Drop in foreign investment amid global shifts highlights Scotland's challenge

The Italian company, which opened the facility a year ago, is one of the leading global makers of tamper-proof seals on bottles of whisky. The same day, consultancy EY published its annual survey of foreign direct investment (FDI) in Scotland.

Swinney seized on some of its findings, including that Scotland had retained its position as the most attractive location for FDI outside London, with the US, Ireland and France the top three sources. This was “a testament to what Scotland has to offer – and the world is taking notice”, he enthused.

Unfortunately, this is an incomplete narrative. The real story lies in the numbers, and they should not prompt the uncorking of celebratory whisky.

The EY survey revealed that FDI in Scotland fell for the second consecutive year, by 20 per cent year-on-year to 108 projects, from 135 in 2024. This was a sharper decline than the year before and resulted in Scotland posting its lowest annual project total since 2020.

Moreover, “new” projects — firsttime investments that aren’t expansions of existing sites — fell by over 29 per cent last year, marking a second consecutive annual decline.

As EY pointed out, this doesn’t signal a fundamental weakening in investor interest. Scotland performed better than the English regions. Manufacturing remained “highly resilient”.

Zoom out to the global context, and it becomes clear what’s happening. The fact is, FDI has been weakening everywhere. The number of announced projects fell by 6.6 per cent in 2025 compared to the previous year, according to a report by fDi Intelligence and FT Locations, part of the Financial Times.

This was the result of a “more cautious investment environment” shaped by trade tensions and tariffs, supply chain restructuring, and “unpredictable policy conditions”.

Glenn Barklie, head of economic analysis and insights at FT Locations, believes foreign investment is “in a transitional phase”. While global project volume fell in 2025, investment value rose. This shows that companies are making more selective bets, focusing on fewer, capital-intensive investments in emerging sectors like data centres.

At the same time, there’s a geographic shift involving “a new phase of regionalisation and investment within friendly nations” – what’s sometimes called “friend-shoring”. Case in point: prime minister Keir Starmer and his Japanese counterpart Sanae Takaichi this month signed a “UK-Japan Offshore Wind Compact” to help facilitate up to £9 billion worth of Japanese investment for UK offshore wind.

Barklie notes a third trend, that of an increase in FDI flowing into “strategically sensitive industries” critical to national and economic security, such as communications infrastructure, energy and defence.

All of this means Scotland must fight harder for global capital at a time when the twin forces of geopolitics and technological innovation are creating a landscape that is not only more competitive, but where key strengths must be more robustly articulated.

Scotland does start with some advantages. It is already a leader in offshore wind and is attracting big ticket investments in battery storage. This month Revera Energy, backed by US private equity firm Carlyle, committed to moving ahead with a project at Hunterston in North Ayrshire, one of three in a portfolio involving £500 million in investment across Scotland.

But there needs to be a significant improvement in the policy environment in four areas: energy security; defence; data centres; and financial services.

This means the Scottish and UK governments landing quickly on the right mix between renewables and oil and gas. Research by the Energy Transition Institute at Aberdeen’s Robert Gordon University warned this week of a “make-or-break period” in the next five years in which the reduction of the North East’s oil and gas workforce must be matched by growth in offshore renewables jobs. This was echoed by Gordon Brown’s Our Scottish Future think tank, which argued for a “North Sea 2” programme for energy security.  

On defence, it was encouraging last month to hear Scottish Enterprise tell a Glasgow event on defence procurement that defence was “a great industry for our SMEs to get into”. But the Scottish government must now make overtly explicit its increasing comfort with defence investment.

Data centre investment is poised to pour into Scotland. But mounting calls from local campaigners for a moratorium on development show that urgent policy clarity is needed here too. “The challenge will be to make sure that the regulatory environment is sufficiently stable to make it easier for investors to deploy their capital,” says Adrian Del Maestro, vice president, global energy markets, at consultancy Aecom.

Financial services, whose future is increasingly tied to data centres, has a stake.

Sandy Begbie, chief executive of Scottish Financial Enterprise, argues that approval of data centres must be done in Holyrood. “These are decisions of national importance for economic growth, resilience and security, and local authorities need to be removed from the process,” he says.

Much has been made of another of EY’s findings, that of the 55 per cent of businesses globally planning to invest in the UK this year, 33 per cent are targeting Scotland, up from 25 per cent in 2025. Yet the same survey found that a significant number of investors now believe that the UK’s attractiveness is deteriorating due to the cost of energy and political instability.

Sentiment is never a substitute for substance. The bottom line comes from EY Scotland managing partner Sue Dawe. “We’ve said in previous years that Scotland’s consistently strong track record in FDI is no cause for complacency,” she said. “Following a challenging 2025, this is truer than ever.”