Scotland’s foreign investment grows with record results

• A record 126 inward investment projects were secured by Scotland in 2022 (up from 122 in 2021) maintaining the country’s position as the top UK location for FDI outside London  
• Fourth successive year of Scottish FDI project growth, with projects up 3.3% and total UK down by 6.4%. Scotland sets new record for its UK market share at 13.6% (12.3% of projects in 2021, and 11% in 2020)
• Among investors, Scotland polls as the most attractive place in the UK to invest after London. A record 19.2% of investors considering FDI locations intend to establish or expand operations in Scotland in future
• Edinburgh and Glasgow ranked as the first and second cities outside London for planned investment over the next year, with one third of investors aiming to back projects in Edinburgh, Glasgow or Aberdeen
• Digital tech and utilities (including renewables) drive FDI growth, with manufacturing FDI at highest in a decade

Scotland outpaced both the UK and Europe on foreign investment – for the second year in a row – by securing a record 126 inward investment projects last year (up 3.3% on 2021’s 122 projects), according to the EY 2023 UK and Scotland Attractiveness Survey. Scotland has also secured a record 13.6% share of UK foreign direct investment (FDI) projects, and is polling at record levels of attractiveness to investors as an FDI location outside London.

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 (from 993 to 929) and growth of just 1% across Europe. Scotland’s record share of all UK projects is up from up from 12.3% in 2021, and 11% in 2020.

While London remains the UK’s most attractive location to future investors, Scotland is in second place with 11% of investors rating the country 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 exiting track record in prioritising high-value, high-potential areas like digital tech, renewable energy and R&D.”

Like the UK and Europe, Scotland’s largest sector in 2022 was the digital tech industry. Digital tech 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 (22 projects, up 22% from 18 in 2021) and Business services (15, up 7% from 14) were the second and third largest sectors.

While the finance sector is not among Scotland’s five largest FDI sectors over the past five years, finance projects in Scotland more-than doubled in 2022, rising to eight projects compared to 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 (two-fifths of all Scottish 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.

Equally encouraging is the rise in R&D project activity in 2022, with Scotland securing 27 projects – its highest number of R&D investments since 2015, when it recorded 28, and up from 20 in 2021.

EY’s 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.

“Expertise in manufacturing and utilities – key sectors in Scotland – will be crucial to any efforts by the UK to establish itself as a place where clean technology is not just deployed, but also developed and built too. The UK’s green ambitions should go hand-in-hand with its levelling-up goals, and investment in clean technology means investment in the UK’s industrial heartlands.”

Four countries accounted for more than 50% of Scotland’s total projects – the most prominent being the United States, which has been the leading country of origin for Scotland, the UK and Europe throughout the past decade. Scotland secured 32% of its inbound projects from the US in 2022, while the US share of projects into the UK was lower at 24%. A breakdown of US investment shows a sectoral focus on digital & IT services (30% of projects), and activities being led by R&D (33%) as well as business services (33%).  

Behind the US, second place among origins of Scottish projects in 2022 went to Germany, which was the source for 8% of Scottish projects. Third was Ireland, followed by Canada in fourth place.

In second, fourth, and joint-fifth place, Edinburgh (38 projects), Glasgow (20 projects) and Aberdeen (15 projects) featured in the UK’s top five investment locations outside London in 2022, as well as over the last five years. Meanwhile, 16% and 15% of investors said they were planning to establish or expand operations over the next year in Edinburgh and Glasgow, respectively – the highest totals for any non-London cities.

The success of most cities in the ranking seems to be driven either by an existing diverse sectoral base or a success in embracing digital investment. Manchester, Edinburgh, and Belfast are especially strong in securing digital projects, while Birmingham and Glasgow seem to attract investment interest from a broader spread of sectors. 

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% (down from 27% last year), level with the strength of business networks locally. Notably, local labour costs have receded as an issue, falling to 16% from 24% in 2022.