Tuesday morning saw the Marcliffe at Pitfodels play host to the Aberdeen Chamber of commerce business breakfast with the topic for discussion centring on the Aberdeen City and Shire Region Deal. The progress of the city region deal has been closely followed in business circles, particularly as the economic downturn has taken grip, as many see it as an opportunity for the North East to embrace its future enabling development and progress regardless of how the oil & gas industry plays out over the next 20-30 years. The city region deal should be viewed in parallel to oil & gas development as it seeks to revolutionise the industry through technological advancements ensuring economic viability for as prolonged a period of time as possible. This is only part of what the deal offers though which proposes upgrades to transport connectivity, affordable housing, city centre regeneration, digital connectivity, the dockside, strengthening international ties, developing and retaining skills as well as creating a centre for innovation. The deal obviously asks for a lot but Aberdeen has a great deal to offer Scotland and UK as a whole. If you consider for a moment that 45% of Scotland’s top 20 companies, many of which are placed within the oil and gas industry, are located in Aberdeen then you immediately understand how much of an economic powerhouse the region is nationally.
Anyone who lives, or has lived, in Aberdeen is intimately aware of the chronic lack of investment suffered by the city for the last 35 years. Infrastructure being the main candidate for neglect, experienced every morning during travel to work using the clogged arteries often referred to as roads. If the roads are clogged arteries then that Haudigan roundabout is coronary heart disease waiting to pack in. The neglect of transport links, non-development of its airport and lagging technology infrastructure are yet further examples of the areas crying out for modernisation and investment. The city region deal then offers an opportunity to redress the balance while preparing the city for growth through the provision of services leading to increased revenue and thereafter taxes. Digital infrastructure is also essential. For all the regions collective business success Aberdeen is ranked 61st out of 63 across the UK For broadband speed which is a shameful indictment of the lack of development. At best this is serious impediment on the growth and development of technology companies in the region at worst it has forced our technological talent elsewhere. Development and investment is the only way the needed cathartic release can be obtained.
Aberdeen has ultimately been a victim of its own success. The affluence of the area and ease of access to high paying work in the oil and gas industry has acted as a vacuum to the cities other industries and areas of leadership. Whether the previous leadership of local governance has suffered due to this vacuum removing viable candidates and talent who may have excelled in political roles is pure speculation but has often been suspected. What isn’t speculation is that Aberdeen has often suffered a crisis of identity in the council. Infighting and political one upmanship has resulted in numerous terms where nothing was ever achieved and the deterioration of the city and services were presided over. Whatever your views of the union terrace gardens proposed development were you’d be hard pushed to argue the point that what transpired was anything other than a laughable episode more akin to an only fools and horses sketch.
The one question perhaps left unanswered from the breakfast relates to whether the financial struggles Aberdeen and the oil and gas industry are facing hinder or improve the chances of success. The criteria on which awards are made may not be common public knowledge but it seems Aberdeen requires a leg up more now than at any period of economic prosperity in the past. The potential concern would be if the deal is judged on a ‘what have you done for me lately?’ approach where tax reductions etc. have already been implemented to try and stimulate the local economy potentially leading the government to believe they have done enough. This would be a grossly disproportionate reaction which ignorantly misses the point: The Oil & Gas industry has thrived in spite of the negligence to the development of the city and region.
What then are the proposals of the city region deal? In short they are broad, far ranging and cover almost every area of the city and shire area including through the provision of up to £2.8billion of public investment across the 20 year period. They are:
Housing – a request for support to unlock constrained sites to supply housing land, housing funding and measures to help solve housing cost issues. Some 39,400 new houses are planned.
Connectivity – rail service improvements, including acceleration of planned upgrades infrastructure and more local services; plans to deal with congestion issues; and improved harbour and airport connections.
Innovation – development of both an Oil and Gas Technology Institute and a Scottish Centre for bio pharmaceuticals; promotion of the region as a global centre of excellence in the field of renewable and hydrogen technologies research; and the creation of a Digital Offshore Data and Systems Centre.
Internationalisation – projects supporting international trade, the renewables industry, tourism, trade and investment, inward investment and export support.
So how does the city region deal proposes to stimulate the oil and gas industry? Firstly the Wood report estimates that oil stocks in the North Sea remain significant sitting between 11-22 billion barrels. When oil prices return to or close to previous highs, upon the culmination of the political economic games OPEC nations are playing with their North American adversaries, the outlook for the industry is not as bleak as the short term projections will have you believe. Even so it would be wise to take the medicine this downturn has prescribed and embrace the inconvenient reality; the region is overly dependent on the oil and gas industry and needs to embrace diversification away from this to survive. That’s not to say it must give up the ghost of the industry, on the contrary it requires the continued nurturing of world class expertise in the region which in turn can be exported internationally utilising Aberdeen as an integral skills base. The oil and gas specific initiatives in the city region deal includes, buts isn’t limited to, the following:
Oil and Gas Technology Institute – The City Deal team aims to work directly with local governance in an attempt to develop the proposals which seeks to establish a world class centre of innovation and excellence in the city supporting innovation across all sectors of the oil and gas industry. An enabler to this is the development, and thereafter establishment, of a Big Data Internet Hub and Innovation Centre in Aberdeen which the region deal will contribute to the funding of. Off the back of this it is anticipated the institute will lead innovation in these areas leading to significant cost reduction advantages in addition to the expansion of export services and technology based products. Maximising the return on investment for the extraction of hydrocarbons, delivery of renewable energy, their role in future energy security and tax revenues is dependent on the management and accuracy of data being streamed from off and onshore installations. The facilitation of knowledge exchange and enterprise support will secure the emergence of high-growth start-ups in this field in the North East of Scotland and across the UK.
Establishment of Enterprise Zone – The establishment of an enterprise zone encourage Aberdeen University and The Robert Gordon University to strengthen their roles as strategic partners in local growth to engage with and build on existing capabilities and partnerships. It will also stimulate development of incubator or ‘growth’ space for small to medium businesses supporting the world-wide oil and gas industry from an Aberdeen base. This will encourage businesses to interact with Universities and to innovate creating a high value economy using existing skills and know how that can be exported worldwide.
World Energy City Centre for learning – The Centre will provide a focus in one place to coordinate the various skills challenges facing both the city and region. It is proposed a skills audit occurs across the city region working with higher education, further education and the industry to deliver a 5 year and 15 year plan to ensure that the correct mix of skills are available at both a city region and supply chain level. The outcome of such planning will ensure a continued supply of core skills – and the social and health infrastructure to support it – ensuring the industry is able to remain in the city region successfully for the next 50 years. Skills development and skills shortages have been an ongoing concern for the city region and are mirrored in other world energy cities.
A pivot must be made if the city is afforded the opportunity. Refocusing and repositioning Aberdeen to become an international technology and operations focal point would go some way towards establishing Aberdeen as a ‘world energy city’ synonymous not just with oil and gas but alternative related technologies as well. The region will obviously face variable economic prospects for the next 40 years but the first step in dealing with this is accepting this uncomfortable truth. It is also important to remember that every penny invested in Aberdeen will make a direct return to the UK Treasury through increased oil revenues. There is literally no safer place to invest.
Even if the region deal is approved it is no way a 20 year golden handshake as some people have surmised. At its very core it’s an ongoing process which is rigorously and continuously assessed and if targets aren’t being met it will be curtailed. Local governance then holds an incredibly important role in this process in that if it does go off course corrective action is a pre-requisite of continuation. Are they strong enough to do so and do they have the leaders in place to make unpopular decision for the collective prosperity of the city? Will the public, private and government sectors be capable of collaboration? Only time will tell but these elements are the essential necessities for the success of the deal. The private sector in particular must work hand in hand with the government to develop a strategy which takes advantage of the opportunities afforded. It is essential the areas of the city region deal are the correct areas which stimulate business growth and not those wants which have been put on a shelf waiting for funds for completion. The success of the deal will be measured by the increase in GVA (gross value added) and if there is no noticeable increase due to the wrong areas having been chosen, again, the deal will be curtailed. There is then a huge onus on all stakeholders in the process to cultivate collaborative partnerships establishing the framework for success.
I would urge businesses and individuals a like to get behind the city deal in any way they can, collaborate more and to help one another. If we strive for this then we stand the greatest chance of success but importantly if we miss we will have a city better connected and working together towards the collective and continued success of the region.
The city region deal must be revolutionary simultaneously repositioning Aberdeen as an international technology and operations base in the face of depleting markets for the oil and gas industry, provide a platform for the continued growth of our world leading Subsea engineering while meeting the needs of the city in all the areas noted above out with oil. The long term success of the city could depend on it. No pressure then…
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