One of my old friends, a Norwegian by the name of Reidar Niemi who ran Stolt Nielsen’s subsea business in Aberdeen in the early 80s once asked me “what the hell is the matter with your (expletive deleted) Scottish banks?”.
He was expressing his astonishment at the apparent unwillingness of those banks to become involved with growing the subsea industry here. His question was entirely appropriate and as history has demonstrated given pretty much all the major subsea players such as Subsea 7 and Technip are now overseas owned, the lack of meaningful support from the banks has come home to roost although I suspect strongly they don’t care.
This lack of financial support wasn’t limited to the contracting or ship owning end of the subsea sector but was also obvious in other areas and notably high value hardware. How did Norway developing engineering empires like the huge Kongsberg group? Why did Scottish companies never really make much of an inroad into manufacturing complex stuff like well heads, christmas trees and so on.
Simple truth is that this lack of financial support combined with politically driven ideological indifference meant that we never really became a supplier of sector critical hardware and when we did the companies concerned generally found itself turning to overseas sources of finance or simply selling themselves to an overseas company or private equity outfit to be able to fund their next stage of development. It’s surprising how many companies we think of as being “local” are in fact overseas owned by virtue of a corporate or private equity buy out. It concerns me that according to recent reports that a mainstay of the Scottish supply chain, the Wood Group, might even be next.
In 2022 the Economist magazine published an article in which they said that compared to many of our competitors “Britain is a great place to start a company, but a bad one to scale it up” because too often, the equity capital dries up along the way. Frankly, I’m not now sure it’s even a good place to start a company particularly if you want to manufacture something.
As I pointed out in a column in EV last year there is a huge contrast between Scotland and Norway in financial support infrastructure, notably the banks. At the last count Scotland had one private bank for the wealthy. I don’t count the Bank of Scotland as it’s now owned by Lloyds. I also pointed out that, on the other hand, Norway has some very large commercial banks, some regional based and several small savings banks. At the end of 2020 there were 134 banks operating in Norway, 118 were Norwegian and 16 branches of foreign banks.
Not dissimilar financial infrastructure can also be found in other countries large and small in Europe. It also needs to be noted that the availability of start up and growth capital in the USA seems to remain at a pretty high level given the number of new, high value manufacturing companies that keep popping up in everything from hydrogen technologies to new electric motors to even complete new electric aircraft and hydrogen fuel cell powered vessels. I gave examples of these in a column last year.
The scale of the level of investment into energy transition technologies in these countries is on an entirely different level and it’s something we need to tackle urgently.
There are sources of capital available to Scottish companies looking at developing and manufacturing energy transition related technologies but more often than not it’s small scale and in the form of grants or competitive awards in response to an R&D call and only in the tens or low hundreds of thousands of pounds from development agencies or govt sponsored organisations such as the Net Zero Technology Centre. The latter is currently offering awards of up to £500k under its Open Innovation Programme which is fine for undertaking early stage development but what happens when you want to scale up?
There are two things I think Scotland needs. Firstly, its own stock exchange so that Scottish companies can raise funds here and secondly, an equivalent to the German Sparkassen-Finanzgruppe which is a network of public banks that can only lend within a geographically defined area and, consequently develop close relationships with their customers.
According to a study by Civitas “the remarkable success of the German Industrial mittelstand in the last 60 years is directly related to the financial and overall economic support that has been provided by the German Sparkassen.” The “mittelstand” or small and medium-sized companies account for almost 99% of all German companies and are seen as the main drivers of innovation.
A study by Momentous Change Ltd last year into the viability and potential for a new Scottish stock exchange noted that the last Scottish exchange closed in 1973 and was merged into the London Stock Exchange just before the oil and gas industry took off.
Had it survived it would have enabled Scottish companies to raise capital, buy productive assets and grow in Scotland, helped ensure liquidity and of course to help in the overall scaling up process.
Norway, Denmark, and other small countries have stock exchanges for these very reasons and it’s not a coincidence they’re already outperforming Scotland in developing energy transition technology.