Economy secretary Keith Brown said the new agency, which will in effect take over the role of Scottish Enterprise in the south of the country when it becomes fully operational in 2020, was one of several measures in the final report from an enterprise and skills review.
Scottish Enterprise will continue to provide support and advice for businesses in Edinburgh, Glasgow and the rest of the Central Belt, while the existing Highlands & Islands Enterprise will continue in this role for northern Scotland.
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Brown launched the report during a visit to Dumfries & Galloway business Kite Power Systems, which has secured £7 million for its innovative harnessing of wind energy.
“We have recognised the importance of providing dedicated support to the south of Scotland in the same way we currently do for the Highlands and Islands,” Brown said.
“A new agency will be established to meet the distinctive economic needs of communities in the south of Scotland.”
Other proposals include piloting a £500,000 college innovation fund to support Scotland’s colleges to work with businesses on innovation.
A strategic board will be set up this autumn to guide the overall direction of the three enterprise and skills agencies.
Brown added: “From better co-ordination of our international activity to ensuring young people are equipped with the skills they need to succeed, this review has delivered a package of reforms that will drive change across the country.”
Susan Love of the Federation of Small Businesses said that the enterprise and skills agencies “must design their operations around the needs of the country’s business community”.
She added: “Today’s recommendations bring us a step closer to making that actually happen.”
However, south of Scotland Labour MSP Colin Smyth criticised the three-year timescale for setting up the new organisation.
Smyth said: “A proposal was put to the government that would have seen a new agency up and running within months using the local councils under current laws.
“Clearly the government’s obsession with centralisations means they want to control everything including this new agency.”