ECONOMY, ENERGY AND TOURISM COMMITTEE

28th Meeting, 2015

Wednesday 11 November 2015 The James Clerk Maxwell Room (CR4)

Meeting starts at 9.45 am

Previous Meetings Previous Meeting Papers and Official Reports Correspondence/Events

Agenda Submission from Scottish Enterprise Submission from Highlands & Islands Enterprise

Next Meeting is Wednesday 18 November. Expected to start at 10.00am with a pre-brief at 9.45am. Business includes:

Pre-budget scrutiny evidence

www.scottish.parliament.uk/economy

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ECONOMY, ENERGY AND TOURISM COMMITTEE

AGENDA

28th Meeting, 2015 (Session 4)

Wednesday 11 November 2015

The Committee will meet at 9.45 am in the James Clerk Maxwell Room (CR4). 1. Scotland's Budget 2016-17 - Pre Budget Scrutiny: The Committee will take

evidence from—

Alex Paterson, Chief Executive, and Forbes Duthie, Director of Financeand Corporate Services, Highlands and Islands Enterprise;

and then from—

Adrian Gillespie, Managing Director Operations, Company Growth,Innovation and Infrastructure, and Iain Scott, Chief Financial Officer,Scottish Enterprise.

2. Scotland's Budget 2016-17 - Pre Budget Scrutiny (in private): TheCommittee will review the evidence heard at today's meeting.

Douglas WandsClerk to the Economy, Energy and Tourism Committee

Room T2.60The Scottish Parliament

EdinburghTel: 0131 348 5207

Email: douglas.wands@scottish.parliament.uk

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The papers for this meeting are as follows— Agenda item 1

PRIVATE PAPER EET/S4/15/28/1 (P)

Submission from Scottish Enterprise EET/S4/15/28/2

Submission from Highlands and Islands Enterprise EET/S4/15/28/3

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SUBMISSION FROM SCOTTISH ENTERPRISE

1. INTRODUCTION

We are pleased to submit evidence to the Economy, Energy and Tourism Committee as part of its 2016/17 pre-Budget scrutiny. This paper provides an overview and brief update on Scottish Enterprise’s Business Plan for 2015-18, launched earlier this year.

The Plan demonstrates our role in helping deliver the Scottish Government’s Economic Strategy - including how we approach new challenges and take advantage of opportunities to boost Scotland’s productivity and growth.

Our focus continues to be on the critical role of:

(i) encouraging many more companies to engage in activities we know lead to international growth such as innovation, leadership development and collaboration;

(ii) working with sectors, universities and businesses that have a track record of successfully operating internationally to target new markets and new opportunities;

(iii) working with partners in local authorities and other public agencies to build a business environment that can nurture Scottish companies, sectors and their workforce to compete.

2. A COMPETITIVE ECONOMY AND GROWTH COMPANIES

Scotland’s GDP grew for a twelfth quarter in a row in Q2 2015 (the longest uninterrupted period since 2001). However, the rate of growth slowed for a second successive quarter, and was lower than for the UK as a whole. Scottish manufacturing international exports fell in Q2, mostly due to a decline in sales by the drink and engineering sectors. More recent business survey data also suggests that private sector activity is showing only slow growth. This slowing growth is reflected in the latest labour market data with Scotland’s employment declining during the June to August period relative to the previous quarter.

The slowing pace of Scotland’s economic growth is due to a number of global factors. Low oil prices are continuing to affect the oil and gas sector; the strength of sterling is affecting the competitiveness of Scottish exports; weak growth in the eurozone is affecting overseas exports; and bad weather has hit tourism-related services subsectors.

However, there are encouraging trends which point towards the potential for improved performance in the medium term, for example Scotland’s improving innovation performance should lead to an increase in the number of businesses developing new products, services and processes, opening up opportunities in both new and existing markets and increasing productivity.

Looking ahead, the key to future growth lies in increasing the international competitiveness of Scotland’s companies and sectors. While Scotland’s performance has improved against some of the key drivers of competitiveness, there

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remains a need to focus on Productivity, Innovation, Exports and Attracting Investment.

2.1 Delivering Growth - Supporting Scotland’s Companies

Account Management is at the heart of our company support and is tailored to meet individual needs and opportunities. Growing our companies, helping them create and sustain jobs, become more innovative and internationalise is how we will make a strong contribution to Scotland’s economy.

In 2014/15 Account Managed companies, as a whole, increased turnover by £1.3bn, meeting the target set in our Business Plan and we continue to see growth in the number of businesses supported in this way to 2,331.

We continue to work closely with all our partners, in particular Business Gateway, to identify more companies with ambition and potential who could, with SE support, achieve higher, faster or more sustained growth.

Continuous improvement of our service is vital and, drawing on our evidence base, we have introduced a differentiated approach to Account Management. This approach targets the most appropriate support to businesses at their stage of growth and focuses our resources to work most intensively with those companies that have the greatest potential to quickly grow and contribute to the economy and create jobs.

To achieve our aim of sustainable economic growth, we work with around 8,000 companies beyond the Account Management portfolio each year, to help them realise their growth potential. This support is focused on specific opportunities such as help to internationalise through Scot Exporter, innovation support to help develop a new business process or product, or investment readiness assistance through the Scottish Investment Bank.

3. DRIVERS OF GROWTH – FOUR INTERCONNECTED THEMES

Scotland’s Economic Strategy provides a clear focus on twin, mutually supportive pillars of Increasing Competitiveness and Tackling Inequality. We have, in our Business Plan 2015-18, set out how we are contributing to the four drivers of international competitiveness set out in the Strategy.

The four drivers are interdependent and support for one will often positively impact on others, for example investment in workplace innovation is also beneficial for inclusive growth.

i) INTERNATIONALISATION

Through Scotland’s Economic Strategy there is an opportunity to increase Scotland’s impact, presence and visibility in overseas markets.

We are committed to delivering fully integrated support to ambitious companies, delivering the right mix of support to help them achieve their growth aspirations. We support exporting companies via Scottish Development International’s (SDI) specialist advisers, our international network of offices and our network of successful

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business leaders GlobalScots. We are also actively encouraging more companies to be internationally active through ScotExporter.

SDI represents and promotes Scotland in key markets with 29 field offices in 17 countries across the globe, with over 100 sales professionals promoting Scotland and supporting trade and investment. We also have access to 150 UKTI offices.

ScotExporter has delivered trade and export support to over 1,000 companies in its first year.

To date in 2015, we have led 54 visits (exhibitions, missions, learning journeys), covering all sectors, to locations such as France, Germany, Ghana, Hong Kong and Ireland.

The GlobalScot network has over 620 senior business people, based in 51 countries, committed to volunteering their time, expertise, and knowledge to support Scottish companies and help them connect with new global marketplaces.

Responding to global economic shifts towards high opportunity markets such as China, India and the Middle East, SDI established a High Growth Market Unit. This is an early 'go to' contact for companies to help realise their potential to trade in these markets. The Unit will also help facilitate investment to Scotland from these markets.

Glasgow-based firm Opinurate supplies Customer Experience Management software for both major brands and SMEs to gather feedback to drive customer loyalty and retention. Success in attracting £40,000 from the Scottish EDGE Fund along with an introduction to GlobalScot Gordon Cunninghame proved to be a key milestone for the company. Gordon’s experience as Head of Procurement at Gap Inc. provided invaluable support and advice to the business.

INTERNATIONALISING SCOTTISH BUSINESS INQUIRY

Following the Committee’s Inquiry in March 2015, we noted in the Report on “Internationalising Scottish Business” that, in the Committee’s assessment, “SDI is to be congratulated for the recent significant increase in the number of companies it has supported with advice and assistance on internationalisation”, and that “overall responsibility for co-ordination and leadership of export strategy and initiatives should rest with SDI”.

An update on progress to address the Committee’s recommendations within the Report is set out below:

Collaboration and Access to Advice The Inquiry concluded that partnership and collaboration across Scottish business, public support bodies and Academia was key to unlocking internationalisation success. SE has been instrumental in setting up a new International Events Community of Practice to coordinate work between public and private sector partners, including Chambers of Commerce on the development of trade missions in priority sectors and markets. SE continues to engage with

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Scottish Government colleagues to develop mygov.scot as a business portal and it has been agreed that the initial focus will be on support for existing and potential exporters.

Joint Working The Committee expressed a keen interest in how SDI worked with UK-level bodies such as UKTI and UK Export Finance. We continue to engage closely with these agencies to deliver opportunities for Scottish companies. A Working Group established by Scottish Government, Scotland Office, UKTI and SDI has identified a range of joint working initiatives and SDI/UKTI have jointly delivered a large scale Explore Export event recently, attended by over 200 businesses and supported by around 45 SDI/UKTI market support specialists.

Higher and Further Education As recommended, SDI will ensure that Scottish Universities with a footprint in overseas markets are more closely aligned with efforts to build business internationalisation expertise. SDI has an active role in highlighting opportunities for collaboration with Academia. We are working with Universities Scotland and Colleges Scotland to develop projects which both support Scottish companies to internationalise and support these institutions in realising their own ambitions.

ii) INNOVATION

Successful innovation drives growth and competitiveness for companies and industries. We have set ourselves the goal of helping to transform Scotland’s innovation performance, to equal the best performing nations by 2020.

We are focused on providing support to innovators across Scotland, encouraging companies to take a more holistic approach to innovation e.g. skills, marketing, workplace practices and harnessing digital opportunities to reach customers and new markets. It is critical that we improve Scotland’s Innovation System, especially in knowledge and know-how transfer from our Universities.

We are supporting Scotland’s entrepreneurial eco-system, working with entrepreneurs, spin-outs and start-ups with ambition and significant growth potential to raise their capability to trade on a global platform.

An important area of opportunity to drive greater innovation is the positive shift towards a low carbon economy. We are working closely with companies in the field to help them to capitalise on the new opportunities from energy and resource efficiency.

We are providing support to innovative companies across Scotland and encouraging other companies to become active in innovation. Our target is to have 5,000 more innovation active companies and £650m of additional company innovation spend over the next 5 years. If we achieve this it will result in between £1.2bn and £1.5bn in additional GVA and an additional £1bn in export sales.

2014/15 was a record year, with companies estimating £650m of new business due to SE’s innovation support. There has been a 25% increase in

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the number of SE supported R&D projects and a 40% increase in R&D expenditure by Innovate UK and European Commission funded projects.

Looking to future activity, the Open Innovation Programme, aims to increase the demand for new products and services from corporate and large public sector organisations through their procurement activity, is forecast to issue 150 calls for new products or services and plan to engage more than 1,000 SMEs over the next four years.

The Data Lab Innovation Centre, (sites in Aberdeen, Edinburgh and Glasgow) supported by SE and the Scottish Funding Council is dedicated to helping Scotland capitalise on the growing analytics and Big Data Technology Market. Investment is projected to return a minimum of 345 new jobs and additional £155m of value to the Scottish Economy.

iii) INVESTMENT

Increased investment in Scotland’s growth companies and business infrastructure is central to increasing economic growth.

The Scottish Investment Bank (SIB) will continue to address both supply and demand issues for companies seeking finance. In 2014/15 we leveraged the highest ever private sector investment through our SIB investments (£99m). SIB also supported 410 companies through our Financial Readiness specialists, offering guidance and mentoring to help them raise growth finance.

SE’s investment activities focus primarily on the early stage risk capital market which is a high risk, and potentially high return, environment. Within that market, SE is filling a gap where the private sector is not adequately fulfilling business demand for investment, either due to capacity constraints or risk profile. The potential returns for the Scottish economy can be great, as demonstrated by companies such as Fanduel.

In September 2014, Fanduel, Edinburgh, announced closure of a VC funding round that brought in $70m to help it build on its position as the leader in “fantasy sports” in the US. This was its 6th funding round since the initial angel investment in 2007 that has now raised a total of $86.2m. The Scottish Investment Bank has been a consistent investor in this company through the Scottish Seed Fund initially then with the Co-Investment Fund.

We continue to target new sources of capital in international markets, in 2014/15 we welcomed nine new investment partners, seven from outside Scotland, including Oxford Capital Partners, Endeavour and ConoCo Phillips.

Exploiting our major strategic assets, including those in major city regions, is critical. We will work closely with Scottish Cities Alliance, City Deal Partnerships and all local authority partners to support major geographic and sector infrastructure developments.

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Building a world-class infrastructure (both physical and digital) will help us capitalise on opportunities, particularly in key sectors. Examples include the waterfront in Dundee (supporting a variety of sectors), Creative Clyde at Pacific Quay in Glasgow (Creative Industries), and Energetica in Aberdeenshire (Renewable Energy).

Connectivity, both physical and digital, is essential for growth. We will seek to further improve air links to growing markets and encourage companies to capitalise on digital opportunities through, for example, the digital voucher scheme to assist companies introduce or enhance their e-commerce, ICT or digital services capabilities.

iv) INCLUSIVE GROWTH

Scotland’s international competitiveness is underpinned by the development of our people and talent.

Inclusive growth is both a driver of international competitiveness and an outcome in its own right. SE has an important role to play, alongside our partners both public and private, to promote good workplace practices, increase the talent pool available to Scottish business, and ensure that all parts of Scotland benefit from growth.

Through our organisational development and leadership support we are encouraging businesses to put good workplace practices at the heart of their growth plans, engaging employees in decision making and promoting workplace innovation.

SE is actively promoting the Scottish Business Pledge and around 30% of signatories to date are Account Managed companies.

We are, through the Pledge and other measures, encouraging businesses to view young people as their future talent pipeline and integrating their recruitment and training into their people and growth plans. A good example of this is the Scotgrad graduate placement scheme which has placed 1091 young people since its launch in 2010. 94% of the participants progressed to graduate-level jobs, either with their host company or otherwise, at the end of the project.

Our work in supporting investment through RSA brings employment (in particular high-wage and mid-wage jobs which support career advancement) to disadvantaged communities. A study of large RSA projects awarded between May 2014 and February 2015 showed that 97% of the jobs to be created or safeguarded were in the mid to high salary bands.

Panton McLeod, Galashiels, has developed from a small chemical cleaning products supplier to a framework supplier of choice to major UK water authorities. The CEO’s participation in the MIT Entrepreneurship Development Programmes led to the adoption of a cooperative and positive culture in the business. Enhanced people processes have seen employment growth from 35 to 45 and turnover growth from £1.75m to £3m in less than two years.

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4. TRACKING PROGRESS

To measure how our support meets our objectives by benefiting companies, sectors and the Scottish economy, we apply a comprehensive measurement framework. Performance measures help us monitor the impact we make, reflecting progress towards our economic growth ambitions, and demonstrating the contribution towards the longer term goals of Scotland’s Economic Strategy.

Our targets are published each year in our Business Plan, most recently 2015-18, and reflect our planned activities aiming to transform Scotland’s innovation performance; increase investment in Scotland’s growth companies and business infrastructure; increase the impact of Scotland’s presence and visibility in overseas markets and how we continue to ensure the contribution of all of Scotland’s talent.

Our performance against each measure is monitored regularly by our Executive Leadership Team and Board. Ongoing assessment of progress allows us to assess movement, identify performance issues and decide on any new activity or focus.

5. BUDGET UPDATE

The attached table shows the SE financial summary for 2015/16 – 2017/18, updated from our Business Plan published earlier this year.

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Scottish Enterprise

2015-2018 Financial Summary

PLANNED INCOME

2015/16 2016/17 2017/18 £m £m £m Grant in Aid - Resource allocation (baseline) 174.5 174.5 174.5

Anticipated reduction to baseline budget (17.3) (17.3) (17.3) Anticipated in-year transfers from Scottish Government (net) 5.5 2.3 2.4

Total anticipated Grant in Aid - Resource Allocation 162.7 159.5 159.6

Grant in Aid - Capital allocation (baseline) 54.7 54.7 54.7

Anticipated in-year transfers - POWERS/SIFT 0.0 8.0 8.0

Anticipated in-year transfers - REIF 26.1 17.3 17.2

Total anticipated Grant in Aid - Capital Allocation 80.8 80.0 79.9

Total anticipated Grant in Aid 243.5 239.5 239.5

EU Funds 10.5 16.8 18.1

Property Disposals 23.0 13.6 10.5

Property Income 7.3 6.7 6.4

Scottish Co-investment Fund 7.6 7.9 8.3

Scottish Loan Fund 10.0 13.0 4.6

REIF Income 2.1 1.1 1.2

Other Business Income 17.2 22.3 30.7

TOTAL INCOME 321.2 320.9 319.3

PLANNED INVESTMENT

2015/16 2016/17 2017/18

£m £m £m Internationalisation

International Services & Support 11.5 12.0 12.5

Market Development 2.6 2.8 3.0

International Marketing & Research 3.5 3.5 3.5

Overseas Premises & Facilities Management costs 6.0 6.0 6.0

Staff costs 17.1 17.9 18.3

Internationalisation Total 40.7 42.2 43.3

Innovation Innovation Specialist Support 5.8 6.0 6.5

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Business Efficiency (including SMAS) 5.6 6.0 6.4

R&D Support 14.0 15.4 16.5 Renewable Energy R&D Support - WATERS/POWERS/SIFT 4.2 9.2 8.7

Commercialisation Support 4.5 4.3 4.7

Staff costs 12.7 13.2 13.5

Innovation Total 46.8 54.1 56.3 Investment

Equity Investment & Loans 36.0 41.5 35.2

Renewable Energy Investment Fund 28.7 18.9 18.9

Capex Grant Support Programmes 16.8 16.8 16.3

Business Infrastructure 34.2 29.5 30.5

Digital Strategy Business Engagement Programme 3.4 3.0 0.2

Staff costs 6.9 7.2 7.4

Investment Total 126.0 116.9 108.5 Inclusive Growth Job Creation/Safeguarding Grant Support Schemes 19.1 19.0 18.1 Entrepreneurship, Leadership & Organisational Development 9.3 10.1 10.3

Staff costs 3.8 4.1 4.2

Inclusive Growth Total 32.2 33.2 32.6 Cross Cutting Activity

Industry Sector Project Support 12.0 13.0 15.0

Strategic Development 2.7 2.9 3.1

Marketing, Research and Digital Services 3.8 3.8 3.8

Staff costs 10.9 11.4 11.7

Cross Cutting Activity Total 29.4 31.1 33.6

Running the Business

Domestic Premises & Facilities Management costs 13.1 13.3 14.8

Corporate Services, including ICT, Legal, Travel etc 19.1 15.7 15.4

Staff Costs 13.9 14.4 14.8

Running the Business Total 46.1 43.4 45.0

TOTAL CASH INVESTMENT 321.2 320.9 319.3

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2015-16 SE BUDGET LINE EXPLANATION

INTERNATIONALISATION

International Services and Support

This budget line is principally the direct service costs of SDI, including Scot Exporter and the High Growth Market programme.

Market Development This is the budget for the company support framework for market development.

Scotland Europa The operational budget for Scotland Europa.

International Marketing and Research Mostly international marketing costs, including the marketing elements of Scot Exporter.

Overseas Premises and Facilities Management The premises and facilities cost of the SDI offices outside Scotland.

INNOVATION Innovation Specialist Support Budget for the innovation support framework for companies.

Business Efficiency (including SMAS) The business improvement support framework budget, including for SMAS.

R&D Support Primarily the R&D grant scheme and the SMART grant programme

Renewable Energy R&D Support – WATERS/POWERS/SIFT Marine energy R&D support, primarily WATERS (Wave and Tidal Energy Research

Scheme).

Also includes POWERS (Prototyping for Offshore Wind Energy Renewables Scotland) and SIFT (Scottish Innovative Foundations Technologies).

Commercialisation Support Various commercialisation projects and programmes, including Enterprise Fellowships,

Proof of Concept and the Alba Innovation Centre.

INVESTMENT

Equity Investment & Loans SIB activity, including Scottish Venture Fund, Scottish Loan Fund, Scottish co-

investment fund, and the Mixed Recycling Loan Fund.

Renewable Energy Investment Fund REIF Activity, including the Low Energy Investment Fund (LEIF).

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Capex Support Grant Programmes

RSA based on aid for initial investment, mini capital expenditure projects, and environmental aid powers (capex).

Business Infrastructure Business infrastructure projects, including NRIF and ITREZ and including property

portfolio costs.

Digital Strategy Digital Strategy business engagement programme (including digital voucher scheme).

INCLUSIVE GROWTH Job Creation/Safeguarding Grant Support Schemes

RSA based on aid for job creation/safeguarding, environmental aid powers (job creation/safeguarding) and Training Plus

Entrepreneurship, Leadership and Organisational Development Organisational Development support framework for companies.

Talent Scotland and the Globalscot programme.

Cooperative Development Scotland, Young Innovative Enterprises, and the High Growth Start Up unit.

Rural support programmes, including LEADER, Planning to succeed, and the rural leadership programme.

Other leadership projects, small enterprise support programmes, and projects to stimulate entrepreneurship.

CROSS CUTTING ACTIVITY Industry Sector Project Support Sector support projects.

Strategic Development Strategic development company support, company scaling, and the SE enquiry service.

Domestic Marketing & Research and Stakeholder Engagement Marketing, customer research, stakeholder engagement, partnership projects, digital

services, and the SE/SDI website.

RUNNING THE BUSINESS Domestic Premises & Facilities Management costs Cost of the SE offices in Scotland.

Corporate Services, including ICT, Legal, Travel etc ICT, legal, travel and other corporate overheads.

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FINANCIAL PLANNING – DRAFT TIMETABLE 23 November 2015 - Autumn Statement from Chancellor of Exchequer

16 December 2015 - Draft Scottish Government budget published

29 January 2016 (tbc) - first draft of Business Plan budget to the SE Board

26 February 2016 (tbc) - second draft of Business Plan budget to SE Board

31 March 2016 (tbc) - anticipated final approval of Business Plan budget by SE Board

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HIGHLANDS AND ISLANDS ENTERPRISE

Written Evidence

The Scottish Parliament Economy, Energy and Tourism Committee

11th November 2015

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2 HIE Submission to the Economy, Energy and Tourism Committee

INTRODUCTION

Highlands and Islands Enterprise (HIE) is pleased to provide this written evidence to Scottish Parliament’s Economy, Energy and Tourism Committee which provides a brief update on HIE’s activities. The Committee will appreciate that budget information is difficult to provide pending the outcome of the Spending Review.

It is hoped that this update will be helpful, and we look forward to discussing issues arising with Committee members at our forthcoming session in the Scottish Parliament on 11 November.

HIGHLANDS AND ISLANDS ENTERPRISE

HIE is an ambitious organisation with a unique remit which integrates economic and community development, reflecting the distinctive needs and opportunities of our region.

2015 marks an important anniversary – 50 years since the formation of the Highlands and Islands Development Board (HIDB), the predecessor to HIE. Established to address “The Highland Problem” – rapid population decline, poor economic performance, high unemployment and low employment and a narrow industrial base – the work of the agency, partners and Government, over 50 years has contributed to a remarkable turnaround in the region’s fortunes.

Our aim is to build on that work. Our 2015-18 Operating Plan, which we have titled Building Our Future, recognises the many positive economic indicators in the region, business confidence and investment activity, and the significant opportunities for future growth.

Through the delivery of our Operating Plan, HIE is making a contribution to all seven of the Scottish Government’s Purpose Targets – with a particular emphasis on economic growth, population, productivity and cohesion – and to 13 of the 16 National Outcomes.

DELIVERING SCOTLAND’S ECONOMIC STRATEGY

Scotland’s Economic Strategy (SES), published in March 2015, has a direct bearing on HIE’s activities. We have structured our submission around the four themes of investment, innovation, inclusive growth and internationalisation.

1. Investment Attracting and delivering investment which helps drive the growth of businesses, social enterprises and communities across the region is a vital part of HIE’s role. We have a range of investment tools at our own hand and supplement this with investment from other sources including European funds. Investment covers a range of areas important to the prosperity of our region, including:

The rollout of superfast fibre broadband and delivery of Community Broadband Scotland. Provision of business support and financial investment to organisations. The creation of business premises to support growth and inward investment and the

development of important sectoral infrastructure. Encouraging the growth of the Universities sector. Building the capacity of communities and in support of community asset ownership. Investing in the people and skills needs of the region. Delivery of a portfolio of Regionally Significant Investments (RSIs) – projects which deliver

long-term benefits in terms of the structure of the economy and value created.

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3 HIE Submission to the Economy, Energy and Tourism Committee

Examples of Progress:

More than 135,000 premises now have access to superfast broadband across the region combining coverage from our £146m project and commercial roll out by BT.

The first aggregated Community Broadband project – GigaPlus Argyll - will provide service to 1,400 premises in remote parts of Argyll.

In 2014/15 HIE investment supported more than 1,120 jobs across the region. The Inverness Campus was officially opened by Deputy First Minister in May 2015. HIE’s new digital excellence centre will open at the Inverness Campus in early 2016. It will

showcase digital technologies, deliver events and promote the Highlands and Islands as a digital region.

HIE has increased resource available to work with universities to grow collaborative and commercial activities.

HIE’s review of account management highlighted the success of HIE’s approach in delivering economic impact across the region. Building on this positive evaluation we have enhanced our account management service to realign and focus our resources.

The Highlands and Islands Regional Skills Investment Plan has been implemented through a partnership of local and national organisations. A number of businesses, large and small, are currently in receipt of skills investment grants.

HIE investment in significant projects included Nigg Energy Park, Lochboisdale Port of Entry, the new Isle of Harris Distillery, Scottish ski Centres and Millport Marine Station.

HIE is contributing to the £52m Phase 1A MeyGen tidal array demonstration project. Construction is underway and on schedule off the coast of Caithness, with the first electricity anticipated to be delivered to the grid by 2016.

2. Innovation

Innovation is a fundamental driver of business competitiveness. Boosting innovation is a key aim for HIE and we seek to develop an innovation strand to our work with all account managed clients. Innovation takes many forms, from new products and services, R&D, to changes in workplace design and practice. HIE’s enhanced support for innovation will ensure the most appropriate resources are made available to maximise innovative activity. Our activities include:

Establishing a dedicated Innovation Service to support organisations. Providing a range of products and services to encourage innovation and R&D. Ensuring Highlands and Islands organisations benefit from national innovation resources. Supporting social enterprise and community-led development through our Community

Account Management programme. Promoting the uptake of superfast broadband and the business opportunities which

enhanced digital connectivity brings. Stimulating sectoral innovation and greater integration of digital technologies. Providing access to world leading entrepreneurship education. Investing in infrastructure such as Inverness Campus, European Marine Science Park,

Enterprise Park Forres and other locations. Promote a culture of innovation across the wider business base through our Innovate your

Business programme.

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4 HIE Submission to the Economy, Energy and Tourism Committee

Examples of Progress:

Responding to the increased focus on innovation, HIE has expanded its Innovation Service, deepening specialist sector knowledge supporting businesses and social enterprises at every stage of their growth.

Over 350 businesses have benefited from our Innovate for Business programme with resource increased to widen the reach, making it available to every business in the Highlands and Islands.

In response to the challenges facing the wave sector, HIE has established Wave Energy Scotland to bring together the best engineering and academic minds to collaborate on innovative projects and accelerate development of wave energy technologies.

Our Pathfinder Accelerator which supports early stage life sciences and technology based businesses has been launched.

Following a pilot project run by HIE, we are working with partners on a pan Scotland Digital Tourism Scotland programme. This is a £1.2m initiative to be delivered over 3 years. We are also running a series of webinars to support digital development in the tourism sector.

Over 150 organisations have benefitted from our partnership with MIT, and an additional 70 attended the first ever Can DO SCALE summer school in August 2015, delivered as a unique partnership between MIT and Harvard Business School.

The HIE/Business Gateway IT Engagement programme is being extended until the end of 2016 with funding of £250k from Digital Scotland. This will provide digital health checks for 120 additional businesses and workshops for at least 480 businesses and social enterprises.

Our Graduate Placement programme adds staff capacity for up to 12 months to businesses and social enterprises wishing to explore innovative ideas with regional or international market potential. The programme has now placed 458 young people across the region.

Through our Creative Futures partnership with The Glasgow School of Art, HIE has launched a Creative Industries Design network, which is an internationally connected group of entrepreneurs working to further the value of design in business. In addition, five PhD places focus on knowledge exchange in design innovation as a route to economic renewal and regeneration.

3. Inclusive growth

Scotland’s Economic Strategy highlights the mutual importance of developing a competitive economy and addressing inequalities. This twin focus fits well with the unique remit of HIE as an economic and community development agency. We are working to promote inclusive growth in a number of ways including:

Addressing some of the challenges of the most remote and fragile parts of our region through our Strengthening Communities remit.

Delivering our Community Account Management programme to provide bespoke support to communities and invest in projects which enable growth and tackle fragility.

Promoting the Scottish Business Pledge to organisations that we support. Empowering communities through community asset ownership. Supporting social enterprises to provide valuable employment and delivery of local

services. Supporting young people through providing graduate placement opportunities.

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5 HIE Submission to the Economy, Energy and Tourism Committee

With partners, addressing the challenges of living in remote areas as identified through our Minimum Income Standard research.

Through collaboration with the Government, SDS and other agencies, HIE is helping to harness labour market intelligence that better informs both employability and sectoral investments for the future.

Continuing the rollout of superfast and community broadband solutions. Strengthening academic and vocational cultural development opportunities for young

people. Support the development of the University of the Highlands and Islands in providing local

access to higher education. Mainstream equality considerations in HIE programmes.

Examples of Progress:

HIE is supporting 45 communities through its Community Capacity Building Programme (CCBP), and supporting a further 9 social enterprises to realise aspirations for growth through CCBP.

16 businesses in the region signed up for the Business Pledge. In the year to date, asset acquisition and development support provided to 63 groups. 264 graduate placements and 194 summer placements in companies in the region between

now and the programme launch in 2010. Community Broadband Scotland is actively supporting 89 pipeline communities across

Scotland through the development process for a community broadband project, and has approved capital funding of £1.8m for 13 communities, covering 3,516 premises.

HIE, in partnership with others, has appointed a Director to lead the Science Skills Academy project which is developing a programme of outreach STEM provision targeting young people aged 8 – 18 to inspire and educate them about the exciting applications of science and technology.

HIE has established the Youth Employment Accelerator which delivers a combination of training, work experience and networking. Between September 2013 and December 2014, more than 200 young people were supported. 80 (40%) are now in work (self-employed or employed) or have gone into further or higher education.

HIE is working with the government to support the roll out of 8 Developing Young Workforce Groups across the Highland and Islands, helping to ensure that partners and client companies are fully prepared and supported to deliver the intended impacts.

Through HIE’s account management relationships, we are currently engaged with 60 Social enterprises to support increased capacity, development and organisational growth.

Adopting a “gender-aware” approach to HIE’s Leadership for Growth programme in the Outer Hebrides increased women’s participation to 45%, helping achieve HIE’s equality outcome to increase the proportion of women in leadership in the Highlands and Islands.

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4. Internationalisation

In a highly competitive world, our businesses and sectors need to be able to compete against the very best and to identify and pursue growth opportunities in countries around the globe. At the same time it is important to promote an international profile of the region as a highly attractive place for businesses and people to locate and develop. Our activities in support of internationalisation include: Providing an extensive range of support for businesses, whether existing, new or potential

exporters. Assisting organisations to attend international trade shows and exhibitions, particularly

associated with priority sectors. Provision of international marketing events and country opportunity awareness seminars. Maximising resources available through our partnership with SDI and UKTI. Encouraging innovations such as our Food and Drink Collaboration initiative for small scale

premium producers. Seeking to attract inward investment which complements our indigenous company base

and creates new employment. Promoting the region’s globally recognised and innovative social economy. Influencing the development of connectivity into the region. Examples of Progress: We launched a new International Highlands and Islands initiative in July 2015, which will

focus on increasing global ambition in our region. This is a three year programme, with an initial budget of £3.7m.

In 2014/15 international support generated £50m international sales and secured inward investment of £126m into the region

In partnership with Scottish Development International (SDI) HIE supported 175 business in 2014/15 to develop international trade activity. Organisations from the region have attended international trade fairs including Medica, Gulfood and Showcasing Scotland.

In 2014/15, HIE’s Smart Exporter programme provided support to 114 companies with training, market awareness, and strategy development to access and develop overseas opportunities.

In partnership with SDI, HIE brought together ten small, ambitious food and drink companies to explore a collaborative approach to exporting. HIE is now looking to explore this collaborative model for other sectors.

We supported the business case for air route development, including the newly announced Inverness/Heathrow route which will commence in May 2016.

200 business managers from circa 150 businesses have attended Preparing to Export training courses from Smart Exporter launch in 2011 to 2015.

21 Food and Drink companies attended SDI's Showcasing Scotland 2015 where they met with 80 international and UK buyers over two days.

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7 HIE Submission to the Economy, Energy and Tourism Committee

FINANCIAL OVERVIEW

Highlands and Islands Enterprise’s budgets for 2014/15 and 2015/16 143 outlined below. Our Operating Plan outlined an indicative budget similar to the current year for 2016/17. However, as we are currently in the Spending Review process, it is not possible to provide a definitive 2016/17 budget at this time.

Op Plan budget 2014/15

£m

Actual outturn 2014/15

£m

Op Plan budget 2015/16

£m

Full Year Forecast 2015/16

£m Financial Plan

Income

GIA Baseline 58.6 59.7 59.0 60.6 DEL/AME non cash funding

23.2 12.4 22.7 22.7

Scottish Government Total

81.8

72.1

81.7

83.3

European Funds 5.0 3.3 5.0 5.0 Capital Receipts 4.5 4.6 5.0 5.0 Revenue Receipts 5.6 6.0 6.0 6.0

Total Income 96.9

86.0

97.7

99.3

Investment

Supporting businesses & social enterprises

12.0 12.1 12.2 12.2

Strengthening communities & fragile areas

8.0 7.9 8.1 8.5

Developing growth sectors 15.0 15.2 15.0 15.0 Competitive & low carbon region

16.6 16.6 17.0 18.2

Development support

4.4

4.1

5.0

5.0

DEL/AME non cash expenditure

23.2

12.4

22.7

22.7

Operating costs

14.5

14.5

14.5

14.5

Strategic forum savings target

3.2 3.2 3.2 3.2

Total Investment 96.9

86.0

97.7

99.3

Notes:

1. Investment allocations are indicative only. HIE manages its budgets in a flexible manner to enable us to react to challenges and opportunities which may arise.

2. Additional funds are being provided to HIE for projects such as digital infrastructure, Wave Energy Scotland, Community Broadband Scotland and the Scottish Land Fund, which are not shown here.

3. The increase in GIA in 2015/16 reflects energy sector support for Shetland and additional allocation for Strengthening Communities programme investment totaling £1.2m and £0.4m, respectively.

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8 HIE Submission to the Economy, Energy and Tourism Committee

CONCLUSION

Across the Highlands and Islands, HIE is committed to building our future and ensuring that the region continues to provide Scotland with significant opportunities to achieve sustainable economic growth. HIE’s unique combination of economic and community development powers enables the agency to support ambitious businesses, social enterprises and communities to generate jobs and prosperity across the region, including its most fragile areas.

As we mark the 50th anniversary of Highlands and Islands Enterprise and our forerunner, the Highlands and Islands Development Board, our region today is a vastly different place. Our economy and society have been transformed, population is growing and key economic indicators continue to show the Highlands and Islands performing strongly.

HIGHLANDS AND ISLANDS ENTERPRISE November 2015

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