Digital sector generates joint highest number of FDI projects, finds EY

The digital sector generated the joint highest number of foreign direct investment (FDI) projects in Scotland last year, according to a new report by EY.

With 16 FDI projects based in the digital sector north of the border, EY rated Edinburgh, Glasgow and Aberdeen in the top ten UK cities outside of London for attracting investment, while Dunfermline, the Highlands and Islands, and the south of Scotland also attracted sizable projects.

The two sectors generating the highest numbers of FDI projects in Scotland were digital and business services, which both generated 16 projects, with digital up from 14 projects in 2017 and business services down from 23 projects.

Meanwhile the machinery and equipment sector generated 12 projects, up from eight in 2017.

The report, based in analysis of FDI projects that have resulted in the creation of new facilities and new jobs, as well as the perceived attractiveness of regions to investors, found Scotland continues to attract a high number of FDI projects, albeit below the level achieved in 2017, reflecting a declining trend across the UK.

The decline followed three consecutive years in which Scotland’s number of FDI projects set new records for the past decade.

Overall 94 projects were established in 2018, down by 22 from the previous year, with the US listed as the top source of FDI in Scotland, followed by Germany and Switzerland, and then Norway.

Mark Gregory, EY’s chief UK economist, said: “What’s key in the 2019 survey is to look at how regions are performing outside of London. When we do that, we see very similar trends emerging and in that context Scotland is standing ground.

“While FDI projects in London held firm in 2018, the decline in projects across most regions of the UK appeared to reflect the uncertainty surrounding Brexit. Fifteen percent of companies in the 2019 survey of international investors said they have put UK investment plans on hold as a result of the vote to leave the EU.

“The US continued to contribute the most Scottish projects of any country in 2018, but there were some interesting shifts lower down the ranking with Danish, German, Swiss and Japanese projects all increasing.

“If the trends evident in our 'attractiveness reports' continue then the UK risks becoming ‘branch office Britain’ – an attractive market to sell to, but not one that companies will commit to manufacture or research and develop in. However, with the right policies in place, the UK could strive to become ‘interconnected Britain’, seizing on the digital opportunity to modernise manufacturing and services, and become a leader in innovative cleantech technology and applications.”