Covid 'highlights need to tackle Scots productivity'

Coronavirus has stressed the urgent need to tackle Scotland’s “productivity puzzle” and build economic resilience, according to a new report out today.

The second edition of the annual CBI/KPMG Scottish productivity index has highlighted business closures, job losses and uncertainty, adding the cumulative impact of the pandemic has provided a “critical reminder” of the need to fix the fundamentals of Scotland’s “underperforming” economy.

“Addressing Scotland’s decades-long struggle with sluggish productivity, strengthening resilience, and making the country truly competitive remain vital challenges that must not be left to future generations to resolve,” the study said, noting that nearly 22 per cent of Scottish GDP was wiped out by the pandemic in the first half of the year.

The report found that ten out of 15 key indicators show Scotland falling behind other parts of the UK or international competitors – up from nine out of 15 in 2019. However, progress in some areas was also flagged.

The report flags the need to 'fix the fundamentals of Scotland’s underperforming economy'. Picture: Oli Scarff/AFP via Getty Images.

In the short term, six out of 15 key indicators showed improvements in productivity – up from five in 2019 – and in the long term, eight out of 13 saw progress, down from nine last year.

Key recommendations for government to boost Scotland’s productivity include prioritising the mental health backlog in the health system alongside physical health; joining up plans across Scottish and UK governments on green infrastructure and transport; and establishing Accelerate UK as a business-facing focal point to support more businesses in Scotland and across the UK to continue innovation adoption.

Priority recommendations for individual businesses include testing financial strategies and supply chain resilience, identifying opportunities for investment and innovation to improve business performance; mapping the skills of the entire workforce to identify upskilling opportunities; and considering a firm’s future physical and technology needs in light of changing trends around ways of working.

“Improving productivity is fundamental to how much we earn, how fast our wages grow, how we support good quality public services and ultimately how we deliver a vibrant, sustainable and prosperous economy for the future,” the study said.

Fault lines

CBI Scotland director Tracy Black said: “While the coronavirus crisis has undoubtedly thrown up a number of new challenges for business, particularly in the hardest-hit hospitality, leisure, retail and tourism sectors, it has also shone a light on the fault lines lying beneath Scotland’s economic performance.

“By addressing long-term productivity challenges, we can start to build a sustainable recovery from Covid-19 and also look ahead to the kind of economy we want for Scotland.”

Catherine Burnet, KPMG’s Scotland regional chair, said tackling the “productivity conundrum is a long-term ambition for Scotland”.

She said: “In 2021, we have an opportunity to deliver more productive growth built on a strategy centred on wellbeing, skills and equity.”

Also commenting was Mairi Spowage, deputy director of the Fraser of Allander Institute, who said: “Long before the Covid-19 pandemic hit, the Scottish economy was locked in a persistent battle with fragile growth.

"The best way to address that issue, and ultimately unlock Scotland’s economic potential, is to utilise the broad range of fiscal and policy levers available to promote widespread productivity gains.”

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