Investing in our national security

Scotland secured the top UK position outside London for foreign investment in 2024 with 135 projects – nearly one in six of all UK inward investment. However, intensifying geopolitical tensions are fundamentally reshaping how overseas investment is viewed, with significant repercussions for Scotland.

Ming Yang Smart Energy hopes to invest up to £1.5 billion in Scotland's largest wind turbine manufacturing facility, subject to UK government approval

The UK's National Security and Investment Act 2021 (the NSI Act) has become the defining feature of this environment. The regime requires mandatory pre-notification for acquisitions exceeding 25% of shares or voting rights in 17 sensitive sectors, from defence and energy to AI. New sectors including water, semiconductors and critical minerals will likely be added this year. The government can also ‘call in’ certain transactions that do not require notification.

Between April 2024 and March 2025, the Investment Security Unit received 1,143 notifications, up 26%. Whilst 95.5% were cleared within 30 days, the NSI Act gives government sweeping powers to scrutinise and block transactions posing national security risks.

Melanie Martin is an expert on investment law

For Scotland’s key growth sectors, this creates potential barriers. The government's commitment to increase defence spending to 2.5% of GDP by 2027, rising to 3.5% by 2035, signals substantial opportunities in aerospace and manufacturing. Scotland's renewable energy sector is attracting major investment, from Sumitomo's Highlands facility to offshore wind developments. Scotland is positioning itself as a leader in quantum computing and as a prime location for ‘green’ data centres. Yet these strategically important sectors sit squarely within the NSI Act's scope, adding time and uncertainty.

The regime's impact is most visible regarding Chinese investment. Although Chinese investors accounted for less than 5% of accepted notifications in 2024-25, they represented 32% of call-in notices and 41% of final orders. In 2024, Chinese-owned FTDI Holding Ltd was ordered to divest its entire 80.2% stake in Glasgow-based semiconductor firm FTDI.

Despite this scrutiny, Chinese interest remains robust. Wind turbine manufacturer Ming Yang Smart Energy announced plans in October 2025 to invest up to £1.5 billion in Scotland's largest wind turbine manufacturing facility, subject to UK government approval. The UK government must weigh concerns about Chinese technology in critical energy infrastructure, including cyber threats and supply chain control, against positive investment impacts. Crucially, national security decisions rest with Westminster, not the Scottish government.

Some investors are structuring transactions to reduce regulatory friction: minority investments, asset deals or channelling capital through fund structures. However, there are limitations, as investments providing ‘material influence’, a malleable concept, can be called in, and acquiring the ability to use or direct assets is enough to trigger scrutiny.

Getting it wrong is costly. Unnotified notifiable transactions are legally void and those called in can be blocked, unwound or cleared subject to conditions. FTDI's unsuccessful court challenge demonstrates the high hurdle to contest decisions. During 2024-25, there were 60 instances of notifiable acquisitions completed without approval. Whilst penalties have not been imposed, that may change. Early advice is essential to identify whether the NSI Act might have an impact and mitigate risk.

For Scotland, the path forward requires balancing competing imperatives. The country offers world-class universities, renewable energy resources and strong potential in strategically important sectors. Yet investment now comes with additional regulatory complexity. The UK is not alone in introducing tough national security screening – it is a growing trend globally. Success will depend on clear government communication, efficient processing by the Investment Security Unit and sophisticated legal navigation by investors and their advisers.

Melanie Martin is a Partner, Dentons​