published in May showed that Scotland is also the top region outside of London for attracting financial services FDI. A survey of financial services investors found that 26% would look to Scotland to establish or expand their UK operations, up from 14% in 2023 and 12% in 2022.
Scottish universities help drive economic growth
A key factor to Scotland’s economic success is its universities. The University of Glasgow and the University of Edinburgh are the fourth and seventh biggest universities in the UK by student population respectively, according to the Higher Education Statistics Agency, and attract a diverse range of talent from across Scotland, the UK, and internationally.
Not only do the universities provide a range of expertise and develop new talent, but they also have dedicated research departments that are highly respected. The Complete University Guide 2024 ranks Glasgow and Edinburgh as the tenth and twelfth best universities in the UK for research, ahead of other institutions such as Durham.
To name just one example of the expertise at Scotland’s universities, Edinburgh has become known as ‘the space data capital of Europe’ on account of its university’s leading role in sourcing satellite information. Connections between academia and economic development arms of government, such as Scottish Development International (SDI), provide an integral network of support and advice that serve as the backbone for Scotland’s thriving business environment.
Quality of life in Scotland attracts talent
According to the latest EY survey, 69% of investors are planning to establish or expand operations in the UK over the next year – and 26% are planning to invest in Scotland, second only to London. When investors were asked which locations specifically, 23% were targeting Edinburgh and 9% Glasgow – putting those cities in second and fourth respectively among all UK cities.
Alongside the universities and expertise across various industries, talent is also attracted to Scotland by the lower cost of living and high quality of life.
Bustling cities such as Glasgow and Aberdeen are short journeys away from stunning Highland landscapes. These factors mean that Scotland is increasing in appeal as a destination to live and work. This trend is reflected in the fertile business environment. The number of enterprises operating in Scotland has increased by 43.2% over the past 20 years, according to data from the Scottish Government.
As Scotland’s business environment continues to innovate, and more talented students and businesses move to the country, the nation is strongly positioned to remain an attractive destination for FDI.
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