The latest Scottish Business Monitor report — produced in partnership with international law firm Addleshaw Goddard — has analysed the past 25 years of Scottish business activity, using historic and contemporary data to highlight trends, changes, and concerns.

One of the Monitor’s key findings regards investment: low levels of business investment have been a longstanding feature of the Scottish economy for many years.

Data shows that for seventeen consecutive quarters between 2017 and 2021, the net balance of firms reporting an increase in capital investment was negative, falling to -44% in Q2 2020. While the situation improved across mid-2021 and 2022, the figures dipped back down to -6% in Q3 2022, then -15% in Q4 2022.

“The performance of capital investment is concerning given that when we look across national statistics business investment rates in Scotland are already lower than the UK overall’s and significantly lower than many developed economies,” the report stated.

“Business investment and export activity are key drivers of productivity and economic growth therefore, years of poor performance across both indicators is concerning for the longer-term outlook of the economy.”

While the report found that cost-of-living, cost-of-doing-business, and energy crises have added numerous pressures, it also discovered that they’ve propelled businesses to take action — underscoring resiliency.

In Q4 2022, 90% of firms surveyed had seen costs increase — with just under half saying that, due to higher energy bills, they expected to reduce operations in 2023.

However, the latest quarterly results found that businesses are increasingly taking steps to tackle the current energy crisis, with more than 60% of firms saying that the crisis has encouraged them to speed up energy-efficient improvements.

This mirrors the push that COVID-19 gave many businesses with regards to digitalisation: At the start of 2022, the Institute found that 40% of businesses agreed that the pandemic had accelerated their plans to make a major part of their business model digital.

On the latest Scottish Business Monitor, Professor Mairi Spowage, Director of the Fraser of Allander Institute, said: “Scottish firms have had to weather a number of storms over the past 25 years, and their resilience is once again being tested as they navigate through the current cost-of-doing-business crisis.

“Concerningly, our latest findings show consistently low levels of export activity and business investment, which are key drivers of productivity. While business resilience has been shown time and time again, Scottish businesses need support to secure longer-term business and economic growth.”

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Alan Shanks, Head of Scotland at Addleshaw Goddard, also commented, saying: “This is a fascinating report that demonstrates in detail how Scottish businesses have coped with unprecedented technological change and economic upheaval over the past 25 years.

“The Scottish Business Monitor launched in the same year I began my legal career and having worked closely with Scottish businesses of all sizes throughout this period I have seen first-hand the collective strength they have shown. The Scottish business community will need to show continued resilience to deal with the numerous uncertainties currently facing it.

“This kind of analysis is crucial to understanding the long-term direction of travel of the Scottish economy and identify the key challenges and opportunities for our businesses – which policymakers, investors and advisers including Addleshaw Goddard can then help them meet head on.”

While the Monitor’s findings show that investment has been weak for Scottish businesses generally, other data indicates that Scotland’s tech sector seems to be faring better in this area. Scottish Development International says that digital tech is Scotland’s fastest-growing sector for inward investment. Additionally, according to Beauhurst, nearly one third (28%) of Scotland’s high-growth businesses are technology companies.

Image: Connor Mollison (https://mollison.co/)