Scottish productivity is lagging behind UK average - Sandy Begbie

Scotland has a productivity challenge and as we begin to look ahead at what a post-pandemic world might look like, the scale of this challenge is becoming more apparent.

Sandy Begbie CBE, CEO of Scottish Financial Enterprise

The recent CBI and KPMG Scottish Productivity Index found Scotland’s economy lagging behind the UK average in nine of its thirteen productivity indicators.

Recent analysis from the Scottish Fiscal Commission also laid bare the ramifications of Scotland’s low productivity for our fiscal stability with several commentators noting that it could hinder the Scottish Government’s ability to deliver on its key pledges, including to end child poverty – a concern echoed by Holyrood’s Finance and Public Administration Committee.

There are many different causes behind lagging productivity in Scotland: low immigration, an ageing workforce, and comparatively low levels of business investment to name a few.

While there is no one solution, there is perhaps a simple logic that is missing in our general approach: Scotland must focus on playing to its strengths, maximising the economic potential in the sectors we currently excel in to unlock our true potential. This is particularly important as we continue to wrestle with and navigate economic recovery.

Scotland is blessed with a world class energy sector, a bustling technology ecosystem and a globally recognised premium food and drink industry. By enhancing these industries and their associated supply chains, largely made up of SMEs which are the lifeblood of our economy, we can add much needed economic growth and productivity.

Complementing all of this is our long-standing, diverse financial and professional services sector which employs around 160,000 people. Financial and professional services have a central role to play in driving productivity. For starters, the industry provides many of the highly productive, well-paid jobs that boost our economy and attract inward investment.

But more can and must be done and that is one of the reasons we are focusing much of our attention right now on upskilling, which is a key component of the Skills Action Plan SFE has been developing with Skills Development Scotland.

Scotland must be a compelling and attractive environment for entrepreneurs to flourish. Worryingly, business investment and creation in Scotland, an area where we have fallen short in recent years. Around 60,000 more businesses would be required for Scotland to reach the top quartile of UK regions and nations so the challenge before us is stark.

Thriving entrepreneurial ecosystems stimulate economic growth, meaningful employment, and prosperity by supporting start-ups through to full-scale maturity. When a critical mass of start and scale-ups reach a ‘tipping point’ they create a virtuous network of effects that spontaneously operate to strengthen the cluster, generating reinvestment without further support our intervention.

There are perfect examples of this is on our very doorstep. From the emergence of first oil in the 1970s, a world-class industry grew, supported by the largest concentration of energy supply chain companies anywhere in the UK. This environment supported a high rate of new business starts over decades and they are now drawing upon that experience to transition to new energies. Likewise with Scotland’s financial services industry which, over the decades, has grown to be a globally recognised cluster which has been crucial in supporting the emergence of burgeoning start-ups of fintech companies.

The Scottish Government will shortly publish its strategy for economic transformation and it must be one that includes a dedicated plan which provides more opportunities to build digital and entrepreneurial skills; that connects the brightest business talent to local and global investors; and that supports the most innovative start-ups to find their route to market.

We already have enterprise bodies like Scottish Enterprise, Scottish Development International and Department for International Trade in place to support this agenda, and the newly formed Scottish National Investment Bank further develops the ecosystem and depth of the financial services industry. As we saw at COP26 with the Glasgow Finance Alliance for Net zero, the capital is available to be unlocked.

Scotland is a nation with a rich heritage of entrepreneurialism and innovation from the enlightenment through to the present day. Names like Alexander Graham Bell and John Logie Baird percolate our national history, reminding us of the pioneering role Scots have played in fields from technology to medicine and science.

But we cannot rest on our history to achieve future success. We must take a step back, consider the hand we have been given right now and focus on how we maximise the full potential of our economic strengths aligning with a clear determinisation to accelerate entrepreneurial growth. If we do so I’m confident we can reinvigorate our reputation for business excellence and build a more productive economy that creates inclusive growth and prosperity for all.

Sandy Begbie CBE, CEO of Scottish Financial Enterprise