By Ian McConnell

Business Editor

SCOTLAND made “great strides” as a foreign direct investment destination in 2021 and can anticipate the future with “even greater confidence”, EY has declared, with the firm’s latest survey revealing the nation outpaced UK-wide progress significantly.

By number of projects, Scotland remains the second-top destination in the UK for FDI, behind only London. It achieved a far-greater percentage increase in the number of inward investment projects secured last year than the UK as a whole, the EY report shows.

The survey also reveals 15.8% of potential future investors rated Scotland as the most attractive location in the UK for FDI. This is a record attractiveness reading for Scotland and only London scored better on this front.

London, which secured 394 FDI projects last year, was rated the most attractive destination in the UK for such activity by 27% of potential future investors.

EY’s latest attractiveness survey shows Scotland achieved a 14% rise in the number of inward investment projects secured in 2021, to 122, way ahead of a 1.8% increase for the UK as a whole. Countries across Europe saw an overall 5.4% rise in the number of FDI projects attracted. The increase in FDI projects won by Scotland last year was the fourth consecutive annual rise.

Projected job numbers from FDI projects secured by Scotland last year totalled in excess of 10,000. This is more than double the corresponding figure of 4,500 for 2020.

The accountancy firm declared Scotland’s “strength in high-value, high-growth industries like digital and utilities/cleantech, and an increase in manufacturing production FDI, bodes well for the future”.

Scotland’s share of all UK FDI projects rose last year to its highest in the past decade. The nation secured 12.3% of UK FDI projects in 2021, up from 11% in 2020.

EY Scotland managing partner Ally Scott highlighted the nation’s success on the FDI front last year and its record attractiveness level but also noted the challenging global backdrop.

READ MORE: Ian McConnell: Boris Johnson must heed fears his bonfire could make UK goods ‘unsellable’ in Europe

He said: “The past year has seen Scotland continue to make great strides as a destination for FDI, meaning it can look to the future with even greater confidence. Scotland’s record levels of attractiveness underline that our second-placed UK ranking for FDI flow is matched and underpinned by investors’ rising perceptions.”

Pre-pandemic in 2019, the proportion of potential future investors rating Scotland as the top UK FDI location was 7%, so this has more than doubled.

Mr Scott said: “Our findings suggest the outlook for Scotland’s FDI is exceptionally bright. But having fared well through Brexit and the pandemic, keeping that momentum will require ongoing commitment and hard work in the face of historically high inflation, the rising cost of living and wider geopolitical risks.”

He added: “Other regions and countries look to Scotland’s enviable business network, supported by regional economic advisory bodies. Going forward, business and government must take action to capitalise on proven strengths, adjust to meet investors’ changing priorities and implement policy measures to provide what they’re looking for.”

READ MORE: Ian McConnell: Why did Tory Brexiters think this was a good idea?

EY chief economist Peter Arnold said: “This year’s report reveals yet more positive developments – not least the fourth consecutive annual rise in Scotland’s FDI projects and record location attractiveness levels…When we see what investors are looking for, Scotland gets many things right. The job of maintaining that, especially with economic and geopolitical headwinds, is not to be underestimated but for now there are many encouraging trends that suggest Scotland will continue to be an attractive location for overseas investment.”

In terms of the top sources of FDI projects won by Scotland last year, by sector, digital technology delivered 33, with 18 from utility supply, and 14 each from business and professional services, and machinery and equipment.

The number of digital FDI projects won by Scotland rose by 73.4% last year, in contrast to a 7% decline in Europe and 7% growth in the UK overall, EY noted.

The firm added: “Scotland is now firmly established as the UK’s number-two location for digital projects, behind London but ahead of the south-east of England.

Scotland ranked joint second with south-east England for R&D FDI projects last year, behind only London, with 17 such investments, in spite of a slight dip in the number from 2020.

By country, the US last year remained the single biggest originator of FDI projects into Scotland. It accounted for 29.5% of such projects, 36 in all. Spain was the second-biggest source, accounting for 9.8% of FDI projects secured by Scotland in 2021. And 6.6% of the inward investment projects won by Scotland last year came from Germany.

Five places in Scotland featured in the UK’s top 20 investment locations outside London, in terms of towns and cities. Edinburgh was joint-first with Manchester, when London is excluded from the analysis, with each securing 31 projects. For Edinburgh, this number represented a decline of five projects from 2020. However, it was still above the average annual number of projects secured by the Scottish capital over the decade.

The other four Scottish locations in the top 20 also exceeded their decade-long averages in 2021. Glasgow, in fourth place in the UK, recorded 23 projects, unchanged from 2020. Aberdeen, in joint-eighth, was up by one project. Dundee and Livingston, in joint-15th spot, each increased their project numbers strongly to record seven each.

Glasgow’s winning of six FDI business services projects made it second only to London on that front.