The Scottish Fiscal Commission’s January report concluded that the country’s economic picture comprised “ongoing instability and uncertainty”. With geopolitical tensions and Scottish elections looming, that assessment still rings true as Q1 comes to an end.
The commission does, however, conclude that Scotland is on a growth trajectory – just not a steep one. It predicts growth of up to 1.5 per cent per year for the next five years. This anaemic level of expected growth and cost of borrowing means that, in principle, anyone looking to borrow to invest in businesses will find it expensive to borrow, and the underlying businesses will generate poorer returns.
Following The Business’ first Aberdeen DealsMakers’ Breakfast, it is appropriate to take a look at the North-East, a region that is often a happy outlier with economic prospects generally beating the average. That, however, has changed somewhat in recent years. The strains impacting our predominant energy sector exposure are telling right across the North-East economy.
It is a sector with a long trickle-down tail, which impacts not just oilfield services businesses directly in its supply chain, but local stakeholders. The petro-dollar bounces down through – and drives – the North-East economy to an incredible degree. Services businesses in the region all feel the warmth (or the chill) that comes from a productive economic sector.
Private equity has made much of the war chest of capital that it has ready to deploy
Could private equity help to boost the region’s other sectors? It has made much of the war chest of capital that it has ready to deploy, when the risk versus return calculation balances. Hot sectors include life sciences and technology – both of which the region can embrace. If it was to capitalise on initiatives such as the £40m ONE BioHub, it could be a powerful string to the region’s international bow.
There are no quick fixes. If we can maintain the North-East’s energy skills base, the region will benefit from the unrivalled pipeline of projects in many energy sub-sectors, including renewables, hydrogen and carbon capture, utilisation and storage. This includes forecasted investment of £96.1bn, just from ScotWind and Innovation and Targeted Oil & Gas leasing alone, over the next 15 years. But in the meantime, businesses need to pull up their collars and keep striding forward.
Martin Ewan is partner at Brodies LLP
Partner Content in association with Brodies LLP