Hansard

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.

“Investing with Purpose: Scotland’s Global Capital Investment Plan” is the third of three pillars that are focused on internationalising the Scottish economy. The first pillar is “A Trading Nation”, our export growth plan, and the second is “Shaping Scotland’s Economy”, our inward investment plan. All are framed by our vision for trade, which sets out our principles underpinning the trade and investment relationships that we want Scotland to have now and in the future.

At this stage, I take the opportunity to thank the team who have worked on the plan in the past months for the tremendous effort and work that they have put into what I believe is a productive and essential document.

Private capital investment is the deployment of internationally mobile finance into a project or business in Scotland. It is different from inward investment, or foreign direct investment, 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 clear that private capital investment does not replace the crucial role of public investment or ownership. There are areas of our society that 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 is not policy for its own sake; it 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 to realise their growth ambitions by removing key barriers to expansion. That impacts on productivity through better quality infrastructure as well as through companies growing and having competition or demonstrator impacts on their sector. There are further impacts through supply chain and wider economic activity. Like the rest of the United Kingdom, Scotland has suffered from historical underinvestment, which is seen as a key driver of slow productivity growth over the past decades.

Although it is hard to measure, as a percentage of gross domestic product, the direct impact of increasing private sector business investment to the overall level seen among Organisation for Economic Co-operation and Development countries could permanently increase the level of GDP by around 1.9 per cent by 2030, which is more than £3 billion a year at current prices. That could then increase average earnings in Scotland by almost 5 per cent, which is around an additional £1,400 a year to the average Scottish employee at today’s prices. Delivering on the plan would therefore have real economic consequences for Scotland’s people and communities. In other words, it would be a significant boost to recovery and a further long-term boost to 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.

The plan seeks to increase the effective supply of capital by better understanding and targeting different sources of funding. It also seeks to put forward our best market-ready opportunities by using the strongest internationalised areas in the economy to create demand for investment. Finally, it seeks to 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.

I go first to the industry that we need to work with. There is a wide range of investor categories and, within each type, a variety of individual investors, each with their own risk-and-reward preferences, timescales and investment mandates for individual funds. Our aim is to deepen over time 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 gives reassurance and helps to overcome information asymmetries. We must not underestimate the importance of the Scottish National Investment Bank in that space, or of making much stronger connections with the investment management sector that is based in Scotland, which already manages £590 billion of assets.

Scotland is already in a strong position to pivot towards impact, ethical or environmental, social and governance—ESG—investment. Scotland-based investment funds manage 11 per cent of the UK’s responsible investing market, compared with a 7 per cent share of the conventional market, and that 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 that are globally competitive, crisis resilient and likely to offer growth that 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 opportunities that we have to use the global economy to build our domestic strengths.

The plan summarises those opportunities into four sectoral themes: low-carbon transition; health and life sciences; digital; and high-value manufacturing. Those four sectors are the most likely drivers of future economic demand in the economy. They are broad, and that is deliberate. Although the focus has to be on sectors that can drive growth and recovery precisely because they are already strong, the 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.

From the beginning, we have set out to align with and help to deliver the private capital element of the investment needs that were identified in the infrastructure investment plan, the climate change plan and housing to 2040. Our commitment to net zero must underpin all that we do. We should no longer be putting public resource into originating, structuring and promoting investments in Scotland that are not aiming at net zero. By focusing on our priority sectors and employing a net zero and place focus, we can start to build demand that leads to viability. We can bring alignment between investments in business growth, infrastructure and commercial real estate, with a focus on the development of assets rather than simply changing their ownership. In other words, we will be building markets instead of individual investment opportunities.

We will expand and strengthen initiatives such as the green investment portfolio and the cross-organisational work to define projects for carbon capture and storage, heating and hydrogen. We should seek systematically to turn those into opportunities that are both commercially sound and structured in a way that supports 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, investment is 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 that is pioneering the use of synthetically generated data to develop object recognition models and opening up computer vision to a much wider range of applications. Further, although the real estate sector has been hit hard by the pandemic, major investments are continuing, such as the £81.5 million investment in the Candleriggs build-to-rent development in Glasgow.

Our ambitious plan contains 30 individual actions on how we will improve our approach to leveraging in private capital. They include proactively engaging with ESG investors and with sources of capital that are 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 the public and private sectors; and targeting a programme of domestic and international events and activities that will help us to build new investor relationships.

Through the plan, we recognise Scotland for the forward-looking and collaborative nation that it is. Together with partners in business, academia and the public sector, we can shape markets that are attractive to investors. I encourage all partners to get behind the plan and help to make it a success.

I am delighted to present “Investing with Purpose: Scotland’s Global Capital Investment Plan” to Parliament, and I am happy to take questions on it from members.