Scotland's development bank at inflection point after fifth year of losses

Orbex collapsed into administration in February | AFP via Getty Images

This week, the latest stage in Scotland’s rocket launch journey unfolded when Highlands and Islands Enterprise acquired the assets of Sutherland Spaceport (SSL) from liquidators.

SSL had been set up in 2020 by Moray-based space launch vehicle company Orbex, carrying with it the promise of propelling Scotland into the space big leagues.

Yet Orbex collapsed into administration in February. Not only did this deal a blow to the company’s ambition to make the UK a hub for European orbital launch, it also marked the latest failure by Scottish National Investment Bank (SNIB), one of its biggest backers since 2022.

Orbex isn’t the only of its investments to come crashing to earth. In its latest annual report and accounts this week, SNIB revealed a net loss for the year ending in March of £137.5m, sharply higher than the previous year’s £58.4m.

David Ritchie | Nick Mailer Photography

As much as £65m was realised losses on the failure of three investments made in the initial years of the bank’s existence, including Glasgow-based M Squared Lasers and Trojan Energy, a maker of kerbside EV charging poles.

Since it was established by the Scottish parliament in 2020 with a mission to bring about a “step change in growth for the Scottish economy”, SNIB has invested in 53 entities, committing £1.2 billion and “crowding in” £1.9 billion from third parties.

Among them are Orbital Marine, an Orkney tidal energy company and ZeroAvia, a US-based developer of hydrogen-powered aircraft that’s building a manufacturing hub at Glasgow Airport. This month, the bank lent £35m as part of a wider investor package for the expansion and building of two Lanarkshire data centres by developer DataVita.

It has at least been up-front about its dismal numbers. New chief executive David Ritchie cited “a backdrop of a more volatile economic environment” in part for the “regrettable and disappointing” outcomes.

Yet the latest loss, SNIB’s fifth consecutive year of losses, show that Scotland’s development bank is at an inflection point. The bank’s nearest equivalent, the Development Bank of Wales, made £22.3m in pre-tax profit in the year to March 2025.

Fortunately, a reset seems already to be underway. A new “investment strategy” was unveiled in July under Ritchie, who says the bank has been “learning lessons from previous investments while recalibrating our processes”.

Three issues stand out meantime. One is a limit in the size of investments the bank can make (a range of £1m-£50m) and recent global headwinds in the offshore wind industry. This matters because “net zero” investments account for about half of its portfolio.

As Sir John Elvidge, former permanent secretary to the Scottish government, pointed out in a review of SNIB’s performance this month, the investment climate for offshore wind has limited the number of commercially viable investment propositions in which SNIB might invest.

Given the scale of investment needed for the offshore wind supply chain, there’s surely some doubt about the extent to which bank can play a role in the industrial-scale deployment of fixed and floating offshore wind – a key element of the future Scottish economy.

The performance of one of its existing investments, a £50m loan to US-owned Haventus for the development of Ardersier, depends on whether the port can attract big ticket work. That is uncertain.

Sir John Elvidge | Johnston Press

The bank’s new investment strategy says SNIB will in the next five years be more focused on tackling energy bottlenecks by investing in grid infrastructure, battery storage and data centres.

It also contains stricter general investment criteria, requiring potential early-stage innovative companies to demonstrate annual revenue growth of 20 per cent sustained over two years.

Strengthening Scotland’s scaleup ecosystem will be a focus. Crucially, the bank will be able to invest in defence-related businesses. That’s important given rising UK defence spending.

A second issue, SNIB’s relationship with the investment ecosystem, is trickier.

Some I have spoken to say that in an instinctive desire to minimise risk as a publicly accountable lender the bank has tended to set deal terms with co-investors that were “not necessarily conducive to attracting further money into the deal”, as one investor put it. Elvidge said it had been suggested to him this could have the unintended effect of putting off international angel or venture capital investors.

In response, SNIB told me that it had engaged with a group of angel investors to address this and other points, and has follow-up discussions planned. “We value working with them and welcome their input. However, it is important to understand that we are a commercial investor, and we produce terms which speak to the risk profile within individual deals,” it said.

A third, and arguably the most significant, issue is that the UK and Scottish governments must figure out how to build a sustainable future for Scotland’s development bank – one that frees it from the constraints of the Scottish government’s pubic finance framework and secures its future beyond the current Holyrood mandate of 2030.

One idea on the table is the designation of SNIB as a public financial institution, or “PuFin”, such as the National Wealth Fund and British Business Bank. This would require decision-making by UK Treasury.

In the Scottish government’s response to Elvidge’s review, economy minister Stephen Flynn last week pledged to continue to engage Treasury in line with a March “Statement of Intent” that would seek formal PuFin designation for the Bank “with modifications for the devolved context”, Flynn said.

Meanwhile, uncertainty on SNIB’s long-term future was “presenting increasing challenges in terms of forming and managing long-term relationships of trust and confidence with investees and co-investors alike”, Elvidge wrote, calling for a solution within a year or so. Time, it would seem, is not on SNIB’s side.