Rt. Hon Alex Salmond MP MSP
First Minister
Global Financial Services Conference
Edinburgh
Thursday, May 29
Good afternoon. Let me start by thanking James Naughtie for that kind introduction and for steering us so capably through the day's agenda.
Perhaps not everyone will know that as well as being a first-rate broadcaster, Jim has had the distinction of being voted the UK's Radio Personality of the Year. That's quite an accolade. And richly deserved.
And I hope he'll remember this glowing tribute next time I'm on the Today Programme.
It is a pleasure to be able to speak with you at this Global Financial Services Conference - in this, the first ever Global Financial Services Week.
I would like to thank in particular those of you who have travelled from across Europe, North America, Asia and elsewhere to take part in this week's events.
Your perspectives have helped to enrich our discussions and provide a truly global view of the opportunities and challenges facing our industry.
This is the first time that the potential of Scotland's financial services sector has been in such close focus - both at home and internationally.
And, building on the success of the strong partnership between the industry and Government, this week marks a step change in our ambition for Scotland's financial services sector.
This Government's ambition for Scotland is well known. And it is an ambition which, over the past year, has expressed the new mood and the new confidence in our country.
Confidence in the potential of our people and our economy.
The desire and the ambition to build a Celtic Lion economy - a powerhouse within Europe and a champion in the knowledge-driven industries of the future. Financial services, the life sciences, the creative industries and renewable energy.
Many of you will know that before entering politics I worked for several years as an economist for one of Scotland's leading banks.
And having worked in the Scotland's financial services sector - and seen its remarkable development in the intervening years - I have come to regard this industry as a prime exponent of this country's tremendous economic potential.
So today I want to explain to you why this Government is profoundly positive about the future for Scotland's financial services industry - and how can we can extend what is already a global success story.The current environment
Before going further, we must take stock of the current environment - the credit crunch, its impact and the measures required to rebuild confidence.
We know there are big challenges facing the financial services sector - in Scotland, in the UK and internationally.
It is just over a year since subprime mortgage lenders in the U.S. began to report major financial difficulties. We saw how quickly this shock echoed into new markets, draining liquidity and confidence throughout the financial system.
This credit crunch was an illustration - if any were needed - of the deep integration of global financial markets.
And equally, it showed that no advanced economy, however well prepared, could insulate itself from the effects.
Looking at the global perspective, we hope - but cannot yet be sure - that the worst is over.
I have seen estimates that around two-thirds of banks' losses have already been declared. But still for now, in the words of St Paul, "we see through a glass darkly".
Making the remaining write-downs quickly will go a long way to restoring confidence in global financial markets.
However the underlying requirement is to rebuild confidence in asset value.
And looking not just at this country, but internationally, the industry will need to look at a range of measures to ensure a sustained recovery. Improving financial reporting. Maintaining prudent lending standards. And aligning compensation to promote genuine long-term value creation.
Each of these aspects requires careful deliberation and a measured response. In each area there will a particular balance to be struck between self-regulation and new rules.
But in any case, the significant falls in share value faced by many financial institutions in the past year provide industry itself with a strong incentive to take decisive action.
Economic impact on Scotland
I said earlier that, like all advanced economies, Scotland could not insulate itself fully from global credit market conditions. So let us look at the impact thus far.
It has to be said that up to now the Scottish economy has displayed an impressive resilience.
As John Swinney has noted, economic activity in Scotland compares favourably to the UK. The latest figures suggest that our economy grew faster than the UK in the two most recent quarters.
Retail sales are positive, house prices are holding up well, our employment rate is higher and unemployment is lower.
Output growth in Scotland this year may come in slightly lower than in recent years. But there are encouraging signs of strength for the long-term.
Take inward investment. A recent survey by the accountants Ernst & Young records 69 inward investment deals in Scotland in 2007.
That total is well up on the previous year. And it is particularly encouraging to see the greatest number of deals - 14 in all - in financial services.
This is a clear vote of confidence by the international investment community in the Scottish economy - not just in our financial services but across the whole economy.
It is testament to this country's economic potential.
And it shows that international business is fully behind the recent verdict of the Financial Times FDi Magazine - that Scotland is genuinely Europe's location of the future.
Strong fundamentals of Scotland's financial sector
Let me move on to look at Scotland's financial services sector in detail.
And let me explain further why we should have confidence in the prospects for long-term growth.
Scotland is already a major player in financial services - one of Europe's leading centres for banking, pension funds and life assurance.
And our financial services sector has deep roots. A banking tradition that goes back at least four centuries.
An industry that today directly provides 9% of Scottish jobs. And an industry that has achieved strong sustained growth, with output expanding by 96% in real terms since 1998.
As we know, this expansion has been supported by a steady flow of new international business.
Leading firms including JP Morgan, State Street, BNP Paribas and Morgan Stanley have looked to Scotland's potential and seen the future. And the most recent FDI figures show that this trend is continuing.
Why is this? What is it that these firms have seen? And what can other equally ambitious firms gain by establishing a strong presence here?
Let me highlight four factors that I believe underpin Scotland's success - and offer the promise of future growth.
First, innovation. A track record of financial innovation and progress.
One century ago Scotland had the world's most developed capital markets. And this country was the first to adopt joint stock banking and the savings bank. The first to patent the ATM. And the first to introduce the coloured banknote and - one we keep more quiet about - the overdraft.
That cord of innovation remains strong, with important recent advances, such as remote and offset banking, and the direct model of insurance provision.
This striking record of financial innovation is founded on a second aspect - our stock of human capital.
Scotland's world-class education system - founded on the core principle of free education - has always been a potential source of strength.
And by abolishing the Graduate Endowment fee, this Government has restored that vital principle in Scotland.
Today more than one quarter of the working age population has been to university. A third of those aged 18 to 30 hold a university degree. And half of school leavers go into higher education.
Our financial services sector already employs a higher proportion of graduates than the UK as a whole.
So the Scottish economy offers an excellent stock of human capital.
And that asset is made all the more attractive by a third factor - the cost advantage that our industry enjoys relative to other financial centres.
Overheads for firms in Glasgow's thriving International Financial Services District are estimated at 68% of the level for comparable firms in London - meaning that London firms face costs that are nearly 50% higher than those in Glasgow.
One recent investor to Scotland put that advantage even higher in Glasgow's direction. And as the financial services industry faces growing pressure on cost control and risk management, that economic advantage will help smart firms to stay ahead.
Fourthly, the Scottish economy offers a highly supportive business environment.
The industry's strong growth over the past decade shows that this environment is geared to success in financial services.
And let me say to you today - the Scottish Government is committed to making further advances.
In our first year in government we have already cut taxes for our small firms. Made new investments in our transport infrastructure. And launched a programme to modernise our planning system.
And as we see from this Global Financial Services Week - and from last month's marathon tour of North America - this Government is tireless in promoting Scotland's financial services industry, at home and abroad.
Looking to the future
Those strong fundamentals - a track record of innovation, world-class skills, competitive costs and a strong business environment - are the foundations of Scotland's comparative advantage. They are the basis of our success.
But this Government knows - and industry knows - that we must continue to build on these strengths.
And we believe that, with a strong partnership among the key players, the financial services sector can be a motor for growth - creating wealth and new jobs across the Scottish economy.
The success of the Government's economic strategy - indeed all economic strategies - depends on matching the human capital and talents of our people to our key sectors of comparative advantage.
Indeed in Scotland the availability of highly skilled people to work in financial services is in itself a major source of competitive advantage.
However for our financial services sector, continuing to meet this challenge is vital to support future success - strengthening Scotland's position in this fiercely competitive and mobile global industry.
So I am pleased to be able to announce today an important new initiative to achieve precisely that purpose - our intention to create a Financial Services Skills Gateway for Scotland.
This new body will be led by industry - so will respond quickly to new demands and new opportunities.
It will draw together key partners committed to the success of Scotland's financial services - government, the trade unions, Scottish Financial Enterprise and others, with the support of our colleges and universities.
I have invited David Thorburn, Chief Operating Officer of the Clydesdale Bank and Chairman of CBI Scotland, to lead this group in a personal capacity.
And we will shortly announce further details on its remit and members.
This new Gateway - focused on our world-class skills base - shows that Scotland's financial services industry is looking to the future with confidence and building a partnership for long-term success.
The Scottish Government warmly welcomes this initiative and we are committed to supporting its success.
Conclusion
This conference - and this first ever Global Financial Services Week - have the express purpose of showcasing Scotland's excellence in financial services, and raising our global profile.
We have spoken today about the immediate challenges in global financial markets. By responding firmly, industry can lay the foundations for a strong recovery and long-term growth.
And with our economy showing itself to be resilient in this challenging climate, Scottish industry should be well placed.
Today we have a financial services sector that is innovative, broad-based and cost competitive.
And the industry is supported by a world class workforce - and a skills base that will be further strengthened thanks to the leadership of our financial services industry.
To those firms already established here, let us work together and prepare for good times ahead.
And to those who are considering investing in our financial services, you will know that Scotland is open for business - and determined to succeed.