SCOTLAND is continually beating the UK on foreign direct investment, but experts are urging the country to diversify investment origin – and to spread a vision of the nation beyond kilts and castles, as Scotland misses out amid the UK’s “Global Britain” strategy.

Global consulting and assurance firm Ernst and Young’s (EY) 2023 ­Attractiveness Survey released this June revealed the number of new foreign direct investment (FDI) ­projects in Scotland had grown by 3.3%. It marked continued Scottish ­Government success in attracting foreign investment into the Scottish economy – beating the UK as a whole whose number of new projects had fallen by 6.4% in the past year.

However, EY has warned of the risks of Scottish overconcentration of investment origin.

The report stated: “The Scottish investor base is relatively highly ­concentrated around US and intra-European investment, while the wider UK has a more diverse base of investors. Diversifying this investor base will be a key policy challenge for Scotland in the years ahead.”

The US – investing heavily in ­services and research – has been the largest contributor to Scottish FDI responsible for a third of all projects, with the remaining four of Scotland’s top five investing countries within the EU.

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Government statistics show foreign investor-supported firms constitute just 3% of Scotland’s businesses but are responsible for more than a third of Scottish jobs and 77% of exports. With investor origin so concentrated, a small change of investor sentiment in one country could cause extreme volatility in Scottish finances and a large risk to employment.

Dr Ewan Gibbs, lecturer in ­Economic and Social History at the University of Glasgow, warns of the inherent risks of undiversified FDI profiles recalling the rapid decline of US manufacturing investment in Scotland during the 1980s.

He said: “Factories were much easier to close from a board room in New York, I think, than comparable perhaps sites in America and were certainly easier to dispense with than for a Scottish industrialist to do the same thing.”

Recent tourism numbers follow the same dynamics as FDI. Though US tourism and European tourism to Scotland have grown from their pre-Covid levels, tourism from the rest of the world has halved between 2019 and 2022.

VisitScotland statistics also show the number of international business trips to Scotland has fallen by 17%. This is only a small worry for the tourism industry – as it has offset this decline with greater leisure spending.

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However, tourism’s long-term impact on investment perception should not be understated. When executives know Scotland, they want to invest their money here. EY’s 2023 Attractiveness survey ranks Edinburgh (15.7%) and Glasgow (15.0%) first and second (bar London) in top UK executives’ intended destinations for investment in the coming year. ­However, outside of these domestic tourist hubs, the next Scottish city for UK ­executives is Aberdeen where only 2% intended to invest.

Dr Chris Greenwood, senior ­research fellow of tourism policy ­development at Glasgow ­Caledonian’s Moffat Centre, attributes much of the success of FDI projects to Scotland’s brand abroad. He says: “I think that goes all the way back to Scotland’s brand of the warmth of welcome. Foreigners like to meet Scottish people – it’s in the interests of foreign investors to invest and recruit locally.”

Greenwood acknowledges that “driving investment to rural areas is more challenging” but has praised the Scottish Government’s Regional Tourism Investment Fund and partnerships to electrify the A9 in promoting tourist visibility to regions outside of Edinburgh and Glasgow.

Mark Newlands, the interim director of global investment at Scotland Development International (SDI), the agency responsible for Scotland’s trade, says the organisation is renowned abroad for its “absolute ruthless focus” on targeted investment into ­developing regional sectors, using portfolio managers to promote further investment opportunities to more than 300 companies.

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He said: “We are having an event with our regional partners in the next week where we will discuss our collective approach to inward investment, what partners’ real strengths are and how we promote those.”

Newlands points to successful ­renewed investment from ­companies such as Italy’s Eurostampa into Cumbernauld and the US’s Q2 Solutions into Livingston as examples of “making existing investment sticky”.

Experts agree that this push for ­secondary regional investment and successful renewal of existing investment goes far in explaining the high concentration of American and EU investments as once under way ­investment relationships become ­increasingly self-strengthening.

However, Scotland’s economic reputation alone is not enough to win diversified investment – it is only a necessary factor to first attract FDI.

A large factor in securing ­projects is investors’ expectations of ­long-term strategic opportunities. Gibbs ­recalls a primary reason for ­Scotland’s historical attractiveness throughout the 1960s onwards was the expectation of future access to a European market.

Gibbs said: “[An] important part of the story was the perception that the UK market was going to open, so that is a physical story for investors about making and exporting goods closer to the European market.

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“But also, it was about an expectation that Europe would become a European union and obviously Britain did join the European Economic Community. I think that was part of the inward investment argument for Scotland all the way up until Brexit.”

As regulations in the UK and EU increasingly diverge, strengthening non-tariff barriers to the EU market, it is likely that legacy foreign investors, used to unfettered access to a market of 510.3 million European consumers, will become increasingly dissatisfied. When better opportunities appear on the continent, Scotland risks being passed up for expansionary investment – hampering the “snowballing” of FDI.

However, there are further specific concerns for Scotland’s post-Brexit investment brand.

Indian investment has been one of the few success stories from the UK Government’s “Global Britain” pivot – particularly in the digital tech sector providing 32 separate investment projects in London and Birmingham.

However, unlike pre-existing waves of growing UK-wide investment, Scotland has so far not shared in this growth, with EY finding only two of the UK’s 82 new Indian investment projects in Scotland.

Commentators hold Scotland’s ­image on the world stage to be ­responsible for the inability to attract a wider range of global investment.

Ian Houston, columnist and member of advocacy group Global Scot, which is based in Washington DC, said: “We need to do a better job to ensure that people from a variety of ­ethnicities and backgrounds understand that Scotland is a multicultural society, and to show the stereotype, that ­Scotland is not inclusive, up to the reality of what’s actually happening.”

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Speaking from the US West Coast, Houston said: “If you close your eyes, when you think of San Francisco and Silicon Valley, what comes to mind? Contemporary. Modern. High-tech ­industry. Those sorts of themes.

“I want people to, when they think of Scotland, not be so overwhelmed by their perception of a romanticised Scotland of the tartan, of the castles and kilts. That’s there and we need to honour that heritage.

“But the message is not getting out to potential business ­leaders and ­investors. They are not ­seeing ­Scotland in the way you see ­Scotland every day, which is a modern, ­contemporary, inclusive, diverse ­society and certainly a society that aspires to that as well.”

As a result, Scotland’s global brand, which has done so well in growing ­leisure tourism, may struggle to reach a more global audience.

Scottish Development ­International has attempted to tackle this ­perception by taking steps to form an integrated “Team Scotland” approach that links together internal and ­external government development agencies as well as growing links to tourism by co-locating VisitScotland staff within ­Scottish Government offices abroad.

In response to disparities in Indian investments, Newlands explained Scottish Development International would continue to rely on assets like SDI’s office in Mumbai and Scotland House in London – visited by Humza Yousaf during his first month as First Minister – to pursue secondary ­investments in Scotland from existing Indian projects.

Though the benefits of ­globalisation and later Europeanisation have done much to soften Scottish politicians’ outlook on FDI, Gibbs notes that: “Historically, Scottish ­nationalists have been quite suspicious about ­cases of inward investment” and that “some of those earlier ­questions about the true costs and benefits of investment are still worth asking”.

He explains that throughout the 1980s, “it was particularly hard for Scottish workers, communities, and politicians to put political pressure on American executives” when investment decisions went against workers.

Japan’s Sumitomo Electric Industries and China’s Sunhope have ­packaged ­novel one-off projects benefitting ­Scotland – but Brexit’s impact on ­future market access and issues around Scotland’s image abroad means those calls to diversify the ­nation’s investment portfolio persist.