Scotland’s tech economy has made ‘significant strides’ in the last 12 months but a new report has highlighted ongoing issues around the rural digital divide.

The latest Local Digital Index by techUK has revealed the estimated 14,504 companies in Scotland’s tech sector – some 400,000 people – have grown by 2.8 per cent this year.

Their estimated turnover now stands at £221 billion with the top five performing sectors identified as net zero, clean-tech, energy generation, life sciences, research and consulting – physical science and engineering, based on the data explorer platform from Data City.

According to the Index, comprised from a large range of data sources, including Ofcom, the Office for National Statistics and the British Business Bank Equity Tracker, Scotland has made  “substantial advancements in several areas of the digital components the Index analyses”.

For Scotland, the economic productivity metric – gross value added (GVA) – showed that it placed sixth out of 12 nations and regions across the UK. The results show that the digital sector GVA per person in London is £9,083 when compared to the West Midlands, £2,055, or Scotland, £1,979, or Wales, £1,348.

techUK says that if the bottom six placed nations and regions were to hit the median GVA value for all 12, it would lead to a £4.8 billion uplift in productivity for the sector across the UK as whole.

The annual report looked at six performance areas: digital infrastructure, digital skills, digital adoption, finance and investment, research and innovation and trade.

Scotland’s digital infrastructure has seen “remarkable improvement”, with notable gains in gigabit broadband coverage, the report said, based on Ofcom figures. Eastern Scotland, which includes Edinburgh, has experienced a surge in gigabit broadband availability, increasing from 50.1 per cent of premises to an “impressive” 70.6% per cent. Meanwhile, West Central Scotland, home to Glasgow, has seen its 4G coverage grow from 90.3 per cent to 94.2 per cent. Additionally, the Highlands and Islands have shown progress, with a notable rise in gigabit broadband access from 14.9 per cent to 23.1 per cent of premises. 

The report said: “However, there are still challenges in rural areas, such as the Highlands and Islands, which lag in terms of digital infrastructure. Nevertheless, the report emphasises the positive news that every area in Scotland has seen improvements across various digital metrics, which is crucial for fostering a thriving tech ecosystem.”

Scotland has also made headway in nurturing its digital talent pool. In particular, North Eastern Scotland has shown promise, ranking seventh in digital skills. The region’s emphasis on education and skills development is paying off, with a high percentage of the population engaged in computing and engineering technology studies. 

For finance and investment, Scotland has attracted increased investment in information and communication technology (ICT), despite global economic uncertainties. The report highlights that Scotland, along with several other regions, has seen growth in ICT investment. This influx of capital demonstrates the attractiveness of Scotland as a destination for tech businesses and investors. Venture capital in tech, a vital aspect of tech growth, is predominantly located in London but has started to diversify across regions. Scotland is “showing promise” in attracting tech investments, with a notable increase in venture capital deals, said the report.

In trade, the Local Digital Index acknowledges that goods and services exports have increased across all regions across the UK, including Scotland, which placed second in the rankings beneath London. However, it underscores the persistent regional disparities. To ensure more equitable growth, efforts should be directed towards closing these gaps, particularly in service exports. 

Scotland has risen to fourth place in research and innovation, thanks to an increase in Innovate UK grants. Greater London, East of England, and South East England continue to lead the way, but Scotland’s “impressive performance” shows its strength in securing long-term funding for innovation. The region is also investing in R&D, which is crucial for driving innovation and technology advancements. With a focus on improving R&D incentives, reducing the cost of research facilities, and fostering the commercialisation of emerging technologies, Scotland is “poised to further enhance its research and innovation capabilities”, says the Index.

Scotland is ranked fourth in data ecosystems, a new component introduced in the 2023 report. While London leads in this metric, the report notes that the gap between different regions in this component is smaller than in others, indicating room for growth. Scotland has a significant number of people in data roles, and there’s potential for further development in this field. However, the report highlights that businesses in some areas of Scotland need to improve their data acquisition and sharing practices to fully harness the potential of data ecosystems 

Digital adoption continues to be one of the most challenging components to track. Of concern is the drop, across the UK, in the number of businesses defined as operating in the ‘digital sector’ which has also resulted in a drop in digital jobs over the last year, with only 4,265 jobs advertised over the last year, according to the Index.

Scotland Recommendations 

Scotland’s digital ecosystem is improving but certain areas continue to show a mixed picture since 2022, the Index said.

Eastern Scotland scores in the top third in every component with West Central Scotland just
behind. Digital infrastructure scores are good, the number of HE students remains high (and
more broadly in Scotland the number studying computing, tech and engineering is the highest
per 1k of students in the UK and over 264k digital occupations in Scotland).

Rural areas such as the Highlands and Islands remain substantially behind in terms of digital
infrastructure, however the progress made is noted in the report. techUK again examined the data explorer platform and saw significant turnover linked to ‘net zero’ businesses, and much company data linked to turnover driven by BP or ExxonMobil.

This also showed significant employment and business counts being driven by Edinburgh, Glasgow and Aberdeen, and the cumulative growth in tech companies in Scotland had increased by 82% in 10 years.

Scotland needs to continue rolling out improved digital infrastructure especially in not spots,
targeting and supporting further FDI into the tech sector in Scotland, increasing the number of digital occupations to retain more homegrown talent in Scotland and harnessing the R&D spend to raise the profile of innovation in Scotland.

Julian David, techUK CEO, said: “Scotland’s tech ecosystem is making impressive strides, with significant growth in infrastructure, skills, and innovation. To ensure equitable progress, we must focus on improving infrastructure, attracting investment, and nurturing local talent, ensuring that every part of Scotland benefits from this digital transformation.

“This isn’t an easy challenge, and is replicated in other areas of the UK, but it is one that should be addressed when considering future growth.”

Sheila Flavell, COO of FDM Group and president of techUK, said: “It is encouraging to see Scotland putting digital skills at the heart of their digital ecosystem. Growing Scotland’s pool of digital talent isn’t just about boosting their tech capabilities; it’s an investment in using technology to support people and businesses in the long run.

“FDM Group has been operating in Scotland for 20 years and we look forward to continuing our work to ensure people have the digital skills they need to operate in both their personal and professional life.”

Alec Harley, Leidos portfolio director for Scotland, said: “The report certainly validates the trends we are seeing play out in Scotland. Rapid investment in Scotland’s digital infrastructure is allowing global companies like Leidos to embrace the new normal of hybrid working.

“With improved and robust connectivity we can now employ more technology colleagues to work from home offices as well as giving the option of collaborating in modern offices found in the traditional investment hubs of Glasgow, Edinburgh and Aberdeen. Benefits include more investment in the regions, improved employee engagement and a more diverse employee pool to support our operations and clients.”

Local Digital Index: techUK