Scotland's National Strategy for Economic Transformation

Sets out the priorities for Scotland’s economy as well as the actions needed to maximise the opportunities of the next decade to achieve our vision of a wellbeing economy.

This document is part of a collection

4. Productive Businesses and Regions

We must deliver a step-change in our productivity performance and address regional inequalities in economic activity as well as boosting traditional and digital infrastructure.

4.1 Our Aim

To make Scotland's businesses, industries, regions, communities and public services more productive and innovative.

4.2 The Opportunity

Productivity is driven by a multitude of factors, including quality of jobs, skills, entrepreneurship, levels of investment and innovation, and quality of infrastructure and connectivity. Improving productivity will increase the competitiveness of Scotland's enterprises, regions and the economy as a whole. It raises household incomes and generates the tax revenues required to invest in our public services and critical national infrastructure. International evidence shows that economies with strong productivity score highly on the indicators of a wellbeing economy.

All the policy programmes in this strategy are interconnected, and while the other programmes will also drive productivity improvements, through for example reducing structural inequalities, this programme focuses on the opportunities from digital infrastructure, leadership, pioneering new approaches and addressing current geographical disparities to deliver prosperity for all Scotland's people and places. We can also improve the productivity of our public services. The public sector in Scotland is one of the largest employers but there is scope to increase the positive impact this sector has on the economy.

Scotland has closed the productivity gap with the rest of the UK in recent years, but our productivity performance remains below that of other small advanced economies. Our productivity performance varies across different sectors and there are long-standing regional inequalities with regional differentials in GVA per capita and a range of other indicators of a wellbeing economy including quality of jobs or public services, the health of citizens, the index of multiple deprivation and child poverty. We need to boost productivity across the whole economy. This will require different approaches for high productivity sectors than it will for low-productivity/low-pay sectors while recognising that the success of our internationally tradable sectors – manufacturing and services – is key, as they provide the wealth on which our domestic services sectors rely.

Good progress is being made in extending and improving the resilience of Scotland's broadband and mobile infrastructure through programmes such as Reaching 100% (R100) and Scottish 4G Infill (S4GI). However, organisations in all sectors of the economy have been slower to adopt digital technology than comparators and, in particular, to transform their business and operating models to boost productivity as a result of cloud computing and the intelligent use of data.

It is vital that every region in Scotland benefits from, and contributes to, a more productive and innovative economy. Every part of Scotland has unique strengths, assets and opportunities and all businesses and communities, rural and urban, can bring innovation and creativity and support the resilience of the economy. This strategy intends to work with businesses, public bodies and citizens in every part of Scotland to ensure that local economic plans reflect the greatest economic opportunities for communities. Our Community Wealth Building approach will use public and private investment through procurement and other means to create new employment opportunities, help local businesses to expand, and place more assets in the hands of local people and communities.

National success cannot leave any region behind. This strategy will not, in detail, outline the critical interventions in each local economy, but we do intend to ensure strong regional economic strategies and local economic development plans covering every area of Scotland to enable this work to progress (see Box F for further details on the role of Scotland's Regional Economic Partnerships). It needs to be built from the grassroots, rather than imposed top-down by government. This will include a unique socio-economic plan based on supporting and growing the number of Gaelic speakers. Ensuring that Scotland's cities are able to compete, and win, against other major European or world cities, remains an important approach to driving productivity improvements.

Box F: The Role of Regional Economic Partnerships in Driving Productivity

Scotland's Regional Economic Partnerships bring together key economic actors to enhance regional interests, focus and align resources, sharing knowledge and expertise. This partnership working results in nuanced economic strategies and related action plans that will accelerate economic prosperity. Distinct approaches to regional economic opportunities include the following:

The North East's partnership, including public sector and Opportunity North East, developed the Regional Economic Strategy which provides a shared vision and ambition for the region to strengthen through diversification. The strategy's Action Plan has a sustainability theme, building on the diversification of the regional economy and broadening the business base. Opportunities are associated with the circular economy, carbon capture and storage, and energy transition to support the evolution to low carbon. To further diversify the regional economy, the RES also emphasises opportunities related to on Tourism, Life Sciences, and Food and Drink. The partnership has a key role in aligning this strategic work with wider investment such as the Energy Transition Fund, the Just Transition Fund and the North East Economic Recovery Skills Fund. Core projects such as the Energy Transition Zone (ETZ Ltd) exemplify an approach that optimises the opportunities in offshore wind, hydrogen and Carbon Capture, Utilisation, and Storage (CCUS) to create a globally integrated energy hub focused on net zero.

The Ayrshire Growth Deal includes the HALO Enterprise and Innovation Centre, which opens early in 2022, and is delivering projects focusing on Community Wealth Building and Working for a Healthy Economy. Further business cases are in development for large scale projects related to Aerospace and Tourism. Both the Scottish Government and the UK Government are investing up to £103m each over 10 years, with the Ayrshire Councils contributing a further £45.5m to the Deal. Building on the Deal, Ayrshire REP are currently developing a Regional Economic Strategy that aims to take a Community Wealth Building approach to economic activity across the region, catalysing the Deal approach and embedding it as a tool for ensuring inclusive growth.

The Edinburgh and South of Scotland region has a vision to become the data capital of Europe, whilst ensuring that the social and economic benefits of this capability extend to all. To help the region achieve this vision, the £1.3bn City Deal focuses on key themes including: Research, Development and Innovation, and the Integrated Regional Employability Skills (IRES) Programme which aims to develop career pathways from the classroom to the workplace to meet current and future skills requirements in key sectors across the region. The ESES Regional Prosperity Framework sets a 20 year vision for the future of the regional economy up to 2041. Using the Deal as a catalyst, the RPF articulates long-term aspirational goals, focusing on Environment, Transport and Place, in order to guide the future direction of shared regional economic and related policies.

The Forth Valley region aims to formalise a Regional Economic Partnership during 2022, with the areas of focus relating to transport, tourism, business support and low carbon. There are also several ongoing and planned initiatives for the region, including the Falkirk Tax Incremental Finance scheme, Town Centre and Tourism Action Plans and the transformational programmes to assist the Grangemouth petrochemical complex in its transition to net zero.

Glasgow's Regional Economic Strategy identifies three Grand Challenges: Creating an Inclusive Economy; Enhancing Productivity; and Addressing the Climate Emergency. By addressing these challenges the Glasgow City Region aims to have "the most innovative, inclusive and resilient economy in the UK" by 2030. There are a number of transformational opportunities to reshape the economy for all. These cover the Foundational Economy; High Growth Sectors; Accelerating Climate Action; Health; Skills; Technology; and Place and are tied to the twelve regional programmes which make up the first phase of the Regional Economic Strategy Action Plan.

The Highlands and Islands has recently established a Regional Economic Partnership which will support collaboration on strategic issues to grow the region's economy. The REP will build on work to pursue strategic regional opportunities and create high value jobs in areas like renewable energy, space and the blue economy whilst recognising the significant cultural strengths, including the Gaelic language, and opportunities arising from more traditional sectors. In anticipation of rapid scaling of offshore wind activity in response to ScotWind and INTOG leasing rounds, the University of the Highlands and Islands (UHI), the Energy Skills Partnership, Skills Development Scotland, and Highland and Islands Enterprise (HIE) are actively expanding Global Offshore Wind training and certification, and advanced manufacturing training capability within UHI colleges (including industry-led provision), to meet demand for a skilled offshore wind workforce. HIE, local authorities and the Scottish Government are working with industry to secure affordable and timely grid capacity and address other barriers to deployment and Wave Energy Scotland and EMEC continue to further the region's lead on marine energy through technology deployment. Partners are engaged in cluster development to stimulate innovation and supply chain development in key areas such as offshore wind, hydrogen, heat decarbonisation and energy systems. Infrastructure to support these sectors is being considered for support through the Islands Growth Deal, including the development of the UK's first ultra-deep-water port in Shetland.

The South of Scotland's first Regional Economic Strategy has a 10-year timeframe and targets a significant shift in the region's economic performance, its outward profile, and the way in which wealth is created by and shared amongst people. The strategy has been developed following an extensive period of engagement and will deliver against six themes including: Skilled and Ambitious People; Innovative and Enterprising; Rewarding and Fair Work; Cultural and Creative Excellence; Green and Sustainable Economy; and Thriving and Distinct Communities.

An overarching ambition of the Tay Cities Regional Economic Strategy is to increase the number of businesses and create more, better paid jobs across the Tay Cities. Key targets include raising the regional employment rate above the Scottish average, increasing the 5-year business survival rate to above 50% and reducing the percentage of jobs that pay less than the living wage. There are a number of initiatives which are in place or being developed to support the region in its aims, including: the Michelin Scotland Innovation Parc to support net zero and the move to clean growth in the manufacturing sector, and the Forth & Tay Offshore Cluster which focuses on growing the offshore energy supply chain in East Scotland.

Further details of the regional perspectives of each Regional Economic Partnership is included in an accompanying evidence paper.[17]

4.3 Foundations of Success

The National Infrastructure Mission, Infrastructure Investment Plan, the National Transport Strategy (NTS2), Housing 2040, Scotland's Digital Strategy and The Strategic Framework for a Cyber-Resilient Scotland are all driven by a determination to create and sustain a resilient national infrastructure that can support a high productivity economy. Scotland's Innovation Centres, National Manufacturing Institute Scotland and CivTech are all demonstrating how new ideas and commercial opportunities can spring from a successful partnership between businesses, academia and the public sector. The Global Capital Investment Plan (GCIP), the Inward Investment Plan, our enterprise agencies, city and region growth deals and Scottish National Investment Bank offer an ecosystem of financial and business support for innovative companies and entrepreneurs.

Box G: Case Study: Opportunity North East as a model of private sector engagement in delivery of economic development

Opportunity North East (ONE) is a private sector catalyst for economic diversification in north east Scotland. ONE leads action, investment and transformational projects to deliver sustainable business growth and jobs for the future in the just transition to a low-carbon net-zero economy.

More than 80 business leaders shape priorities across entrepreneurial growth, digital transformation and low-carbon in the digital, food, drink and agriculture, life sciences and tourism sectors in Aberdeen and Aberdeenshire. Members drawn from the region's business community, its two universities and colleges, and regional and national partners sit on ONE's main and sector boards

Business founders, owners and leaders are engaged in ONE-led business growth, innovation, market development and leadership support. Accelerator programmes stimulate start-ups and spin-outs in digital, food and drink, and life sciences.

ONE leads the delivery of the BioHub, SeedPod and ONE Tech Hub projects for life sciences, food and drink, and digital in the region and is developing the Seafood Transformation Project, North East Adventure Tourism and Gourmet Food Festival projects with industry and partners.

ONE created the Energy Transition Zone concept and led the business case that secured £54 million of UK Government and Scottish Government funding. ETZ Ltd was established in April 2021 to spearhead the region's energy transition activity. ONE will contribute £5.7 million of funding to ETZ over the next five years. ETZ will play a pivotal role in establishing the region as a global leader in energy transition and a net exporter of products, services, technologies and skills.

The Wood Foundation has provided ONE with a 10-year £62 million funding commitment. Over the past five years, ONE project funding of £27 million has secured co-funding and investment of £75 million from public, private and philanthropic partners.

Scottish local government, our enterprise agencies and local groups of businesses and citizens are currently delivering strong regional and place – based initiatives. City region and regional growth deals are being delivered across the country through a partnership of national and local government and other regional players including higher and further education, enterprise agencies, and the voluntary and private sectors. These have inspired the development of a growing network of new Regional Economic Partnerships across the country that have an increasingly important role in increasing productivity and driving innovation on a regional basis (see Box F). There are also innovative private sector models (see Box G) which this strategy is supportive of.

In ensuring all Scotland's regions are as productive as they can be, we must build an economy that is resilient to future external risks and shocks, taking a proactive approach to monitoring and assessing economic resilience and identifying key actions to mitigate against potential future shocks. As part of improving resilience, businesses have adapted their business models throughout the pandemic, including promoting working from home where possible. There are opportunities for further experimentation in ways of working post-pandemic, including hybrid working, to deliver good jobs and to help businesses attract and retain talent.

4.4 Our Programme of Action

Project 8: Improve Connectivity Infrastructure and Digital Adoption Across the Economy

Who / We will

Government, Public Sector, Business and Partners

Deliver the Strategic Transport Projects Review 2 (STPR2) to help make Scotland more accessible for residents, visitors and businesses; create better connectivity with sustainable, smart and cleaner transport options; and highlight the vital contribution that transport investment can play in enabling and sustaining Scotland's economic growth.

Government, Public Sector, Business and Partners

Provide an efficient and resilient digital infrastructure. This includes continued investment in improved broadband, fibre and mobile coverage for residential and business premises. Enhance the resilience of digital infrastructure through direct international links to the internet and the development of data centres aligned with renewable power sources.

Government and Public Sector

Establish a Digital Productivity Fund focused on supporting business to improve firm-level productivity through the adoption and successful integration of new and advanced technologies.

Government, Public Sector, Business and Partners

Develop joint programmes of action to increase digital understanding and adoption in sectors where business models have been transformed rapidly due to new technology. Examples include action to better use data and adopt cloud based services.

Project 9: Upskill Business and Public Sector Leaders, Pioneering New Approaches to Driving Productivity Improvements

Who / We will

Government, Public Sector, Business and Partners

Design and implement programmes on the practical actions business and leaders can take to boost productivity, at scale. This will include business development capabilities, ensuring our leaders have the skillsets to sell ideas, policies, products or solutions both within Scotland and globally.

Government, Public Sector, Business and Partners

Design and implement a Team Scotland leadership programme across the public and private sector to attract and develop the ambitious, skilled, empowered leaders that Team Scotland needs, with delivery capabilities and governance skills. A programme that embraces diversity and values-based leadership.

Government, Public Sector, Business and Partners

Appoint Productivity Ambassadors to promote understanding of driving productivity improvements, build international networks with their peers and deliver learning as part of the Team Scotland leadership programme. For example, early projects to be investigated are around shifting the culture of late payments between businesses to improve SME productivity and around considering the most effective ways to incentivise business improvements in productivity.

Government and Public Sector

Establish a new measure of the resilience of the economy, monitoring, assessing and identifying actions to future-proof the productivity of Scotland's economy over the long term, including on issues such as climate adaptation, cyber security, international trade links and critical domestic supply chains.

Government, Public Sector, Business and Partners

Launch the Centre for Workplace Transformation in 2022 to support experimentation in ways of working post-pandemic, including hybrid working, to deliver good jobs and to help businesses attract and retain talent, recognising the importance of the way workplaces operate and making the best use of employees' skills to enhance business performance and profitability.

Government, Public Sector, Business and Partners

Expand Scotland's SCDI-led network of Productivity Clubs for businesses to use peer to peer learning to identify opportunities to improve productivity.

Project 10: Realise the Potential of the Different Economic and Community Assets and Strengths of Scotland's Regions

Who / We will

Government, Public Sector, Business and Partners

Reinforce our commitment to regional collaboration through our Regional Policy Review and continue to work with Regional Economic Partnerships to deliver Regional Economic Strategies with strong regional economic policies and tailor interventions to evidenced regional strengths and opportunities. This includes identifying the most transformational interventions in each local economy, including infrastructure investment, attracting inward investment or supporting local networks of businesses. We will also work with regional partners, including trade unions and businesses to co-produce Just Transition plans for every sector and region. As part of developing the Just Transition plans we will ensure that all those impacted, particularly employees and communities, have a voice.

Government and Public Sector

Introduce Community Wealth Building legislation that builds on the successes and learnings of all of the Scottish Government community wealth building local and regional pilot areas in urban and rural Scotland.

Government and Public Sector

Undertake and publish a review of how best to significantly increase the number of social enterprises, employee-owned businesses and cooperatives in Scotland, supporting regional regeneration and the wealth of local communities. This will learn lessons from best practice in other countries.



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