Scotland remains the most attractive place in the UK for foreign direct investment (FDI) outside London, according to a survey.
The country outpaced both the UK and Europe on foreign investment last year, for the second year in a row, by securing a record 126 inward investment projects, the survey states.
Scotland also secured a record 13.6% share of UK FDI projects and is polling at record levels of attractiveness to investors as an FDI location outside London, according to EY’s latest Scotland Attractiveness Survey.
The strong performance is Scotland’s fourth successive annual increase in FDI projects and is set against the background of a 6% decline in total UK projects and growth of just 1% across Europe.
Scotland’s record share of all UK projects is up from 12.3% in 2021, and 11% in 2020.
The country is second only to London in terms of being the UK’s most attractive location to future investors – with 11% of investors rating Scotland as the most attractive place to establish operations in the UK.
This is down from the record high of 15.8% in 2022’s survey, but remains higher than 2019’s pre-pandemic score of 7%.
Meanwhile, a record high 19.2% of investors – again the highest figure for any UK location outside London – are planning to establish or expand operations in Scotland.
EY Scotland managing partner Ally Scott said: “Scotland put in another powerful performance on FDI in 2022, securing record inward investment projects and UK market share.
“Against an unsettled UK and Europe economic backdrop, Scotland recorded its fourth successive annual increase and has now been second only to London in nine of the past ten years.
“Our report underlines the rich dynamism, diversity and balance of the Scottish economy and FDI sector, qualities that we at EY Scotland see every day.
“For Scotland to have three cities in the UK’s top five for non-London FDI bears testament to Scotland’s enduring attractiveness, and all this adds up to an impressively resilient performance.
“While Scotland continues to build on its great reputation as a place to invest, there’s no room for complacency.
“To maintain and enhance its status, Scotland must engage, plan, and play to its strengths: engage with public and private sector bodies to create a vibrant ecosystem for growth; plan how to sustain market-leading levels of attractiveness in the medium and long term; and build on its existing track record in prioritising high-value, high-potential areas like digital tech, renewable energy and R&D.”
Similar to the UK and Europe, Scotland’s largest sector in 2022 was the digital tech industry which has been the leading sector for Scottish FDI in each of the past three years.
The number of digital tech projects recorded in Scotland in 2022 was 29, down by 12% from 33 in 2021 – although total UK digital tech projects were down by 32%. Utility supply and business services were the second and third largest sectors.
Finance projects in Scotland almost tripled in 2022, rising to eight projects compared with just three in 2021. This was the strongest showing by the sector in Scotland since 2016, when Scotland secured nine finance projects.
As with the rest of the UK, sales and business services were the most common FDI activity in Scotland in 2022 with 51 projects, down from 59 in 2021.
Scottish manufacturing continued its recent renaissance, with a joint decade-high 35 projects in 2022 matching last year’s project total.
EY chief economist Peter Arnold said: “Scotland continues to consolidate its already well-established position as the most attractive UK location for FDI outside London.
“What’s more, London’s lead narrowed significantly this year, as its projects declined by almost a quarter.
“And it was telling that most other UK regions recorded an increase in projects, suggesting that levelling up may increasingly be becoming a reality in FDI.
The factors influencing decisions to invest in regions outside London are changing with access to grants and incentives now leading the way, cited by 23% of investors.
In second place is the availability of business partners and suppliers at 18%, and the availability and skills of the local workforce is joint third on 17%, level with the strength of business networks locally.
Adrian Gillespie, chief executive of Scottish Enterprise, said: “These results are a terrific signal of Scotland’s continued success at attracting FDI.
“The findings of EY’s Attractiveness Survey are testament to the dynamic business environment that Scotland offers to investors, including our enviable skills base, world-class universities, vibrant innovation districts, ambitious entrepreneurial communities, and the outstanding quality of life on offer.”
Scotland’s trade minister, Richard Lochhead, said: “Attracting inward investment is critical to shaping and growing our economy and ensuring we thrive in the global marketplace.
“These findings clearly demonstrate Scotland’s attractiveness as an investment destination and highlight the phenomenal progress being made to grow our international reputation as a dynamic, open nation with an outward-facing economy.”
UK investment minister Lord Johnson said: “Year after year we’re seeing growth in the number of FDI projects and Scotland’s major cities are still attracting a huge amount of planned investment.
“The UK Government will continue its work to promote Scotland around the world as a place to invest in order to sustain this growth in future years.”