In the fifty years since Highlands and Islands Enterprise was launched as the world’s first regional economic development agency with a remit to solve the “Highland Problem” it has invested £2 billion in the region, but has it really made a difference? By Deputy Business Editor Mark Latham

When the Highlands and Islands Development Board was launched by the Harold Wilson government in November 1965 the Highlands and Islands of Scotland had been in long-term decline for years, trapped in a seemingly unstoppable downward spiral affecting the whole regional economy.

The agency’s twin brief was to “assist the people of the Highlands and Islands to improve their economic and social conditions” and to “enable the Highlands and Islands to play a more effective part in the economic and social development of the nation”.

By any objective measure, there is little doubt that the agency was successful in reversing the chronic population decline of Scotland's most beautiful region – which extends from Shetland to the Kintyre peninsula and from Barra to Moray

With soaring unemployment and mass emigration the region’s population of 371,372 in 1921 had collapsed to an all-time low of 304, 161 by 1961. It now stands at 466,112: an increase of 26 per cent.

But the agency’s push to increase the population has not been consistent across the region. Between 1961 and 1981 the population of Lewis and Harris actually dropped, putting into doubt the criteria for success of the agency’s first chairman Sir Robert Grieve who said that “the board will be judged by its ability to hold population in the true crofting areas”.

It is now predicted that the population of the Outer Hebrides will fall 11.3 per cent or 2,500 people by 2035.

From a budget in its first year of £106,000 and six members of staff, HIBD was renamed Highlands and Islands Enterprise in 1991 and now employs 293 people with a budget of £75 million a year. Its main work is in dispersing grants, loans and training to local firms in a wide variety of sectors, from fish farming, oil and gas, tourism and the life sciences to finance and business services and renewable energy.

Along the way there have been a number of white elephants, such as a doomed daffodil bulb farm in South Uist, a pulp mill in Corpach, Lochaber, which closed in 1980, an aluminium smelter in Invergordon which threw 1,000 people out of work when it closed in 1981, thermostat and spectacle factories on Barra and a number of failed hotel projects.

But there have also been undoubted successes, such as helping to establish the UK’s hugely successful aquaculture industry in the region. The steady growth of this new industry and the decline of the whitefish industry means that Scotland now makes more money from farmed salmon than from the rest of the sea fishing industry.

HIE was also lucky when it came to timing. Within a few years of the agency’s creation the discovery of North Sea oil and gas brought thousands of well paid jobs to the region. Given the proximity of Aberdeen, and the trickle down of wealth from the oil and gas boom in the seventies and eighties, it is likely that Inverness and the surrounding areas would probably have done well anyway with or without the agency’s presence.

The region has also been helped along, particularly in the last decade, by new public sector jobs following the relocation of Scottish Natural Heritage’s headquarters from Edinburgh to the Highland capital, the opening of an Inverness office by the Forestry Commission and the creation and expansion of the University of the Highlands and Islands.

Meanwhile the growth in the public sector that was a feature of the Blair and Brown years, saw a 14 per cent increase in the region’s local authority jobs between 2000 and 2010 – but those jobs are now being cut.

Under HIE’s watch, labour force participation in the region has risen from a nadir of 45 per cent to 80 per cent, which is higher than the rest of Scotland, while over the last decade incomes per person grew six percentage points faster than that of the UK as a whole.

Nevertheless, there has been no increase in incomes (which are just 75 per cent of the UK average) in real terms and GDP per capita is 20 per cent below the Scottish average.

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The intervention culture also fosters dependency, with some firms now relying on HIE for as much as a third of their funding and HIE has been criticised to for failing to significantly boost private sector job creation.

Ronald MacDonald, professor of economics at Glasgow University and resident of Skye, believes that the area is “far too dependent” on public sector jobs and, overall, MacDonald describes the agency’s impact over the last half century as a “mixed bag”.

“If you take out the key growth areas around Inverness, Moray and Shetland since the inception of HIBD, Gross Value Added [a measure of the values of goods and services produced] in the rest of the area has actually decreased,” MacDonald points out.

MacDonald is also concerned that the outflow of young people from islands such as Skye continues unabated. “Depopulation was one of the things that HIE was supposed to address but it is still happening: even in net terms it is still happening,” he told the Sunday Herald.

Fears that young people will continue to go is borne out by a recent study by HIE which concluded that 40 per cent of 15 to 30 year-olds planned to leave the region.

MacDonald also worries about the demographic implications of the continued exodus of young people, particularly well qualified productive ones, from the region and their replacement by retirees moving in.

MacDonald welcomes HIE’s attempts to diversify the economy of the region by investing in the life sciences sector but cautions that “we have yet to be seen how that works out”.

Although Inverness is the home of LifeScan Scotland, the country’s largest life sciences company, a critical mass of related companies in the region would be needed before a clustering effect starts to accelerate growth, he says.

Despite generous European Union regional development funding designed to improve infrastructure the region’s transport links remain patchy and demonstrate a “lack of joined up policy”, MacDonald believes.

Seemingly “random” sections of single carriageway road have been upgraded over the years with short sections of dual carriageway but many of the region’s trunk roads, particularly on the west coast, are tortuously slow and narrow switchbacks.

Despite that, MacDonald welcomes HIE’s recent funding of a feasibility into the possible re-opening of Skye airport, closed since 1988, which, he says, could be “transformational” for the island.

MacDonald also believes that, over the last 25 years, HIE has become increasingly risk averse, tending to invest in safe but unimaginative projects.

“There were a number of somewhat questionable private sector investments in hotels that I suspect would have gone ahead anyway as they were pushed forward by wealthy hotel groups and it is not clear that they needed the subsidy,” he says.

The Inverness-based economist Tony Mackay, who has lived in the Highlands on and off since the late 1960s, agrees with MacDonald that the HIE has –since it was rebranded in 1991 – been over-cautious with its investment strategy.

“It is quite clear that HIE has been much less willing to take risks than the HIBD, which made some investment mistakes but was prepared to take risks and was more effective,” Mackay says.

This play safe approach, Mackay believes, largely stems from the agency’s reactive rather than pro-active approach which relies on the private sector coming up with ideas and reacting to them rather than putting forward bold projects of its own.

This non-interventionist stance is probably connected with the fact that the agency is largely staffed by accountants in contrast to development bodies in countries like Norway, Ireland or Canada which tap into a broader range of entrepreneurial expertise.

Overall, Mackay believes that the agency has done a “good job” over the last half century but could, with a bit more imagination and vision, have achieved more.

Although well paid private sector jobs have been created at companies like LifeScan – the diabetes testing kit company which employs more than 1000 people in Inverness – many of the region’s newest posts are minimum wage jobs in call centres or the tourism and hospitality industries.

Despite the fact that HIE’s backing of the marine energy sector and investments in tidal and wave power have so far come to nothing, Mackay believes that more money should have been invested in research and development.

Alex Salmond’s hopes of turning Scotland into the “Saudia Arabia of renewable energy” have so far been disappointed says Mackay, pointing to the collapse of the wave energy company Pelamis whose assets were bought up earlier this year by HIE.

Lorne Crerar, chairman of HIE, claims that the agency’s work has “really made a difference” to the region and denies that it is overly cautious when it decides which companies to back.

HIE’s “truly speculative” investments in pioneering wave and tidal technology are, Crerar says, proof that “innovation is at the heart of what HIE does”.

Unlike Scottish Enterprise – the enterprise agency for the south and east of Scotland launched in 1991 – HIE has a community development remit that extends beyond economic development.

The movement towards community land ownership coupled with land reform legislation means that 60 per cent of the land in the Outer Hebrides is now owned by communities where previously most of the land had been held privately, says Crerar.

He also points to HIE’s push to speed up the roll-out of high-speed internet connectivity which will see 84 per cent of households in the area (up from 4 per cent in 2014) having access to superfast broadband by the end of next year, which will boost e-commerce and opportunities for home working.

The collapse in the price of oil has led to thousands of jobs losses in the Highlands and Islands over the last year and, last month, Shetland’s Sullom Voe oil terminal – the largest in Europe – announced the shedding of 250 jobs.

Meanwhile continuing government austerity mean that the public sector is unlikely to be fuelling further growth for the region any time soon and the experimental prototype fast breeder nuclear reactors and submarine reactor testing at Dounreay are now being decommissioned.

Despite HIE’s successes over the last half century in broadening the region’s economic base from a narrow reliance on agriculture, fishing and forestry the next few years could be the most challenging yet for the region and the agency.