3. Scotland’s Trade

3. Scotland’s Trade[2]

Scotland is home to a strong and productive economy, characterised by a diverse business base with international successes across a wide range of sectors including life sciences, food and drink, sustainable tourism, financial services, energy and creative industries – Scotland’s Growth Sectors. Scotland’s transport network supports the functioning of over 360,000 businesses[3], with 45% of these registered enterprises being part of one of the six Growth Sectors mentioned above.

Over the coming years, Scotland’s economic success will be increasingly realised through its ability to compete in a global market. Strengthening links with the global economy brings with it increased trade, attracts investment and creates an environment for sharing skills, expertise and collaborating with others to support the economy. International markets offer enormous potential for Scottish companies to grow their exports. The EU is Scotland’s most important international export market.

As businesses become increasingly more international, society is likely to benefit from increased productivity which brings with it new ideas, new technologies, a wider variety of goods and services, lower prices, better-paying jobs and generally speaking better living standards[4]. Additionally, attracting skilled workers to Scotland is key to boosting the skills base and tackling the challenges of demographic change.

This section provides an overview of Scotland’s trade in goods with the rest of the world[5]. The use of HMRC Regional Trade Statistics (RTS)[6] allows for a more up to date assessment, with latest full year data up to 2017 (Export Statistics Scotland currently has data up to 2016). HMRC RTS also deals solely with trade in goods[7] and does not include trade in services, making analysis more realistic as services are less likely to ‘travel’. 

HMRC regional trade statistics makes use of transaction information such as commodity code, value of trade, weight of trade, partner country/country group and other data fields to determine good and destination of import/export. Import and export classifications are not based on the method of travel, meaning data will include exports from Scotland that may go via a different country (i.e. mainland Europe or the rest of the UK) before arriving at their final destination.

Having said that, it is important to note that over the past decade, Scotland’s trade in services with the rest of the world has steadily increased as the sectors’ contribution to the economy as a whole, has grown. The services sector now accounts for 76% of Scotland’s economy[8], while the production sector’s contribution has shrunk over the same period and now accounts for 17% (down from over 23% in 1998).

3.1 Exports

Figure 1: Destination and Value of Scotland’s Exports (£ billions), and Top 5 Export countries

Figure 1: Destination and Value of Scotland’s Exports (£ billions), and Top 5 Export countries

Scottish goods have a strong presence in international markets. Latest HMRC[9] data shows that in 2017, goods exports from Scotland totalled £28.7 billion. This was an increase of 18.6% compared to 2016. Of this total, non-EU partner countries accounted for 51%, a decrease from 53% the previous year, while exports to EU member countries increased.

In 2017, exports from Scotland increased in value by 19% compared to 2016. Over the same period, Scotland’s exports to the EU increased by 23%, while exports to non-EU countries increased by 14%. Over £14 billion of trade was with EU member states. 

Key Markets

In recent times, Scotland’s top 5 export partners have evolved. As is highlighted in Figure 1 the top 5 export destinations in 2017 for Scottish goods are:

(1) Netherlands (£4.3 billion);

(2) USA (£3.4 billion);

(3) Germany (£2.8 billion);

(4) China (£2.2 billion);

(5) France (£1.7 billion);

The Netherlands has been Scotland’s largest export partner for 4 out of the past 5 years (2013-2017), having reclaimed top spot from USA in 2017. Its dominance as Scotland’s main export partner can be explained in part, by the Dutch port of Rotterdam being an important international shipping hub (the largest port in Europe and 10th largest worldwide). Many of the goods transported to Rotterdam will be transported on to another country rather than residing in the Netherlands. The final destination of these goods is not routinely collected which artificially boosts the value of exports to the Netherlands (‘the Rotterdam effect’).

In 2016 China became one of the top export markets replacing the Republic of Ireland in the Top 5, and in 2017 it was Scotland’s 4th largest export market largely driven by the partial recovery in the oil and gas sector. Exports to all of Scotland’s top 5 partners increased in value during the 2017.

Scotland’s top 5 good exports using the Standard International Classification in 2017 were:

(1) Petroleum products (£8.5 billion);

(2) Beverages (£4.1 billion);

(3) Power generating machinery (£2.2 billion);

(4) General industrial machinery (£1.3 billion);

(5) Transport equipment (£1.2 billion);

Scottish exports (goods) are carried by all four main modes of transport (road, water, rail and air). These include water freight from one of Scotland’s main commercial seaports; road freight using Scotland’s extensive trunk road network; air freight with airports in Scotland flying direct to over 220 destinations worldwide, and rail freight on Scotland’s ever expanding railway network.

One export good which is a key market for Scotland is ‘Beverages’. Data shows that Scotland exported over £4 billion worth of beverages in 2017. Approximately 15% of total beverage exports went to either France, Germany or the Netherlands.

Beverage companies in Scotland include A.G. Barr (non-alcoholic soft drinks) and large whisky companies such as Diageo which own well-known brands such as Johnnie Walker, Bell’s and J&B. Their trade habits reach far beyond the top 5 countries mentioned above, with Diageo in particular having a presence in over 180 countries around the world. The entire production process for the majority of these goods are completed on Scottish soil and as such, the destination for goods exports is more well-known. However some of these goods may be exported to another country for packaging and further processing.

Since 2013, ‘mineral fuels, lubricants & related materials’ have led Scottish exports, despite falling by a quarter by 2017. Over this time most goods exports have remained relatively stable and largely unchanged compared to 2013 levels, however ‘food & live animal’ exports have grown 44% over the past 5 years, illustrating the importance of this key sector for Scotland[10]. Exports to the EU from sectors such as beverages (spirits), and fish, crustaceans, molluscs (seafood) are significantly more important to the Scottish economy than they are to the UK as a whole. Furthermore, the EU is a key market for Scottish seafood products, accounting for 77% of Scottish seafood exports in 2017. Scotland is a net exporter of fish to the EU and the rest of the world, while the UK as a whole is a net importer.

3.2 Imports

Figure 2: Country of Origin and Value of Scotland’s Imports (£ billions), and Top 5 Import Countries 

Figure 2: Country of Origin and Value of Scotland’s Imports (£ billions), and Top 5 Import Countries 

Scotland’s total goods imports were valued at £24.2 billion in 2017. Total imports to Scotland increased in value by £2.6 billion (12%), during the year 2017, however this growth was below the growth in exports, thus continuing Scotland’s trade surplus in goods.

Compared to 2016, Scotland’s imports from EU countries increased by 6.6%, compared with an increase of 15% in imports from non-EU countries over the same period. As a result, trade from non-EU partners accounted for almost two-thirds of Scotland’s imports by value.

Key Markets

The percentage of goods imported into Scotland from the EU in 2017 was 38% (£9.1 billion). The top 5 countries which Scotland imports from has remained unchanged over the past 5 years, with Norway leading Scottish imports every year since 2013. As is highlighted by Figure 2, they are as follows:

(1) Norway (£3.9 billion);

(2) USA (£2.7 billion);

(3) China (£2.7 billion);

(4) Germany (£1.9 billion);

(5) Netherlands £1.6 billion);

Norway accounted for 16% of all imports into Scotland, up from 12% in 2016. Compared to the previous year (2016), the largest value increases were from Norway (up 44%, £1.1 billion) followed by the USA (up 21%, £475 million). The largest decreases over the last 12 months were in imports from South Korea (down 80% or £494 million) followed by the Falkland Islands (down 99% or £70 million). 

While the composition of Scottish exports have changed over time, Scotland’s main import goods have remained in similar industries over the past 5 years. The exceptions have been in the ‘machinery & transport equipment’ industry (which has grown in value) and the ‘mineral fuels, lubricant & related materials’ industry (which has fallen in value). In 2017, Scotland’s top 5 import goods were:

(1) Gas, natural & manufactured (£3.1 billion);

(2) Office and automatic data processing (ADP) machinery (£2.3 billion);

(3) Power generating machinery (£2.2 billion);

(4) Machinery & Transport equipment (£1.8 billion);

(5) Apparel and clothing accessories (£1.0 billion);

Over the year, compared to 2016, 4 out of the top 5 good imports increased in value, with ‘Transport equipment’ being the only good to fall in import value.

The largest proportion of goods imported from Norway (Scotland’s number one import market) fell under the ‘Mineral fuels, lubricants & related materials’ SITC category, and were valued at £3.9 billion in 2017 - 16% of total Scottish imports. The single most popular good within that category, was ‘Gas, natural and manufactured’, which was valued at £3.1 billion.

Gas imports from Norway currently come predominantly via the Far North Liquids and Associated Gas System (FLAGS) pipeline[11]. Other key pipelines include the Langeled and Vesterled pipelines and the Scottish Area Gas Evacuation System (SAGE) pipeline to St. Fergus near Peterhead in Scotland. The Vesterled pipeline in particular is a natural gas pipeline system, which runs from the Heimdal field (Heimdal Riser platform) in the North Sea to St. Fergus Gas Plant.

Linking the other top five goods with the top five import destinations shows that Scotland imported most of its ‘Office & automatic data processing (adp) equipment’ from China,  and ‘Power generating machinery’ and ‘Transport equipment’ from USA and the Netherlands. Clothing and apparel was more spread across a number of countries including Hong Kong and Vietnam.

Goods in the ‘Machinery & transport equipment’ group remained a key import good in 2017 - representing 40% of total import value in 2017. However this was down compared to 2016 (43%).

The recent decline in imports from the ‘Mineral fuels, lubricant & related materials’ industry is consistent with the performance of the wider Scottish economy in 2015 and 2016 alongside the slowdown in the Scottish oil and gas industry as a result of the sharp decline in the global price of oil. This also impacted the exporting of the commodity from Scotland, and this coupled with the slowdown in the oil and gas supply chain resulted in a slowdown in Scottish economic growth. 

The recent recovery in the global price of oil, coupled with industry cost saving and efficiency gains has meant that trade in the commodity and related products has also started to recover.

3.3 Tourism

The International Passenger Survey (IPS)[12] produces estimates of overseas visitors to the UK, with disaggregated data available for Scotland. Data shows that overseas visitors typically come from countries that Scotland have a strong trade link with. In 2017, over 46% of visitors to Scotland came from one of the countries in Scotland’s top 5 importers or exporters (China, France, Germany, Netherland, Norway, USA), and spent a combined total of £1.2 billion – over half of all visitor spend in 2017. 

Travel by plane is by far the most prevalent mode of transport for visitors to Scotland (see Figure 3 below). Since 2002, the number of visitors travelling to Scotland by air has more than doubled (+118%), while sea and tunnel travel have remained fairly stable. This is shown in the chart below.

Figure 3: Scottish Tourism: Number of Visits by Mode of Transport

Figure 3: Scottish Tourism: Number of Visits by Mode of Transport

Respondents to the International Passenger Survey (IPS) stated that good air links within the UK and abroad were crucial for growth in any sector. All respondents mentioned the importance of direct links and the need for good connectivity. Air travel benefits businesses across Scotland by providing connections and access to wider markets; by reducing transport costs, allowing for quicker deliveries and facilitating inward investment. Scotland now has direct passenger flights to over 150 destinations.