Hansard

A schematic view of the Highlands and Islands indicates the scale and spread of the area, which comprises the northern half of Scotland and a sixth of Britain. With a population of 370,000 and a density of only nine people per square kilometre—against the UK average of 240 people per square kilometre—this is one of Europe's most sparsely populated regions.Thirty per cent of our people live on more than 100 islands and the mainland areas are further fragmented by mountain ranges, penetrating fingers of sea and jutting peninsulas. Sparsity and physical barriers contribute to factors such as social exclusion—particularly for the unemployed, the poorly paid and the elderly—and to higher business and living costs.When Highlands and Islands Enterprise was set up in 1991, amalgamating the powers of the former Highlands and Islands Development Board with those of the Training Agency, the 10 local enterprise companies came together spontaneously, reflecting sub-areas that were not pre-designated but had a natural sense of identity and cohesion. They also represent manageable chunks of geography.Even so, convening a local enterprise company board meeting in areas such as Orkney, the western isles or Argyll and the islands can mean a long round trip of ferries, flights or road journeys and often overnight stays for the business and community leaders who give their time and expertise, unpaid, to provide local leadership and accountability.The 10 LECs are the main delivery mechanism for the Highlands and Islands Enterprise network's programmes. Each LEC works to annually updated operating agreements and clear targets that have been agreed with Highlands and Islands Enterprise and are tailored to the needs of and opportunities in the LEC's locality.As the slide shows, each LEC is also resourced by Highlands and Islands Enterprise, partly on the basis of a formula share that reflects population, fragility, need and other factors and partly on the merits of the LEC's annual operating and business plan. The Highlands and Islands Enterprise core body sets out local development output targets and provides strategic leadership and economies of scale through the provision of central support services such as accounting, legal and personnel services. Furthermore, we implement wider Highlands and Islands programmes and major projects.I will briefly take the committee through some of the challenges and aspects of the emerging potential of the Highlands and Islands. I will then outline some of the approaches taken by the Highlands and Islands Enterprise network to overcome the problems and realise the opportunities.What are the strengths of the area? The area is experiencing an overall population resurgence from a two-century low of 320,000 in the 1960s to more than 370,000 in the most recent census.Population growth is being outstripped by employment growth. We now provide 50 per cent more jobs here than in the 1960s—the figure is rising from more than 80,000 to more than 120,000. We are helping to stimulate a strong new business birth rate per head of population.Our economy is at last beginning to diversify and become less vulnerable to national and global shocks to any one sector, such as tourism or agriculture. Examples of that diversification include biomedical manufacturers Inverness Medical Ltd; Iomart Ltd, which has located an internet service in Stornoway on Lewis; the AGM battery plant in Caithness; and Braidgrove Ltd's technology centre in Easter Ross.Inward investment is a key driver for diversification. We are starting to build a broader portfolio that includes biomedical, knowledge-based and high-tech manufacturing businesses. We are also building on our indigenous business talent and have some long-established home-grown successes such as Norfrost, which employs more than 400 people and exports to 127 countries; Walkers of Aberlour, whose shortbread you have eaten in hotels and on planes all over the world and which employs several hundred people in rural Speyside; Ortak, which is based in Orkney and is one of Britain's largest jewellery manufacturers outside Birmingham; and Grampian Records in Caithness, which produces CDs and tapes for worldwide markets.The area's export portfolio is also expanding and broadening. A joint Highlands and Islands Enterprise and Scottish Council Development and Industry survey revealed that Highlands and Islands manufacturing export sales—excluding the oil sector and whisky—more than doubled in the five years following 1991 from about £90 million to £200 million a year. At the time, that growth rate was at least equal to Scotland's overall. However, our export portfolio is particularly diverse, as it comprises a large number of small businesses in a wide range of sectors. Although trends slowed in the past two years with the rise in the strength of the pound, there have lately been a few distinct signs of re-acceleration. In the same period, the number of active exporters in the Highlands and Islands has grown by more than 20 per cent, which is several times more than Scottish rates.The rebuilding of community life and culture provides real assets for our area by generating local confidence and making unique contributions to the nation's sense of being and diverse make-up. Cultural renaissance also creates economic benefits in its own right, with, for example, 1,000 jobs in Gaelic tourism, arts and media.Our environment is also a distinct asset, providing both unique conditions for industries such as quality food, tourism and renewable energy, and a global marketing cachet and brand name. It also provides the nation with a source of renewal and perspective in today's pressurised world.The philosophy of developing people and investing in skills has penetrated deep into the area's business population of predominantly small and medium-sized enterprises and micro-enterprises, as in Kishorn in Wester Ross. Despite having less than 10 per cent of Scotland's businesses, we have produced 30 per cent of Scotland's Investors in People recognitions. Last year, the proportion of our skillseekers training while in work increased from 70 per cent to almost 80 per cent. Three years before that only 25 per cent undertook training while working.Through fostering such strengths—in partnership with our colleagues in the local authorities and others in the public, private and voluntary sectors—we intend to establish the Highlands as one of Britain's most competitive areas, in terms of lifestyle, low crime, education, social cohesion, recreation and health care. The area has a head start, because we have a shared sense of place. The people, the businesses and the communities feel a strong sense of regional identity. Organisations value partnerships and we have no shortage of local leadership for local enterprise companies.On our weaknesses, I have mentioned the area's population sparsity; it is the thinnest in Europe apart from that of the northern parts of Finland and Sweden. Highlands and Islands economic output—our gross domestic product—is still growing too slowly compared with that of Scotland, the UK and Europe. Our economy is still far too narrow and over-dependent on tourism and seasonal employment.Despite overall repopulation, we have localised depopulation, largely because of age structure and youth emigration. The map on the slide shows the most fragile areas, as well as the initiative at the edge areas, about which I shall go into further detail later.The area has a complex physical geography. There are large distances between major cities and towns; Inverness is the only town with a population greater than 40,000 and Fort William is the only other settlement with a population greater than 10,000. We have other infrastructure problems, including access to markets, high transport costs and inadequate, often poorly integrated, transport systems.As ever, major threats to the economy of the Highlands and Islands lie on the horizon. The dependence on the oil sector remains a serious issue. Employment in the oil industry is among the most highly paid in the area, but is extremely volatile. Less than a year ago, the industry employed more than 8,000 people; it currently employs closer to 6,000 and early in the new year that number will shrink by about 3,000. That will result in the loss of £100 million in direct and indirect wages, and will hit the Moray firth economy hard. Meanwhile, work for several hundred people has ceased in the Lewis offshore yard in the western isles. A small proportion of the workers have been outplaced, but the yard has gone into care and maintenance.The strong pound is affecting exports and tourism. Tourism is worth several times more per head in the Highlands and Islands than in the rest of the country, but we are losing business and market share in the context of a global trend of growth.The primary sector is under great pressure. Farming, fish catching, fish farming and the recently hit shellfish sector are significantly more important to the area than they are to Scotland overall. Localised problems are even more pronounced. For example, Orkney's dependence on beef production means that the area is suffering disproportionately from the problems affecting that sector. Similarly, farmed salmon pricing problems are hitting the western isles hard and Argyll has experienced significant job losses since the beginning of the current outbreak of infectious salmon anaemia. Sheep prices have decimated crofting and hill farm incomes. However, in my view, the greatest threat to the area would be a slackening in the overall development effort. Recovery is being demonstrated, but, after two centuries of decline, it is still tenuous and patchy.We must look to our opportunities. We are harnessing new technologies. We established a rural lead in telecommunications infrastructure; we are building on that as a means to overcome sparsity and as a gateway to knowledge-based industries and e-commerce. Our first call centre opened in 1992, in Caithness, employing 26 people; there are now more than 1,800 people in a variety of similar jobs and there is potential for many more such jobs.Inward investment is a key driver for growth and diversification. HIE's success in attracting new business, mainly in specialised high-technology sectors—both service and manufacturing—is growing and broadening the economy of the area. Last year, we attracted 18 inward investment projects, creating 1,275 jobs—a record—across the area. Those projects range from an internet service centre in Stornoway, potentially employing 60 people, a lithium-ion battery manufacturing plant in Caithness, employing 130 people—a joint venture with two Japanese companies and AEA Technology—to a call centre employing 300 people, in a problem area of Easter Ross.The development of the University of the Highlands and Islands presents another opportunity. It will make a major contribution to economic and social development, creating jobs and revenue for the area in its own right, as well as opening up access to higher education. It will provide a new auxiliary engine for developing businesses, which increasingly seek such links for research, development and the commercialisation of ideas.This year, with the Government and our local government partners, we gained European agreement for objective 1 to be succeeded next year by a major transitional funding programme of €300 million to 2005. That presents a major opportunity to capitalise on the success of the Highlands and Islands European partnership in establishing new transport and communications infrastructure, in developing business expertise and innovation and work force skills, in upgrading key aspects of sectors such as tourism and in promoting environmental sustainability.The ultimate challenge is for the Highlands and Islands to become a net contributor to Scotland. We can achieve that through the development of a productive, resilient economy, strong exports, a boosted GDP growth rate, cultural richness and a full appreciation of the unique environment as a productive resource.The strategy of the Highlands and Islands Enterprise network has evolved since its development in 1991 and its redevelopment in 1996. In the refocused strategy for 1999, the three main objectives remain consistent. HIE's main activities are summed up in the diagram. Although the individual activities fall into three groups, all those groups overlap. For example, work with businesses affects communities and individuals. Similarly, the development of confident communities and skilled individuals encourages business location and increases prosperity.The first objective is to strengthen communities. We aim to do that by promoting investment in community assets, developing community strengths and leadership—helping people to help themselves—and enhancing the value of culture and heritage.Our second concern is growing business. We will improve competitiveness by helping indigenous business with grants, loans, advice and a range of facilities. We assist new starts, attract inward investment and improve business locations through the provision of sites and premises.Our third objective is to develop skills. We match training with opportunities—skilling for the area's needs. We extend access to training opportunities—we hope to provide everyone with a job with training. We develop the training and learning infrastructure; the main example of that is the University of the Highlands and Islands project.Underpinning our strategy and our operations are a few key principles. First is sustainability—not simply environmental sustainability, but economic sustainability, relating to skilling and equipping businesses for long-term survival, so generating lasting prosperity, well-being and quality of life in the Highlands and Islands. Our second principle is inclusion. We want to ensure access to personal development, fulfilment and employment for everyone living in the Highlands and Islands.Our third principle is to work in partnership. The effectiveness of HIE and the many other bodies represented today depends on aligning plans, objectives and resources. Our best projects are joint projects. Some examples are the European partnership, the multi-agency Highland Wellbeing Alliance, project partnerships, such as the Aviemore redevelopment partnership, and the local economic forums that bring together LECs and local councillors.A further principle is accountability. This network has pioneered key areas of public sector openness and transparency in the LEC board appointment processes. The HIE network will continue to lead the way.Another fundamental principle is value for money. We ensure that the maximum development value is obtained for the public sector and private sector pounds that we leverage, and we will employ the best possible measurement practices to test that continuously. In short, our watchword is responsibility.To round off, I shall show a couple of slides on outputs and value for money. The network has made a substantial contribution to employment in the Highlands and Islands, creating nearly 25,000 jobs over nine years. I mentioned the importance of inward investment, but you will recognise that our main job remains to work with our home-grown businesses to enhance competitiveness, employment and income. I have stressed our commitment to achieving value for money and, as committee members will see, the results are increasing employment and output against a real-terms decline in our grant-in-aid over the period.The Highlands and Islands region is in the process of getting back on its feet. Two keywords are progress and legacy. Significant challenges remain, but the area is at last showing its potential and is demonstrating that, given a reasonable chance, it can provide a good life for its people. It can make a valuable contribution to the economy, to the environment and to the cultural well-being of the nation. In that vital task, we look forward to the Parliament's continuing interest, to liaising with the committee, and to the committee's support in the years ahead. Thank you.