People visit the Diageo Claive Vidiz Collection, the world's largest collection of Scottish Whisky, on display at The Scotch Whisky Experience in Edinburgh Getty

As the referendum on Scottish independence moves ever nearer, the debate over the viability of a standalone Scottish economy continues to intensify.

Recent figures from the Scottish government, which have been altered to include the country's known on and offshore oil reserves, show that its GDP per capita is £24,398 – 14<sup>th in the OECD and above the UK, Finland, Iceland, France and Japan.

Yet, 'No' campaigners are adamant that Scotland, a nation of just five million people, is economically ill-equipped to deal with life on its own. At the crux of the argument is the fact that its exports sector is so weighted towards international communities which, post 18 September, Scotland may no longer be part of.

Of course, a 'Yes' vote will lead to secession from the UK, but there are also no guarantees that a future Scotland will be an automatic member of the European Union. Therefore, whether or not Scottish independence will have a negative drag on its exports to the remainder of the UK and the EU has been a political hot potato.

Let's first look at what Scotland's major exports are. In 2011, its top five exporting industries were food and beverages, which was worth £4.7bn to the economy; coke, refined petroleum and chemical products (£4.1bn), professional services (such as accountancy and engineering - £1.7bn), wholesale retail trade (£1.7bn) and financial and insurance (£1.4bn).


Drilling down into those sectors, Scotland exports 40 bottles of whisky every second, according to the Business for Scotland organisation. Yet, whisky makers have been vocally opposed to the independence movement.

"Internationally, as an export-oriented sector, we rely on effective support from government in our overseas markets, whether in influencing EU negotiations or pressing other governments to allow fairer market access. Both the UK and Scottish governments have been supportive of us and there will be risks if this support is not maintained," said David Frost, the chief executive of the Scottish Whisky Association, which represents an industry that provides 35,000 jobs to Scotland's economy.

He goes on to voice concerns about losing access to the 27-country EU economy and the country's number one export market: the rest of the UK. His concerns, at least about export markets, have some credence.

"Scotch whisky represents about 26-27% of Diageo's sales and 25% of Pernod's. The main issues are: EU membership, international trade agreements and, more generally, access to large scotch markets – If Scotland were to exit the EU, how would this affect Diageo and Pernod's access to the main Scotch markets, mostly in terms of tariffs?" wrote Andrea Pistacchi, an analyst at Citi in a note released last week.

Scottish exports volumes to the rest of the UK are more than double those to any other market in the world. Part of the concerns of various business leaders have been no doubt based on ambiguity. There's been little or no genuinely informed information as to what sort of tariffs (if any) would exist between Scotland and its former partners in the UK.

According to statistics from research firm Mintel, sales of Scotch whisky in the UK were estimated to have reached £2.bn in 2013 and forecast to hit £3.bn in 2018. Volumes sales are estimated at 18 million litres in 2013 and forecast to decline to 16 million litres in 2018. A third (33%) of Brits drunk blended scotch whisky and 32% single malt whisky in the past year. 26% of Brits who drink whisky say that country of origin is important when choosing which whisky to buy.

But tariffs are surely unlikely to be an issue. It would benefit nobody for England, say, to affix a duty on goods being imported from Scotland. In such a scenario, prices of Scotch whisky would be higher for English consumers. This would be a hugely unpopular move on both sides of the border.


Oil industry figures have also been keen to impress the dangers of Scottish independence upon voters. Sir Ian Wood, the founder of the Wood Group and one of the most influential figures in Scotland's energy sector, has poured scorn on the SNP's predictions as to how much oil there is in the North Sea.

"Some 43 billion barrels have been produced and it is most likely that 15 billion to 16.5 billion remain. BP and Shell agree with this figure I put forward. But Edinburgh still uses the figure of up to 24 billion based on a number of possible small field developments after 2050," he recently said, in a statement that was supported by BP chief Bob Dudley.

His view is, in turn, disputed by Business for Scotland, which wrote: "The oil in the North Sea is worth over £1tn. There are at least 15-24 billion barrels of oil remaining which will continue long into the 21st century. Over 90% of the tax revenue will go to an independent Scotland which can help to establish a national oil fund for future investment. Recently, Business for Scotland explained the potential for a west coast oil boom that is currently blocked by Westminster. Independence could revitalise the economies of Ayrshire and the Strathclyde region as a whole. Most oil price forecasts are upward, with one of the exceptions being the UK Government's OBR which has a political motivation to underestimate oil revenue."

The organisation also points to the potential revenues to be gained from renewable energy, calling the Pentland Firth the "Saudi Arabia of renewable tidal energy". As with any debate as polarised as this, it seems the truth is somewhere in the middle.

Financial Sector

Most banks have come out against independence, with many – such as RBS and Lloyds – saying they will move their Scottish operations to England, or at least partially, if there's a 'Yes' vote. Seasoned campaigners will be aware that some of these same financial institutions (RBS and Standard Life for instance) issued similar warnings before Scottish Devolution in 1997.

Should they follow through on their threat, though, it could make for short-term shocks in Scotland's exports sector.

"This would represent a key loss for Scotland's export sector, of which financial services is one of the largest contributors, accounting for 6% of the total. It compensates for a deficit in Scotland's non-oil trade, and the loss of this source of export revenue would leaving Scotland's balance-of-payments position vulnerable in the context of declining oil and gas revenue," Danielle Haralambous, an analyst at the Economist Intelligence Unit, tells IBTimes UK.

"A weak independent Scottish currency could help facilitate rebalancing away from the financial services and oil trade, but this would take time, not least because Scotland's workforce would be left depleted after the transition. There is also the possibility that oil revenue leads to a sharp appreciation in Scotland's currency, making the non-oil export trade less competitive. This could require a significant fall in labour costs and prices if these sectors try to replace Scotland's lost export revenue by competing on the international market," she adds.

Without Precedent

The situation over the exports of an independent Scotland is complicated by ambiguity over the shape a future Scotland will take. Westminster says it can't keep the pound sterling, Edinburgh says it can. Nobody has drawn up a roadmap of Scotland's re-entry to the EU, but given the admission of Bulgaria, Romania and in the future, the likes of Macedonia and Montenegro would suggest that membership for Scotland, a stable and functioning democracy (albeit one with a budget deficit that exceeds EU-approved levels), won't be a massive issue.

The idea that an independent Scotland will simply stop exporting seems fanciful. Scotland has a larger population and more natural resources than neighbouring Ireland, for instance, which runs an annual trade surplus. Ireland has successfully manipulated its own corporation tax to attract some of the world's largest technology and pharmaceutical companies to boost its manufacturing sector, a move that Scotland is likely to try to mirror.

With voters set to cast a once in a generation ballot on Thursday, it's going to be a nervy week for exporters, as they look to plan for the future.