Martin Johnson

However, the latest Highlands and Islands Enterprise (HIE) business panel survey also notes that the region’s workforce challenges are more marked.

As part of a wider rural Scotland study in partnership with the Scottish Government and South of Scotland Enterprise, interviews were conducted during February and March with 2,723 businesses and social enterprises, of which 1,017 were in the Highlands and Islands.

The survey tracked business confidence, performance, operating status, and optimism. It explored how companies are responding to increased costs, workforce challenges and changing markets, as well as the extent to which they are adopting new technologies and low carbon ways of working.

It took place in the context of increased inflation, record fuel prices, and supply chain issues, compounded by economic sanctions applied in relation to the war between Russia and Ukraine.

Despite this, most business in the region continue to show signs of recovery and resilience and 43% are striving for growth.

Economic and business confidence remains stronger than the rest of rural Scotland but has dipped slightly since the previous survey in October 2021.

The proportion of respondents expressing confidence in the country’s economic outlook over the next year was down from 64% to 60% (50% in the rest of rural Scotland), while those optimistic about their own prospects reduced from 82% to 77%.

Two thirds (67%) reported stable employment levels. More than half (55%) reported that exporting had remained steady, although 30% reported a decrease compared to 11% reporting an increase.

Almost all respondents (94%) reported concerns about rising costs. This was highest among food and drink and tourism businesses (both 98%), and those operating below pre‐pandemic levels (96%). The main source of concerns appeared to be the cost of energy (65% concerned) and fuel (62%).

Actions being taken by businesses in response to higher costs include increasing prices (54%), exploring new markets (37%), collaborating (35%) and working with new suppliers (34%).

The move towards more domestic trading appears to have continued and businesses are responding to supply chain challenges by using more local or UK suppliers. Around half of respondents (52%) were exporting outside of Scotland, down from 62% in June/July 2021, with 31% selling outside of the UK, down from 46% in the same period.

Those in the Highlands and Islands appear more likely to be using or planning to use most forms of new technology. These include low carbon technologies (41%, compared to 34% for all rural Scotland), internet of things (36% vs 34%), automation (27% vs 24%), mobile app development (26% vs 24%) and data analytics (25% vs 22%).

A similar proportion (73%) said they were actively moving towards low carbon ways of working, compared to 64% for the rest of rural Scotland. Steps include investing in premises (40%), making or updating business plans (37%), seeking external advice and support (37%) and investing in low carbon technology (36%).

Martin Johnson, HIE’s director of strategy and regional economy, said: “It is important that we gather and track data about the bigger picture of our region’s economy and the main challenges and opportunities facing companies across different sectors and locations.

“It’s been a really tough couple of years for businesses everywhere, and while Covid restrictions have lifted, they’re now facing a whole new set of challenges.

“There’s no surprise that confidence would take a hit in the current economic climate, but it’s still encouraging that it remains comparatively strong in our region. It’s also encouraging that businesses in the Highlands and Islands appear to be embracing new technologies and taking more action towards low carbon ways of working, however it’s clear that their main focus is still on resilience.

“As we continue our economic recovery, we must fully appreciate the magnitude of challenges facing businesses and tailor support and interventions accordingly. That’s what the Business Panel survey is there for. The findings are used to inform support strategies for HIE and our partners going forward, and we are extremely grateful to all those who took part.”

There have been 21 business panel surveys carried out since HIE first commissioned the study in 2014. The agency has been using the findings to inform investment decisions in business support programmes covering topics such as entrepreneurship, innovation, international trade and digitisation, and to feed in to national policy.

In partnership with Scottish Government and South of Scotland Enterprise, the study was extended in 2021 to include all rural Scotland.

Fieldwork for the next survey gets under way this week, with the results expected around the end of August.