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Introduction

The latest Scottish Annual Business Statistics (SABS), sourced from the Annual Business Survey (ABS), allow detailed analysis of the structure and performance of businesses in Scotland over the period 2008 to 2016. The ABS covers the "non-financial business economy", which accounts for approximately two thirds of the economy. The main sectors not covered are the financial sector & parts of agriculture and the public sector. These statistics are therefore best suited to the analysis of individual industries rather than the economy as a whole.

To set the SABS results in context it is helpful to consider the performance of the Scottish economy as a whole in terms of Scottish Gross Domestic Product (GDP). Scottish GDP in constant basic prices grew each year from 1998 reaching a peak in Q2 of 2008. Scotland then entered recession, which lasted six quarters and returned to growth in Q1 of 2010. Further short periods of economic contraction occurred later in 2010, and then in early 2012. Since 2012 there has been year-on-year growth. However, growth between 2015 and 2016 (the period covered by the latest SABS results) was only 0.2%, with contractions in Q1 2016 and Q4 2016. The most recent figures show that the Scottish economy grew by 0.8% between 2016 and 2017.

Notes:

  • where "manufacturing" is referred to, this covers Section C of Standard Industrial Classification (SIC 07) codes
  • where "construction" is referred to, this covers Section F of SIC 07 codes
  • where “services” are referred to, this covers Sections G to S of SIC 07 codes (but does not include Section K "Financial and insurance activities" and parts of the public sector which includes Section O "Public administration and defence")
  • where "remaining sectors" are referred to, this covers Sections A, B, D and E of SIC 07 codes (but does not include parts of agriculture under Section A)
  • where GVA is referred to, this is approximate Gross Value Added (aGVA) at basic prices.  The main drivers of aGVA are: Turnover (the main component of income) and Purchases (the main component of the consumed goods and services).
  • SABS financial data are in current prices i.e. the values have not been adjusted to take account of inflation.

Summary

In 2016, cash terms GVA in the services sector amounted to £49.8 billion, compared to £12.7 billion in manufacturing and £7.1 billion in the construction sector. The remaining sectors covered by SABS (dominated by oil/gas extraction and utilities sectors) accounted for £13.7 billion of Scotland’s non-financial business economy.

Between 2015 and 2016, manufacturing GVA increased by £610 million (+5.0%).  However, GVA in the services sector decreased by £4.2 billion (-7.7%), GVA in the construction sector decreased by £63 million (-0.9%) and GVA for the remaining sectors, covered by SABS, decreased by £443 million (-3.1%).

These latest SABS figures underline the impact that the fall in the oil price has had on oil and gas supply chain sectors (particularly in the services sectors in the North East of Scotland).  

It has been a mixed performance for the growth sectors over the latest annual period – with GVA rising for Sustainable Tourism, Food & Drink and Life Sciences but GVA falling for the Energy, Business Services and Creative Industries

Sector contributions

Services

In 2016, cash terms GVA in the services sector amounted to £49.8 billion, down 7.7% (-£4.2 billion) on 2015. The three services industry divisions experiencing the largest absolute decreases in GVA, between 2015 and 2016, were:

  • the architectural and engineering activities sector (in Section M) - down £1.4 billion (-28.1%);

  • the gambling and betting activities sector (in Section R) - down £1.2 billion (-105.8%) – the Office for National Statistics continue to investigate the estimates for this sector as these have been particularly affected by a change in estimation methodology; and

  • the warehousing and support activities for transportation sector (in Section H) - down £613 million (-21.1%).

As shown in Chart 1, the drop in Section M (Professional, Scientific and Technical Activities) GVA, between 2015 and 2016, has been largely driven by falling GVA in the industry in Aberdeen City (-£943 million) and Aberdeenshire (-£706 million), suggesting a link to the downturn in the oil and gas sector. 

Chart 1 - Professional, Scientific and Technical Activities, GVA Growth, Local Authority Area (Top/Bottom 3)

Professional, Scientific and Technical Activities, GVA Growth, Local Authority Area (Top/Bottom 3 in 2015/16)

In 2016, the two largest divisional contributions to GVA within services came from:

  • the retail trade sector (in Section G) at £5.9 billion (11.9% of total services GVA); and
  • the wholesale trade sector (in Section G) at £4.2 billion (8.4%).

Note that both these large services divisions experienced a fall in GVA between 2015 and 2016; with retail trade sector GVA decreasing by 9.2% (-£599 million) and wholesale trade sector GVA decreasing by 10.2% (-£474 million) over the latest year.

In 2016, the local authority areas contributing most to total GVA within the retail trade sector were Edinburgh City (14.0%), Glasgow City (12.3%) and Aberdeen City (6.9%).  Retail trade sector GVA within all these cities fell between 2015 and 2016, with decreases of 28.0% (-£159 million) in Aberdeen City, 13.3% (-£112 million) in Glasgow City and 1.2% in Edinburgh City (-£10 million).   

Manufacturing

In 2016, cash terms GVA in the manufacturing sector amounted to £12.7 billion, up 5.0% (+£610 million) on 2015. As shown in Chart 2, the three manufacturing industry divisions experiencing the largest absolute increases in GVA, between 2015 and 2016, were:

  • the manufacture of pharmaceuticals - up £183 million (+49.3%);

  • the manufacture of wood and wood products – up £168 million (+32.3%); and

  • the manufacture of chemicals and chemical products - up £152 million (+32.5%).

Chart 2 - Manufacturing, GVA Growth, Division (Top/Bottom 3)

Manufacturing, GVA Growth, Division (Top/Bottom 3 in 2015/16)

In 2016, the two largest contributions to GVA amongst the manufacturing industry divisions came from:

  • the manufacture of beverages sector at £2.1 billion (16.8% of total manufacturing GVA); and
  • food products at £1.6 billion (12.9%).

These have been the top two manufacturing divisions in every year since 2013. Note that both these large manufacturing divisions experienced a rise in GVA between 2015 and 2016; with GVA in the manufacture of beverages sector increasing by 5.3% (+£108 million) and food products GVA increasing by 7.4% (+£112 million) over the latest year.

In 2016, the local authority areas contributing most to total GVA within the manufacturing sector were Fife (9.0%), Aberdeen City (8.0%) and Glasgow City (7.0%).  Combined these three local authority areas accounted for 24.0% of manufacturing GVA in 2016 - down from 28.0% in 2015.  

Construction

In 2016, cash terms GVA in the construction sector amounted to £7.1 billion. Construction GVA was comprised of:

  • specialised construction trades at £3.8 billion (53.1% of total construction GVA);
  • construction of buildings at £2.3 billion (32.8%); and
  • civil engineering at £999 million (14.0%).

Between 2015 and 2016, GVA in the construction sector decreased by 0.9% - this was driven by the civil engineering sector where GVA fell by £320 million (-24.3%). Over the latest year, civil engineering GVA decreased most notably in Glasgow City (-£140 million), Edinburgh City (-£94 million) and Aberdeenshire (-£84 million). 

Company Ownership

Company Ownership

In 2016, only 4.4% of business sites in the Scottish non-financial business economy were foreign-owned, however these foreign-owned businesses contributed 26.2% of Scotland's non-financial business economy GVA. One factor driving this is that foreign-owned businesses tend to be larger (in terms of employment) than UK-owned businesses, but the sectors that foreign-owned businesses tend to operate in also has an impact.

Within manufacturing, foreign-owned businesses accounted for 40.8% of GVA and 30.3% of employment, whilst UK-owned Scotland based businesses accounted for 50.1% of GVA and 59.3% of employment.  The remaining GVA and employment is accounted for by UK-owned businesses based in the Rest of the UK (9.1% of GVA and 10.3% of employment).

Within construction, foreign-owned businesses accounted for only 6.0% of GVA and 5.1% of employment, whilst UK-owned Scotland based businesses accounted for 80.4% of GVA and 86.2% of employment.  The remaining GVA and employment is accounted for by UK-owned businesses based in the Rest of the UK (13.6% of GVA and 8.7% of employment).

Within services, foreign-owned businesses accounted for 17.8% of GVA and 14.1% of employment, whilst UK-owned Scotland based businesses accounted for 61.4% of GVA and 66.3% of employment.  The remaining GVA and employment is accounted for by UK-owned businesses based in the Rest of the UK (20.8% of GVA and 19.6% of employment).

Chart 3 shows that the construction sector had the smallest proportion of foreign-owned employment, where 5.1% of employment was foreign-owned contributing 6.0% of value added. This contrasts with the primary sector (includes Oil & Gas and Utilities), where 38.1% of employment was foreign-owned contributing 53.3% of value added.

Chart 3: Shares of Gross Value Added and Employment by sector and ownership, 2016

Shares of Gross Value Added by sector and ownership in 2016

Growth Sectors

Growth Sectors

Scotland's Economic Strategy 2015 reaffirms the Scottish Government’s focus on key growth sectors of the economy.  These key growth sectors include:

  • Energy (including renewables)
  • Sustainable Tourism
  • Creative Industries (including digital)
  • Life Sciences
  • Financial & Business Services
  • Food & Drink (including agriculture & fisheries)

SABS includes the GVA and Turnover data for the Growth Sectors as defined using Standard Industrial Classification (SIC) 2007 codes.

As shown in Chart 4, it has been a mixed performance for the growth sectors over the latest annual period – with GVA rising for the Sustainable Tourism, Food & Drink and Life Sciences but GVA falling for the Energy, Business Services and Creative Industries growth sectors. 

Chart 4: Growth Sectors - GVA changes in 2015/16

Growth Sectors - GVA changes in 2015/16

Energy

Note that the SABS energy sector results include off-shore oil and gas activity; GVA associated with off-shore activity, under UK regional accounts procedures, is normally allocated to a separate ‘Extra Regio’ category rather than allocated to a region within the UK.

In 2016, GVA in the energy sector in Scotland amounted to £12.9 billion, representing a £1.6 billion (or 11.2%) decrease on 2015; this fall is as a result of the decline in the oil price.   

The decline in GVA in the energy sector over the latest year has been driven by the mining support service activities sub-sector (down £877 million on 2015) and the engineering related scientific and technical consulting activities sub-sector (down £711 million on 2015).  Over the latest year, GVA in the extraction of crude petroleum and natural gas sub-sector decreased also, down £269 million which represents a 4.7% decrease on 2015 - this follows a 37.8% fall in the previous annual period (2014 to 2015).      

Financial and Business Services (partial)

Totals for the Financial and Business Services growth sector relate only to those sectors fully covered in SABS – and so Financial & Insurance Activities are not included. The SABS results therefore really only cover the business services sector within the growth sector.

In 2016, GVA in the business services sector in Scotland amounted to £7.0 billion, representing a £629 million (or 8.2%) decrease on 2015.

The GVA decline in the businesses services sector over the latest year has been driven by the other engineering activities sub-sector (down £724 million or 28.5% on 2015), which like the trend in the energy growth sector support industries will be related to the downturn in the oil and gas sector as a result of the decline in the oil price.  

Creative Industries

In 2016, GVA in the creative industries sector in Scotland amounted to £4.4 billion (down £306 million or 6.5% on 2015).  The fall in GVA in the creative industries sector over the latest year is driven by purchases increasing more so than turnover - purchases up £409 million and turnover up £110 million between 2015 and 2016.

The GVA decline over the latest year has been driven by GVA falling in the software/electronic publishing sub-sector (down £319 million or 14.2% on 2015) - turnover in this sub-sector fell by £341 million between 2015 and 2016, whereas purchases fell by only £27 million over the same period. 

Sustainable Tourism (tourism-related industries)

In 2016, turnover in the tourism-related industries sector in Scotland amounted to £7.1 billion (up £401 million or 6.0% on 2015) and GVA amounted to £3.9 billion (up £300 million or 8.4% on 2015). 

In 2016, the local authority areas with the highest tourism-related industries sector GVA were City of Edinburgh (19.2% of Scotland’s tourism-related industries GVA), Glasgow City (11.5%) and Highland (6.8%).

The tourism-related industries sector play a particularly important part in the economies of some of the more rural local authority areas – for example, in 2016, 10.6% of the Orkney Island’s non-financial business economy GVA was generated by the tourism-related industries sector, this compares to 4.7% for Scotland as a whole.

Chart 5 below shows the GVA performance of sub-sectors within the Sustainable Tourism sector between 2008 and 2015-16. It shows that the Hotels and Restaurants sub-sectors have made the largest contributions in all years.

 

Chart 5: Sustainable Tourism 2008 v 2015 v 2016 - Gross Value Added by sub-sectors

Sustainable Tourism 2008 v 2015 v 2016 - Gross Value Added by sub-sectors

Food and Drink (partial) 

Totals for the Food and Drink growth sector relate only to those sectors covered in SABS – and therefore agriculture is not included.  Food and Drink, as presented in the SABS results, relates only to:

  • SIC 3: Fishing and Aquaculture 
  • SIC 10: Manufacture of Food Products
  • SIC 11: Manufacture of Beverages

In 2016, GVA in the food and drink growth sector (as covered by SABS) in Scotland amounted to £4.1 billion, representing a £374 million (or 10.0%) increase on 2015, with GVA increasing over the year for each of the three sub-sectors.

Life Sciences

In 2016, GVA in the life sciences sector in Scotland amounted to £1.5 billion, representing a £228 million (or 17.7%) increase on 2015. 

The increase in life sciences sector GVA over the latest year was driven by the pharmaceutical sector (up £183 million or 49.3% on 2015).