Mon 30 Sep 2019

Scottish National Investment Bank (SNIB)

Where did the idea for a national bank come from?

The original idea to have a Scottish national bank was kicked around by think tanks a few years ago. In 2017 the Scottish Government set the wheels in motion to consider it further when they announced a feasibility study to assess whether a “national bank” in Scotland might benefit the Scottish economy. We have our own “national drink” therefore why not our own “national bank” as well?!

If you look to our European neighbours and further afield on a world-wide level many countries have established national investment banks who offer alternative financing options to businesses particularly for longer term projects. 

The Scottish National Investment Bank Bill was introduced earlier this year and the suggestion is that our very own national bank will be opening its doors for business by the middle of 2020.

Why do we need a national bank?

Due to a decline in public budget spending as well as increasing economic uncertainty resulting from the ongoing political turmoil and unknown Brexit outcome, Scottish businesses can face difficulties when trying to raise finance for longer term projects.

The private banking sector has faced its own financial difficulties over the last few years and generally tends to focus on short term shareholder returns. There is a lack of appetite from the private sector to commit to investment in higher risk innovative activities or new technologies particularly for businesses without proven track records of success. Financial returns from such investments can take time to materialise and aren’t always certain. 

There is therefore a need for fresh thinking around investment in longer term projects and innovative businesses, and this is where the SNIB has been heralded as the finance provider to plug the gap.

What is the purpose of the SNIB? 

Long term investment - a principal driver is to secure government money for longer term investment in Scottish firms and to tackle the current under investment in certain areas. SNIB are to provide long term “patient” and strategic capital channelling investment into areas of the economy most in need. 

Drive low carbon agenda - another central theme, according to the First Minister, will be to drive the low carbon agenda and speed up the transition to a low carbon economy. The recent climate change protests demonstrate the strength of feeling amongst many that something needs to be done about climate change. The Scottish Government are under pressure to make a long-term commitment to tackle climate change and the intention is for the SNIB to work with businesses to break down barriers to green investment.

Businesses and governments working together - there is to be a shift in approach with governments and businesses working together collaboratively to drive investment. Whilst the intention is for the SNIB to be commercially minded it will however remain publicly accountable.

Adoption of new technologies - in order to keep pace with the technological age that we live in now, there needs to be continual investment in new and emerging technologies and an integration of these into Scottish businesses. The SNIB will be sector neutral with the aim of channelling investment into areas of the Scottish economy that need it most. Support is to be given to research and development into innovative advances in technology and also low carbon initiatives.

 

Growth in export markets - the Scottish Government's focus will remain on international markets with a view to also growing Scotland’s export market to help boost productivity and the creation of jobs at Scottish SMEs. 

Where will the money come from?

The Scottish Government has committed to invest £2 billion over 10 years to capitalise the SNIB; with £130 million having been promised this year for set up costs. Each year £37 million of funding is to be made available to help businesses to innovate and assist with research and development. This investment ties in with the “Green New Deal” intended to attract “green finance” opportunities to Scotland.

Whilst those figures sound impressive, some critics are concerned that the funding may be too limited and lacks the scale to deal with the environmental objectives required to tackle the climate issues we are now facing. 

Mission orientated

The SNIB will differ from many lenders in that it is to have a set of missions which shape its strategic direction. These missions are still in the process of being decided however carbon reduction and digital development have been suggested as possible areas of focus.

How will Scottish SMEs benefit?

On the whole Scottish SMEs are likely to welcome an additional and alternative method of funding to help them develop and expand internationally. Well why wouldn't they ! Much of the detail however still requires to be fleshed out. such as how exactly the investment is made, the terms and restrictions of such investment and what criteria and/or restrictions might apply if a business requires additional funding from other sources.

 

There is also the question of geography to be considered as many Scottish businesses will operate across the English border or further afield and it is unclear at this stage which businesses will “qualify” as “Scottish” and therefore be eligible for potential investment. 

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