Today the Scottish Government is publishing its first Global Capital Investment Plan. I am pleased to outline to parliament how we intend to pivot to a purposeful and values-led approach to increasing levels of capital investment in our economy.
The Global Capital Investment Plan is the third of three pillars focused on internationalising the Scottish economy. The first was the Export Growth Plan. The second was our Inward Investment Plan. All are framed by the Vision for Trade which sets out our principles underpinning the trade and investment relationships we want Scotland to have now and in the future.
I'd like to take the opportunity at this stage to thank the team who have worked on this plan over the past months and the tremendous effort they have put into what I believe is a very productive and essential document.
Private capital investment is the deployment of internationally mobile finance into a project or business in Scotland. This is different from Inward Investment (or FDI) which seeks to attract foreign-owned companies to directly set-up or expand operations in Scotland, and so merits its own plan and focus.
I am also very clear that it does not replace the crucial role of public investment or ownership. There are areas of our society than can, should, and will remain funded solely by public sector investment. But we need to recognise that public sector investment alone will not be enough to respond to the challenges of the 21st century. This isn’t policy for its own sake, but is needed to deliver on our wider ambitions, particularly net zero.
Capital investment directly impacts immediate economic outcomes, which then impact the Scottish economy in the longer term. The supply of private capital can help businesses realise their growth ambitions by removing key barriers to expansion. This impacts on productivity through better quality infrastructure as well as through companies growing and having competition or demonstrator impacts on their sector. And there are further impacts through supply chain and wider economic activity. Scotland, like the UK, has suffered from historic under-investment, which is seen as a key driver of slow productivity growth over past decades.
Although it is hard to measure, the direct impact of increasing private sector business investment to the overall level among OECD countries (as a percentage of GDP), could permanently increase the level of GDP by around 1.9% by 2030 (more than £3.1 billion a year in 2019 prices). This could then increase average earnings in Scotland by 4.9%, around an additional £1,400 a year to the average Scottish employee in today’s prices.
So delivering on this plan has real economic consequences for Scotland's people and communities. In other words, this would be a very significant boost to recovery, and a further long-term boost for Scotland’s economy and wellbeing. To marshal that potential into a real investment-led recovery will require us to understand and engage with what makes a project, a business, or a location viable in the eyes of the market.
This plan seeks to:
- increase the effective supply of capital, by better understanding and targeting different sources of funding
- put forward our best ‘market ready’ opportunities, using the strongest internationalised areas in the economy to create demand for investment
- bridge the gap by taking action to increase the viability and fit of what private capital markets want to invest in and the attractiveness of our investment propositions
First to the industry we need to work with. There is a wide range of investor categories and within each type a variety of individual investor, each with their own risk and reward preferences, timescales and investment mandates for individual funds. Our aim over time is to deepen our understanding of the needs of those different investors, in order to offer better tactical and strategic matches to individual projects.
Global investors frequently seek a local investment partner, which both gives assurance and helps overcome information asymmetries. We must not underestimate the importance of the Scottish National Investment Bank in this space, or of making much stronger connections with the investment management sector based in Scotland, which already manages £590 billion of assets.
Scotland is already in a strong position to pivot towards Impact or ESG investment. Scotland-based investment funds manage 11% of the UK’s responsible investing market, compared to a 7% share of the conventional market, and this has formed a significant part of the sector’s strong growth in recent decades. The time is right for us to become a global hub for ethical investment.
Our Inward Investment Plan identified the sectors in Scotland’s economy which are globally competitive, crisis-resilient and likely to offer growth which benefits the broader economy and society as well as the business itself. New analysis on capital investment has identified broadly the same sectors, underscoring them as the best opportunity we have to use the global economy to build our domestic strengths.
The plan summarises these opportunities into four sectoral themes: low carbon transition, health and life sciences, digital, and high value manufacturing. These four sectors are the most likely drivers of future economic demand in the economy.
They are broad, and that is deliberate. Whilst the focus has to be on those sectors which can drive growth and recovery precisely because they are already strong, this approach leaves space for different sub-sectors to develop and come to the fore over time and for particular regional clusters of expertise to be brought out.
We have set out from the beginning to align with and help deliver the private capital element of the investment needs identified in the Infrastructure Investment Plan, Climate Change Plan and Housing to 2040.
Presiding Officer, our commitment to net zero must underpin all that we do. We should simply no longer be putting public resource into originating, structuring and promoting investments in Scotland which are not aiming at net zero. By focusing on our priority sectors and employing a net zero and place focus, we will be able to start to build demand which leads to viability. We can bring alignment between investments in business growth, infrastructure and commercial real estate, with a focus on development, rather than simply changing ownership of assets. In other words, we will be building markets instead of individual investment opportunities.
We will expand and strengthen initiatives like the Green Investment Portfolio, and the cross-organisational work to define projects for carbon capture and storage, heating and hydrogen. We should seek to systematically turn these into opportunities which are both commercially sound, and structured in a way which support a Just Transition.
I am aware that we are launching this plan while economic uncertainty around COVID-19 still remains. But now is not the time to sit back. We must be bold and support our businesses and projects with an investment-led recovery.
Here and now, there is investment flowing into exciting and innovative companies, infrastructure projects and real estate. For example:
European venture capital funds invested into Neurolabs, an early stage computer vision start-up, pioneering the use of synthetically generated data to develop object recognition models and opening up computer vision to a much wider range of applications.
And although the real estate sector has been hit hard by the pandemic there are major investments continuing such as the £81.5 million investment into the Candleriggs build-to-rent development in Glasgow.
This ambitious plan contains 30 individual actions on how we will improve our approach towards leveraging in private capital. This includes proactively engaging with ESG investors and with sources of capital new to Scotland, such as green bonds, to help us achieve our net zero and wellbeing ambitions; establishing a new Series A fund for innovative companies; strengthening the pipeline of investment opportunities across public and private sector; and targeting a programme of domestic and international events and activities helping us to build new investor relationships.
Through this plan, we recognise Scotland for the forward-looking, collaborative nation that it is. Together with partners in business, academia and the public sector we can shape markets that are attractive to investors and I encourage all partners to get behind this plan and help make it a success.
I hereby am delighted to present Investing with Purpose: Scotland’s Global Capital Investment Plan to parliament and am happy to take questions on it from members.
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