One of things that has always interested me about people is their diversity. I’m talking about their skills, interests and aspirations, because it’s that diversity and those features that to a large extent drive the shape and potential of a country’s economy.
The caveat is that this assumes the country’s economic policies and ideology don’t limit the extent to which those features can be nurtured.
Successful economies would seem to be able to reflect the diversity of their population and run reasonably balanced economies with a good mix of services together with both small and large-scale manufacturing.
A good example might be Denmark, with a similar size population to Scotland, but a much more diverse and considerably larger economy. Their GDP is roughly 1.75 times that of Scotland.
For a long time Scotland has depended heavily on inward investment to support its manufacturing base. That’s no longer the case. It would appear from the latest EY “UK Attractiveness Survey”, which looks at the details of where and what foreign direct investment is supporting, that the priorities of those foreign investors are changing and moving towards sales and services and away from manufacturing.
In fact, manufacturing-based investment projects came close to halving between 2019 and 2020, falling from 32 to 17, but logistics type investments went up from three in 2019 to 10 in 2020.
The US is the largest overseas investor in Scotland, with Ireland next. Despite the hype surrounding so called “tech” and particularly “fintech” only 19 out of 107 projects were in that sector.
I think we can assume that the lack of manufacturing projects is due primarily to Brexit and the difficulties that causes with exports into the EU.
Scotland does have some very good high-value-adding manufacturers. Examples include companies like Weir Group, Howden and Parsons Peebles, and promising up and comers like tidal turbine firm Nova Innovation, Novosound and Mage Control Systems. But – and it’s a big but – most of the smaller manufacturing companies, including many in the pharma sector, are exceedingly small, with many employing fewer than 50 people.
There are limited numbers of opportunities for a talented and diverse population. Many still actually want to make stuff and work in a multi-disciplined environment on complex projects.
Scotland needs to do two things. First, recognise that without the support of foreign direct investment many people and their talents will be lost unless we adopt a much more proactive approach to manufacturing.
Secondly, stop thinking small is beautiful. It isn’t. Small companies are far less likely to run development programmes for new products, but more likely to get bought up by an overseas company. We need to think big and look at merging some of them.
The importance of indigenous manufacturing to Scotland and to the energy sector can’t be underestimated. To achieve our climate change targets, we will need to apply more technological solutions and that means manufacturing the appropriate hardware.
Changing circumstances make this even more urgent. Most will have noticed the rising price of fuel which reflects the increase in the oil price. What most will not have realised is that this is indicative of an upward trend caused by a post-pandemic rise in demand and a reduction in oil/gas project investment, which is hitting supply potential. The lower investment being caused by uncertainty over Covid-19 and the impact of climate change policies and increasing renewables deployment. It doesn’t mean there will be no new oil/gas projects just a lot fewer of them.
Gavin McPherson, head of policy and research at Nova, told a recent webinar that “If we want to maximise the economic benefits to the country, it’s really important that we are building in Scotland, deploying the turbines in Scottish waters and exporting them to the rest of the world.”
This applies across a broad spectrum of sectors. The potential for making use of our diverse skills and talents is very large.
A word of caution though. We will not maximise the economic benefit by following Aberdeen’s example of creating an Energy Transition Zone to which “it is hoped green energy businesses can be attracted”. We need those businesses in place first. The ETZ is a real case of “the cart before horse”.
The Scottish Government’s policy document “Making Scotland’s future – a recovery plan for manufacturing” tells us that “pre-Covid (2018) the manufacturing sector was worth £12.5 billion in Gross Value Added (GVA) and employed approximately 170,000 people, many in highly skilled jobs.”
However, that’s only 8% of Scotland’s total GVA. I would suggest it needs to be nearly double that.
We need to show some vision, courage and real enterprise. Frankly, we should look at every opportunity seriously and in a positive manner. Mediocrity and a “can’t-do” attitude are no longer acceptable.
Dick Winchester is a member of the Scottish Government’s oil and gas and energy transition strategic leadership group