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Nurturing Wealth Creation
Manufacturing matters to Scotland
Manufacturing still matters
Although over the past 30 years, the manufacturing sector's share of Scottish GDP has fallen, manufacturing still makes up around 20% of Scottish GDP.
In September 2002, 282,000 people were employed in manufacturing representing some 12% of total employee jobs.
In addition, there are significant linkages between manufacturing and the rest of the economy. An estimated 93,000 jobs in non-manufacturing industries are related to the manufacturing sector's purchases.
Manufacturing industry in its totality represents Scotland's major exporter at 60% of the total.
What is manufacturing?
A definition of manufacturing was incorporated into Created in Scotland, the report of the original Scottish Manufacturing Steering Group. It adopted a wide definition in describing manufacturing as:
"...creating and making; the entirety of the process, incorporating research and development, design, supply, production, software, services, distribution, delivery and aftercare."
This evolving, broader definition of manufacturing focuses on the complete service over the whole product lifecycle.
A narrower definition of manufacturing is more often used for measuring the extent of, and trends in, the sector, which nevertheless still indicate the important contribution manufacturing makes to the economy in terms of output, employment and exports.
Output
Output in Manufacturing - Scotland and UK
Source: Scottish Executive, Index of Production
Overall output in Scotland has grown faster than the UK for the majority of the last 12 years - particularly during the second half of the 1990s when growth was significantly higher.
However, the decline in Scotland since early 2000 has been steep and continuous. Output fell by 12.7% in the year to September 2002.
Employment
In common with most developed countries, employment in manufacturing has steadily fallen throughout the last 30 years. The manufacturing sector has experienced a downturn over the last two years and employment has fallen by 8% since September 2000.
Until early 2000, however, output continued to increase, indicating rising labour productivity in the industry.
The decline in manufacturing jobs and increase in service sector jobs is due, in part, to a trend towards outsourcing of non-manufacturing activities by manufacturing firms. For example, manufacturing plants have tended to outsource IT functions to third parties.
Indirect jobs are those generated by firms which supply goods and services to manufacturing establishments. Final demand for output from the manufacturing sector supports around 375,000 jobs in Scotland.
Exports
Manufacturing Exports - Scotland and UK
Source: Scottish Executive & ONS
Manufactured exports amounted to 15.5 billion in the four quarters to 2002 Q3. This was a fall of nearly 20% compared with the previous four quarters (current prices).
The chart above shows quarterly manufactured exports from Scotland from 1995 onwards (data is in seasonally adjusted constant prices). Exports have increased fairly steadily over time, although there has been a dramatic fall in the last two quarters.
Productivity
Long-term productivity growth in manufacturing has been one of the principal reasons that living standards have risen in most developed economies.
The UK is no exception with, for example, an average increase in labour productivity of 2.3% per annum between 1989 and 1999.
Unfortunately, this growth rate has fallen behind those of our major international competitors such as the US, France and Germany.
The latest data on regional manufacturing productivity shows that Scotland performed well in 1998 with the second highest manufacturing output per employee of the UK regions. Gross value added per employee in Scotland was 40,200 compared to the UK average of 36,500.
However, analysis of manufacturing firms has shown that the most productive firms are around 5.3 times as productive as less productive firms and that this variation in productivity is not explained by different productivity levels in manufacturing sub-sectors. The differentials also persist within individual sub-sectors.
In terms of contribution to the Scottish economy, there is therefore absolutely no doubt that "manufacturing still matters".
This said, the deteriorating position of manufacturing industry in Scotland, particularly over the last two years, is clearly a cause for concern; one that the Scottish Executive, and indeed individual businesses themselves, must address as a matter of both priority and urgency.
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