Scottish firms need credit guarantee finance to go full steam ahead and The Scottish National Investment Bank should be supercharged to drive impactful growth in Scotland
A Highland crane-making firm – making the transition to the renewables sector – was favourite for a lucrative Middle Eastern contract. It would involve cranking up manufacturing and production in Scotland to fulfil an order and guarantee jobs in Scotland for years to come. The bosses needed working capital and a credit guarantee to secure the deal. Yet the guarantee proved too difficult to secure.
This, in a nutshell, is the structural problem facing many Scottish companies attempting to scale up and get into the export market.
Hopefully, this scenario is changing as the Scottish National Investment Bank (SNIB) gets into its groove. Chairman Willie Watt and his expanding team — more than 70 bankers and support staff, and counting — have made an impressive start in helping grow the nation’s flatlining economy.
“We want impact investment to be understood – because in the business world it isn’t always understood,” says Watt.
However, timid policymakers in Holyrood and Westminster could do far more to supercharge the bank to drive impactful growth in Scotland and allow the crane-makers and others to become global leaders.
The Ferguson Marine ferry fiasco, with CMAL, the arms-length government ferry infrastructure organisation in the spotlight, still rankles across Scotland’s island communities. The multiple lessons on the procurement of vital transport infrastructure in Scotland still need to be learned.
When entrepreneur Jim McColl agreed to step in to save the yard at the then first minister Alex Salmond’s behest in 2014, there was no bank credit guarantee for the contract to build two CalMac ferries. The whole saga became mired in this controversy.
The Scottish Government was forced into a fudge to allow CMAL to proceed with Ferguson’s bid, then it got into a fankle with soft loans before the yard was arm-locked into state ownership. This all should have been avoided.
“Most other European countries have a national investment bank which supports their industries and private business, giving them a significant advantage over their UK counterparts, creating an uneven playing field for companies in the UK,” says McColl.
Export finance remains “low and complicated” in comparison to other major economies, including France, Germany, Italy, Denmark and Finland.
Since 2020, and the creation of SNIB, we now have a possible answer to McColl’s complaint. The investment bank, registered with the Financial Conduct Authority, has been allocated £2bn of public money over the next ten years: around £200m a year. In truth, t’s hardly enough to replace the large vessels required by CalMac in the next few years, should they ever be built in Scotland.
The bank has so far invested £712m, which will help leverage further funds of £1.4bn. Large-scale projects with the ability to deliver impactful change often require guarantee finance. Such finance allows firms to scale up and increase manufacturing capacity until the product is delivered and paid for.
McColl, who has set up the Alba Bank to help fund small businesses, argues that the structure of the British Business Bank, owned by the UK Government, and SNIB, under the wing of Scottish ministers on behalf of the Scottish public, could easily be changed via simple legislation to allow a level playing field with other European nations.
Moreover, the investment banks should be given permission to raise further finance in the international bond markets, which is not considered as state aid, and therefore not part of the government’s balance sheet, and therefore viewed as national debt.
Watt agrees with McColl’s premise that the investment bank should have the ability to leverage further private-sector funding. However, any decision to raise bonds is not within the bank’s gift. This is a decision for HM Treasury in London and is mired in political differences between Scotland and England.
McColl says politicians need to show a better understanding of the economic imperatives and be more ambitious. SNIB could be given the opportunity, as an exemplar for the rest of the UK. Such a decision would be a coup for Chancellor Rachel Reeves and a fillip for Labour ahead of next year’s elections in Scotland.
Why is this so important? Informed Scots speak of the virtues of our Nordic neighbours, and Finland is the model here. Juuso Heinilä is the chief executive officer of Finnvera, set up by the Finnish government to provide vital funding. This organisation has transformed Finland’s economy making the country a world leader in building cruise ships – not bad for a nation where the weather is chillier than the Firth of Clyde and the population is slightly more than Scotland.
“We expect that the demand for export credit guarantees will start growing in 2025 and that this growth will continue in 2026. Exportation of investment goods, which is vital for Finland’s exports, is post-cyclical and the increase in demand will be reflected in export credit guarantees granted by Finnvera with a delay,” he said in his annual report.
Finnvera plays an important role in granting guarantees for long-term trade. “We encourage export companies to seek growth in emerging and new markets and to rely on Finnvera for financing export transactions and risk hedging.”
We want impact investment to be understood – because in the business world it isn’t always understood
Finnvera granted €900m (£752m) in domestic loans and guarantees in 2024. Like SNIB, Finnvera is also investing in the green transition, and has launched loans for the growth of micro-enterprises, with 92 per cent of domestic financing allocated to start-ups.
However, it is the big-ticket projects, such as crane-making, ferries and indeed offshore wind platforms, that will make a difference. Finnvera granted export credit guarantees, export guarantees and special guarantees amounting to €2.9bn (£2.4bn).
The largest export credit guarantee agreement related to telecommunications sector in Finnvera’s history was for Nokia’s delivery of India’s 5G network in a contract worth $1.5bn (£1.16bn).
Since Scottish firms need credit guarantee finance, The bank invested in financial guarantees for lithium mining, and for Wärtsilä’s deliveries of energy storage systems for solar and wind power projects. Wärtsilä made the engines on the new CalMac ferries.
Of course, there are failures. Finnvera incurred major export credit guarantee losses in two instances. But that’s the deal.
“Our mission is to bear the risks of export companies. Our core business enjoys a high level of profitability, building up our reserves and creating preconditions for enabling companies’ growth and exports. However, the credit loss risks of exposure relating to export financing remain high, which may affect Finnvera’s future financial performance and reserves,” said Heinilä.
Watt conceded that SNIB will be in a similar situation. Not all investments will be successful. There will be failure. Scottish firms need credit guarantee finance. Some may be spectacular, but this is the role and risk of a properly constituted investment bank.
The Finns are working in close co-operation with the European Investment Bank, an opportunity lost to Scotland because of Brexit. But HM Treasury does have the ability and regional funding to enable SNIB to raise bonds, even green bonds, and support innovation and exporting in a more fundamental way.
“We maintained export financing expertise, especially in SMEs and midcap enterprises, and we brought out new export financing instruments to ensure the availability of financing,” say the Finns.
For 2025 until 2028, Finland’s strategy will emphasise increasing the volume of Finnish exports and the number of exporters as well as enabling growth and new business. This chimes with Scotland’s own aspirations.
Watt is a seasoned professional. He knows the investment landscape better than anyone. Of course, he has to play a political game too, but if other European nations are raising money on the bond market, (Germany raised more than €1trillion (£84bn) on the bond market and uses this to support industry with loans, equity, guarantees, export finance and grants) then what is stopping the UK?
“Since this is third-party finance, support from Kfw, the national investment bank for German companies, is not considered state aid. There is also the added advantage that these bonds are not counted as part of government borrowing,” says McColl.
The Scottish National Investment Bank should become a cherished part of our nation, but our politicians need to ensure it has the financial firepower as Scottish firms need credit guarantee finance to deliver impactful and sustainable economic change in Scotland.
