House of Commons - Welsh Affairs

Select Committee on Welsh Affairs First Report

THE IMPACT OF THE GOVERNMENT'S DEVOLUTION PROPOSALS ON ECONOMIC DEVELOPMENT AND LOCAL GOVERNMENT IN WALES

The Mid Wales Export Association: a case study

28. The Mid Wales Export Association, which was set up in 1983 with core funding provided then and subsequently by the DBRW, was established by a group of existing manufacturers to assist SMEs within Powys, Meirionnydd and Ceredigion to develop their exports. The Association told us that it now has more than one hundred companies in Mid Wales; their average export turnover is now 40 per cent of total sales whereas in 1983 export turnover was virtually nil.[47] We received a series of submissions from companies and organisations in Mid Wales[48] who expressed concern about the impact of the proposed merger of the DBRW and the WDA on the operations of the Export Association. They were unanimous in their praise for the work of the Association. T_ Nant Spring Water, for example, attributed its "smooth transition from a cottage industry to a major soft drinks exporter" in considerable measure to its ability to call on the expertise of the Association in specialist areas such as Letters of Credit and Customs documentation.[49]

29. Not for a moment do we believe that any of this is special pleading. Mid Wales is overwhelmingly rural, far from the main markets, and sparsely populated-inevitably the kind of place in which highly-specialised business consultancy services are scarce. Equally, the SMEs which predominate in rural areas are simply too small to employ their own specialists in-house. The Mid Wales Export Association has done important work in encouraging exports and, hence, employment; and in his capacity as Chairman of the DBRW, Mr Rowe-Beddoe praised it as "an exceptionally able tool of economic development".[50] It is vital for the continuing economic health of rural Wales that the enhanced WDA maintain financial support for specialist consultancy services for small and medium enterprises through agencies such as the Mid Wales Export Association-but throughout all of rural Wales.

Agriculture

30. Agriculture is relatively more important for the economy of Wales than of England. In 1996, 53,000 people out of 1,191,000 were engaged in work on agricultural holdings in Wales (or nearly 4.5 per cent of the insured workforce over the age of 16), while in England the number had fallen to 420,500 out of 21,700,000 (or 1.9 per cent).[51]

31. Agriculture has traditionally been regarded as a sector of economic activity in its own right, separate from the rest of industry. Possibly as a result of this perception (coupled with the fact that the vast majority of Government spending on agriculture is driven by the Common Agricultural Policy [CAP]), neither the WDA nor the DBRW has been involved in agricultural development except at the margins. For example, the DBRW has been involved in agribusiness advisory services and the DBRW and WDA were at one stage the principal sources of finance for Welsh Food Promotions Ltd.[52] The DBRW has also been active, through its Farming Families Initiative, in helping the children of farmers to develop other skills which would give them the chance of employment in their local communities.[53] The WDA has been concerned with the food-processing business, looking at areas where value can be added to the raw products, the diversification of farm businesses and the development of redundant farm buildings for other business use.[54] However, what one might term the "nuts-and-bolts" of agricultural policy-support mechanisms, quotas, land use and the rest-are a matter for the Welsh Office Agriculture Department [WOAD].

32. Professor Terry Marsden, who gave evidence as part of Cardiff University Devolution Group, argued for a rather different approach. He wanted to see agricultural policy integrated into the work of the enhanced WDA "not necessarily as agriculture... but as issues to do with food chains"[55]-matters such as processing, marketing and promotion, and added value. Professor Marsden suggested that if integrated policies were area-based, then the various strands of economic development would have greater or lesser significance depending on the area; agriculture would be a more important element of a regional strategy for West Wales, for example, than for South East Wales.[56]

33. Not surprisingly, given the current poor state of the Welsh livestock market in particular, the NFU and the FUW were very concerned that there should be no diminution of resources going into the agricultural sector.[57] Again, both were anxious that the new-style WDA should be fully involved in agriculture and rural development.[58] As with tourism, the CLA wished to see the enhanced WDA involving itself with agriculture to a greater extent that hitherto, both on the grounds that it was an integral part of the rural economy and that it was an industry in decline, with consequent implications for rural depopulation.[59] Indeed, the danger of further emigration from the countryside was a theme which ran through much of the evidence from all three groups; as Mr John Leigh Phillips of the FUW put it:

Green, Green Grass of Home

34. The DBRW told us that employment in the agricultural industry was likely to deteriorate over time. It is possible that 5,000 jobs will be lost throughout Wales by the year 2005 and suggested changes to the CAP might possibly take as much as £150 million out of the Welsh economy during that period.[61] The Board felt that it was an issue that it would have to be addressed by the enhanced WDA.[62]

35. Because much the largest part is funded through the CAP, spending on agriculture in Wales is channelled not through the Welsh Office block but separately from it. Under the new arrangements, the Assembly will receive a separate agricultural allocation to cover spending under the CAP and expenditure on Hill Livestock Compensatory Allowances [HLCAs] and will not be able to vary spending under those heads.[63] However, other domestic funding for agriculture will be brought within the Welsh block and, therefore, under the direct control of the Assembly.[64] In consequence, it would be possible for the Assembly to change the spending priorities between the services for which it is responsible, perhaps giving the enhanced WDA more resources to spend on social and community development than at present.

36. It would be presumptuous of us to make any recommendation about the way in which the Assembly should allocate the resources for which it will be responsible. However, given the importance of agriculture for a large part of Wales, we feel that the time has come for the agricultural sector to be seen as an industry like any other-and an important one at that-and for economic development policies to reflect that reality in areas such as marketing and business development.

37. Added impetus in that direction is likely to come from the European Union. The proposals under Agenda 2000 to move the CAP more in the direction of direct payments to farmers rather than market support for produce, and to include certain rural development funding together with agri-environmental reserves under the agricultural guideline, may well lead to a switch in emphasis towards a more integrated rural policy. If those proposals come to fruition, then the argument for greater involvement by the enhanced WDA in agriculture will become that much stronger.

Economic development: inward investment versus indigenous growth

38. Although it was not an issue which we had expected to address, a theme which ran through much of the evidence which we received was the proper balance of industrial development policy for job-creation between attracting inward investment and encouraging the growth of existing businesses.

39. Parts of Wales have been very successful in attracting investment in manufacturing from foreign sources, not least because of the strength of the partnership between the DBRW, WDA, businesses, local authorities and trades unions-"Team Wales". As figures from the Office of National Statistics show, in 1995 Wales attracted 12.88 per cent of successful inward investment projects which came to the United Kingdom-down from 19.06 per cent in 1991.[65] Even though the Wales TUC observed that this decline was evidence that Wales was finding it increasingly difficult to compete with other parts of the United Kingdom,[66] the figures still represent a considerable achievement.

40. However, some of our witnesses felt that too much emphasis had been placed on inward investment at the expense of indigenous growth. The FSB argued that the activities of the WDA had been largely irrelevant to its members and called for direct representation of SMEs on Training and Enterprise Councils [TECs] and the Board of the enhanced WDA.[67] Witnesses from the Federation were very emphatic that a sharp reduction in the uniform business rate would be of far greater benefit to their members than would any of the activities of the WDA.[68]

41. Much the most trenchant criticism came from Cardiff University Devolution Group, which pointed out that, so far as job-creation was concerned, only six per cent of the workforce in Wales was employed in enterprises owned by foreign investors and suggested that the result of over-reliance on inward investment was to import the "branch-plant mentality" into Welsh

manufacturing.[69] The Group argued very strongly for an approach to investment which balanced inward investment with greater involvement in assistance for local businesses as the only realistic way in which to generate growth in rural areas.[70]

42. Others were less critical. The representatives of the South and West Wales Chambers of Commerce suggested that the policy was driven partly by the need to provide jobs in areas with high unemployment, partly by the problems encountered in choosing small firms which would prove to be good investments, and partly because inward investment was in some ways the easier option of the two.[71] They also told us that inward investment had benefited local business communities through the creation of supply-chains for incoming manufacturers.[72] Dr Elizabeth Haywood, of CBI Wales, pointed out that, in reality, a lot of work was already carried out on developing indigenous businesses, but that more could usefully be done.[73] The Wales TUC felt that the present balance was fair, pointing out that there had been a need to attract inward investors with relatively large numbers of jobs to offer areas where heavy industry had declined and that, contrary to popular perception, the majority of WDA effort was within indigenous firms;[74] however, the General Secretary told us that it had long been TUC policy that grant-aid for industrial investment should be more selective.[75]

43. Mr Rowe-Beddoe, speaking as Chairman of the WDA, stressed that the Agency sought to adopt a balanced approach to development:

He also told us that, of the 1,400 or so jobs which had been created or safeguarded during 1996-97 by the DBRW, only 40 per cent had come through direct investment-the rest were in indigenous. During the same period, the total jobs created or safeguarded by the WDA was 18,402, while the number created or safeguarded through inward investment activity was 15,118.[77] Brian Morgan, of the Cardiff University Devolution Group, suggests that the implication of these figures is that 3,284 jobs (the difference between the two figures, or about 18 per cent of the total) were generated through activities aimed at indigenous businesses, such as urban regeneration, property development and business development.[78]

44. The Secretary of State concurred with Mr Rowe-Beddoe's desire for a balanced approach to development, expressing his hope that the number, performance and success-rate of SMEs in Wales would increase and that the Source Wales project (which encourages the building of supply-chains for major manufacturing plants from among indigenous small firms[79]) would strengthen the sector. Moreover, he suspected that

45. As our inquiry progressed, we realised that the debate over the most effective means of encouraging investment in industry and economic growth was not only the most important issue facing the enhanced Welsh Development Agency, but that it was far too complex to address within the context of what had become a fairly wide-ranging investigation. We therefore intend to examine the matter in depth in a further investigation into industrial investment in Wales-on which we shall be taking evidence in the very near future.

Economic development: East versus West

46. Because East Wales is closer than West Wales to the ultimate markets and enjoys relatively good road and rail communications with England, the pattern of inward investment hitherto has tended to favour the East over the West, with consequential effects on unemployment and GDP per head of population-although even in East Wales economic development has been patchy. Pembrokeshire and most of Anglesey-which have some of the highest unemployment rates in Wales-are Development Areas, while the Bangor and Carmarthen, Cardigan, Llanelli, Porthmadog and Ffestiniog, Pwllheli, and Swansea travel-to-work areas have Assisted Area status. Inward investment has tended to be concentrated around the M4 in the South East and the A55 in the North East. Of the 15,100 jobs attracted to Wales by the WDA in 1996-97, less than one-third (4,000) went outside the M4 and A55 corridors.[81] Moreover, investment has tended to be concentrated at the 'English' end of the M4 and A55. [82] The South West Wales Economic Forum has argued in a recent report that South West Wales has not been receiving sufficient inward investment to regenerate its economy, and has expressed doubts about the likelihood of improvement.[83]

47. Increasingly, the DBRW has given priority to projects which designed to help areas in greatest need of investment, such as North West Meirionnydd (where the closure of Trawsfynnydd nuclear power station has had a serious effect on the local economy), Central Powys and South Ceredigion, and has announced a Western Initiative for economic development.[84] However, many of the areas of highest unemployment in West Wales are outside the DBRW's area.

48. If, as the Secretary of State predicts,[85] the era of large-scale inward investment is coming to an end, then the argument about remoteness may well have less impact on future investment decisions. However, the problems of poor infrastructure-not least poor communications between North and South-will still need to be addressed if the more remote parts of Wales are to share in economic growth. How to stimulate economic activity in West Wales (and, for that matter, in the Heads of the Valleys) is one of the major issues in the debate over the balance between inward investment and indigenous growth to which we shall return in our inquiry into industrial investment.

47 Appendix 8 paragraph 2. Back

48 Aber Instruments Ltd, Dulas Ltd, Make Fast Ltd, Nimbus Foods, Skye Instruments Ltd, Thermal Concepts, Tomkinsons plc, Trax Ltd, and T_ Nant Spring Water Ltd. Back

49 Appendix 14 p 243. Back

50 Q 9. Back

51 Digest of Welsh Statistics 1996, Tables 4.3, 5.28: Digest of Agricultural Census Statistics UK 1996: Labour Force Survey 1996. Back

52 Q 43. Back

53 Q 45. Back

54 QQ 100-103. Back

55 Q 272. Back

56 QQ 274-5. Back

57 QQ 621-5, 662. Back

58 QQ 638, 649-50. Back