Hazel Mollison: Gloom lifts to reveal a brave new world for city economy

Published on Wednesday 3 February 2010 08:59

The massive losses sustained by Edinburgh's banking giants have changed the nature of the city's economy and, according to a new business survey, sent them crashing down the rankings. But is there room for optimism? Hazel Mollison reports

ANYONE suggesting Tesco Bank might leap ahead of the Royal Bank of Scotland in a list of Edinburgh's top companies would have been greeted with laughter just two years ago. But in a short space of time the city's business landscape has changed significantly.

The two banking giants which made it a major world financial centre have only survived thanks to massive government bail-outs. And this has had a knock-on effect on everything from restaurants to the construction industry.

Few people will be surprised to see that RBS has plummeted from first to 261st place in a list of the 500 top companies in Scotland, produced by Business Insider magazine. It registered a loss of 24.1 billion – the biggest corporate loss in British history. HBOS, which was rescued by rival Lloyds, has fallen from second to 266th on the list.

Property companies and legal firms, alongside other major employers, have also struggled in the recession. But business experts insist that the overall picture is far from gloomy. In fact, the number of Scottish businesses making a profit rose last year. And many sectors, including tourism, energy and the creative industries, appear to be flourishing.

"Edinburgh's economy is a very big ship," said Graham Bell, a spokesman for the city's Chamber of Commerce. "We've taken a couple of torpedoes, but we're certainly not sinking.

"While we seemed to be very dependent on our two biggest banks as flag-wavers for the Edinburgh economy, there are other businesses in the financial sector which have done well.

"There is also a strength and a depth to Edinburgh business."

Business Insider ranked companies according to their turnover and profit, meaning companies that made a loss can still be listed. The top three are still in the finance sector. Standard Life moved to first place, followed by Aegon UK, the pensions and investment company. Both have avoided some of the risks taken by the larger banks, to emerge relatively unscathed by the recession.

Tesco Bank is one of the biggest success stories of last year, after it bought out RBS's 50 per cent share. A new entrant in the top 500, it has moved straight into 21st place. Its decision to base its headquarters in the Capital meant it could take advantage of a skilled, experienced workforce.

Alasdair Northrop, editor of Business Insider, said: "Tesco is in a very strong position in the marketplace, and plans to expand, possibly having branches in stores. Making Edinburgh their headquarters was a good move. A lot of people who were working for RBS and HBOS are transferring to Tesco.

"Edinburgh is still a major financial centre. The positions of RBS and HBOS are a reflection of terrible results last year. There have been a lot of jobs going, and functions moving to London. But they are still substantial businesses and important players, although it'll be some time before they are back to the strength they were in the past.

"Standard Life has got through the recession fairly well, and there are other major players such as Aegon and Martin Currie investment management. Although they were affected slightly, it was nothing like as catastrophic as RBS and HBOS."

According to Scottish Financial Enterprise, Edinburgh is still the second biggest financial hub in the UK after London, and fourth biggest in Europe. But this is far from being its only strength, and other industries have flourished despite – or even because of – the recession. Energy companies have been climbing up the list, helped by the soaring oil prices. Cairn Energy has had a successful year, as has Melrose Resources, the city-based oil and gas exploration company.

Newspaper distributor John Menzies is flourishing, after one of its main rivals went to the wall. And firms taking advantage of new media are also doing well, such as Bigmouthmedia, an internet marketing specialist and new entry on the list.

Unsurprisingly, some of the winners are those that cash in on customers' love of a bargain. Budget supermarkets and frozen food suppliers are all doing well, with Scottish Midland Co-Operative Society rising from 136th to 59th place. Motor retailers, such as Broxburn-based Easter Holdings, have benefited from the Government's car scrappage scheme.

While the financial sector is still dominant, Mr Bell said other industries were becoming more important, changing the city's business landscape. He predicted that energy, life sciences and tourism would all grow in the next few years.

He said: "Tourism had a very good year, and we have the highest hotel occupancy rates in the UK outside London. The weak pound has helped bring more visitors from abroad. Life sciences are set to double their contribution to the local economy, with a new centre at Little France.

"Cairn Energy has also had a fantastic year, and I think Edinburgh should be very proud of it. I think energy security is going to be a very big issue in the next few years, and consumers are already concerned about their carbon footprint. Edinburgh is leading the world in wave power, and Scotland has the greatest wind and wave resources in Europe. Now is the time to capitalise on this."

Although the recession is officially at an end, this year is still set to be a challenging one. There is no doubt that the banking crisis has had a major effect on Edinburgh's economy. But it seems there is still room for optimism, with city businesses ready to make the most of new opportunities.