Scotland won a record number of foreign direct investment projects in 2023, with renewable energy featuring prominently, a key survey shows.

The nation last year retained its position as second only to London among UK locations in attracting new inward investment projects, according to EY’s annual Scotland attractiveness survey published today.

Scotland won 142 foreign direct investment (FDI) projects last year, a 12.7% rise from the previous record annual figure of 126 achieved in 2022. This was the fifth consecutive year of increase, and EY noted Scotland was the only part of the UK to achieve this.

The increase in the number of inward investment projects won by Scotland in 2023 was more than twice as sharp as the 6% rise seen across the UK as a whole.

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Scotland’s increased FDI flow saw its share of all such projects won in 2023 by the UK come in at 14.4%, up from 13.6% in the previous year. EY observed the 14.4% share is the highest over the past decade.

The accountancy firm also noted that Scotland has been second only to London in terms of the number of FDI projects won in nine of the past 10 years.

Edinburgh, Glasgow and Aberdeen all featured in the top 10 UK cities by number of FDI projects won last year.

The US is the top country of origin for inward investment into Scotland, being the source of 27 FDI projects in 2023, EY noted, albeit this 19% share of all wins last year was the lowest in a decade. The second-top country of origin is Germany, the source of 20 inward investment projects for Scotland last year, and in third place is France, from which 10 of last year’s FDI wins came. The number of projects which came from Germany last year was double that in 2022. And the proportion of all FDI projects won by Scotland for which Germany accounted last year was the highest in a decade.

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EY listed the “top four growth sectors for FDI projects” for Scotland as utility supply, which accounted for 40 of the wins during 2023; and digital technology, business services, and transport and logistics, each of which brought 14 projects.

It noted that sentiment towards Scotland among investors continues to rise, “with 26% of those planning to invest in the UK choosing Scotland ahead of other locations”.

EY observed this placed Scotland second only to London in terms of attractiveness.

When investors were surveyed on which locations specifically, 23% said they are targeting Edinburgh and 9% Glasgow - with EY noting this puts the two Scottish cities in second and fourth place respectively among all UK cities.

However, the accountancy firm added that “improvements to infrastructure and economic policies are needed to sustain momentum” in Scotland, flagging “frustrations” from clients over the latest income tax rises for higher earners north of the Border in last December’s Scottish Budget.

In the top 10 cities table by number of FDI wins last year, Edinburgh is placed second with 32 projects, Glasgow is in fourth position with 25, and Aberdeen is in eighth spot with 13 wins.

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Analysing the sectoral breakdown of FDI projects won by Scotland in 2023, EY said: “For the first time in six years, utility supply has overtaken digital technology projects in Scotland due to increasing levels of low-carbon and cleantech investment.

“This shifting trend gives rise to more projects located outwith the country’s main cities. Scotland’s past success in maintaining its longstanding position as the second-ranked [part] of the UK for FDI has been largely built on the success achieved by its cities. However, the strong rise in sustainable utility supply projects - generally located in more rural areas - could create a shift in Scotland’s investment hubs.”

Ally Scott, EY Scotland managing partner, said: “Scotland has demonstrated yet another very strong performance, both in attracting FDI and retaining the confidence of investors. Utilities, including renewable energy, plays a strong role in Scotland’s FDI growth story, as the country leads in sustainability and low-carbon power generation. This offers a real competitive advantage on the back of the ScotWind leasing rounds, but will it create the critical momentum required to see another impressive yield in the years ahead?”

He added: “As we celebrate the continued trend of year-on-year success in FDI, there is no room for complacency. We still hear frustrations from clients and the market that Scotland’s tightening economic policies, including the latest income tax hikes and issues around city and infrastructure quality, are causes for concern.

“While the potential impact of these goes far beyond FDI, the fact remains that access to talent is a major driver of attractiveness and investment. Action is also needed around the ease, transparency, and efficiency of planning processes to make Scotland and its cities more globally accessible to help boost the incoming flow of people and capital.”

EY observed that Scotland’s “strong year” in attracting FDI projects in 2023 “is further underlined by its impressive performance in attracting projects from first-time investors, as opposed to expansions of existing investments”.

It noted that the number of such projects from first-time investors in Scotland had increased by 28.8% from the level in 2022, rising from 66 to 85 in 2023, “marking the highest across the decade”.