The rebuild begins
While all is not lost, it will be a while before confidence fully returns after the banking fallout.
In the wake of the biggest economic crash since 1929, Scotland has paid an inordinate share of the bill for the damage. Of its two biggest companies, The Royal Bank of Scotland and HBOS, one has been virtually nationalised while the other has become a painful reminder to its new, London-based owners of how damaging too much lending at the wrong time in the cycle can be to the balance sheet.
Understandably, Scotland is humbled: its great banking lions, including Sir Fred Goodwin, are shamed and were virtually run out of town – provoked by the ignominy heaped on heads that, in retrospect, should have known better. And Scotland’s first minister, the Scottish Nationalist Alex Salmond, has had to shelve ambitions for Scotland to join the “Arc of prosperity” – small economies like Ireland, Iceland and Norway – now dubbed by some as “the arc of insolvency”.
And yet, although sentiment has been damaged, there is a sense all is not lost. In 2009, the Edinburgh Festival thrived and the new British vogue for “staycations” – driven largely by the poor performance of beleaguered sterling – boosted the important Scottish tourism industry. Although falls in house prices have lagged the British average, there has been no collapse. Nor has there been a widely feared spike in unemployment. In the financial services sector, job losses have been mopped up by the establishment of Tesco Personal Finance in both Edinburgh and Glasgow. Scotland’s fund management sectors and its life and pensions industry, anchored by Standard Life, Scottish Widows and Aegon, have remained resilient.
Likewise, ambitions remain to build on sectors other than financial services. Windy Scotland is a natural location for both inland and offshore wind farms. Plans are in place to expand the 322MW Whitelee wind farm south of Glasgow. And the Pentland firth is being staked out for the development and exploitation of wave and tidal power, where the Scottish government plans to harness 1,300MW of tidal energy by 2020. Scottish companies in life sciences and hi-tech engineering are finding support, investment as well as global markets. And global demand is still high for Scottish products, from oil and gas services to whisky.
But there is a sense of breath being held as signs of economic recovery remain fragile north of the border. The downturn has showed vast patches of the Scottish economic fabric to be threadbare. Its reliance on financial services, its lower-than-average rate of entrepreneurship and its larger-than-average public sector are still causes of concern. Of course, bank funding – once a driver of major corporate activity in Scotland – is also thin on the ground.
Likewise a weak pound will make British companies look increasingly attractive to foreign buyers, with fears that the relocation of headquarters – to London or overseas – will continue. Already the number of major listed companies headquartered in Scotland has declined following takeovers involving brewers Scottish & Newcastle, which sold to Carlsberg and Heineken, and Scottish Power, now owned by Iberdrola. Many in Scotland wonder where the next HBOS or British Energy will come from. It may take a while yet.
Erikka Askeland
Business correspondent at The Scotsman