APPENDIX 5
Memorandum from the Welsh Local Government
Association
INTRODUCTION
1. The Welsh Local Government Association welcomes
the opportunity to contribute to the Select Committee's inquiry.
The economic well-being of the people of Wales is of deep concern
to all local authorities, and local government therefore takes
a keen interest in the activities of all other agencies involved
in regenerating the economy as well as itself promoting local
initiatives to encourage job creation and endeavouring to provide
an environment in which local businesses can grow and prosper.
Local authorities are an essential partner in the `Team Wales'
approach and we look forward to continuing and enhancing our contribution
to the collective effort to regenerate the Welsh economy.
2. Because of this, the Association is undertaking
its own review of agencies and initiatives in economic development,
which is due to complete its work in the Spring. We have also
responded to the various consultation papers issued by the Welsh
Office which affect the development of the economy. This evidence
incorporates our views as at January 1998 but is not a complete
or definitive statement of WLGA's position.
INSTITUTIONAL ARRANGEMENTS
3. As we indicated in our evidence to the Committee's
Inquiry into `The Welsh Assembly: Implications for Local Government
and Economic Development', it is essential that investment
in industry in Wales is stimulated through the right institutional
arrangements.
4. There will inevitably be a number of organisations
involved in developing the Welsh economy. We strongly support
the ethos of `Team Wales' in which all bodies work together towards
a common goal. Local authorities have a vital role to play alongside
its partners, both promoting the inward investment opportunities
that exist in Wales and ensuring successful delivery of inward
investment projects, for example through the provision of infrastructure.
It is the effectiveness of this team approach that has given Wales
a competitive edge over its rivals and is often cited by foreign
investors as a prime reason for choosing Wales.
5. Nevertheless, there is a large number of
organisations promoting the economy, which there is potential
to streamline. WLGA has welcomed the creation of the economic
powerhouse as an important step, and has also considered what
its functions should be. The new Agency must strike the right
balance between having sufficient powers to achieve challenging
objectives and compete on a world stage, and ensuring local responsiveness
and accountability. WLGA has suggested that this can be achieved
by including responsibility for the full range of Government business
support services and for support for agricultural diversification
within its remit, whilst at the same time devolving responsibility
and finance for local initiatives to local authorities. WLGA has
made detailed proposals on the structure and operation of the
Agency which are attached at Annex 1.
6. WLGA is currently reviewing institutional
arrangements for the promotion of tourism, training and enterprise,
and the interface with the private and voluntary sectors.
INVESTMENT IN
INDUSTRY
7. The assistance offered to companies to help
and encourage them to operate successfully in Wales is fundamental
to Wales' economic prosperity. It is essential that the efforts
of the public sector are both correctly targeted and effectively
delivered. This means making decisions about priorities. WLGA
has welcomed the Welsh Office's initiative to prepare an economic
strategy for Wales, which will in due course indicate the relative
emphasis to be given to different sectors of the economy and types
of investment.
8. An underlying principle to all investment
must be long-term economic, environmental and social sustainability.
INWARD INVESTMENT
9. WLGA recognises that UK and overseas inward
investment has played a very valuable role in regenerating the
economy of many parts of Wales. At a time of dramatic job loss
from Wales' traditional industries, inward investment projects
have provided jobs on a large scale in a relatively short period
of time which it would be difficult to have achieved in any other
way. These jobs have provided a much-needed boost to local fortunes,
even if in some instances those losing their jobs have not directly
benefited from the jobs created.
10. Inward investment has helped to diversify
the local economy by bringing in new economic activities many
of which had little or no previous presence and hence no prospect
of development from the existing economic base. This has been
particularly important in rural areas, the south Wales valleys
and industrial north east Wales which were previously dependent
on just one or two economic activities. In many instances, inward
investment has also helped to strengthen the local economy. Not
only have inward investors sometimes provided new markets for
local businesses, but they have also brought new production methods
and management techniques which have been taken up by indigenous
firms.
11. With many parts of Wales continuing to suffer
from high levels of joblessness (unemployment as well as economic
inactivity), low earnings and sluggish indigenous growth, WLGA
believes that inward investment should continue to play an important
role in efforts to regenerate the economy. Wales cannot afford
to turn its back on opportunities to gain jobs. As part of this,
WLGA support the Government's direction to the Agency to ensure
a more even distribution of investment across Wales, and also
urges the Agency to pay due attention to small projects which
are particularly important in rural communities. We would urge
that appropriate measures be put in place to deliver this objective,
rather than relying on persuasion alone.
12. In seeking inward investment, the experience
of local authorities suggests those focussing efforts, both in
terms of the `markets' for potential investors and the needs and
potential of regional economies is vital. This helps not only
to sharpen Wales' competitive edge, but also to ensure that inward
investments are compatible with local skills, suppliers and the
labour market. There is a very strong case for inward investment
activity to focus on `high quality' projects which involve higher
order functions, such as research and development, and offer skilled
jobs.
13. It is vitally important that any inward
investment is integrated into the economy to maximise its beneficial
impact. Sometimes, new companies source goods and services from
suppliers outside Wales, recruit their senior staff from elsewhere,
and do not participate in the Welsh business community. Efforts
must be made to ensure that their contribution to the Welsh economy
is maximised by encouraging local purchasing, local recruitment
and involvement in business networks and the community. This "aftercare"
- both of the company and of the local economy - needs careful
management and a clear delineation of roles within the `Team Wales"
approach.
14. WLGA fully supports the WDA's role in seeking
new overseas inward investment, although it is difficult to appraise
performance in the absence of public information about the activities
of the International division, such as the level of enquiries,
the success rate for conversion into projects, the costs of overseas
offices etc.
15. We believe that local authorities complement
the WDA's inward investment work and must be closely involved
in their activities. Local authorities play a leading role in
making their area attractive for inward investment generally,
and are able to provide information about local services and facilities
(e.g. schools, leisure activities, and bus services) to help to
promote the locality, as well as having detailed knowledge about
sites, premises, infrastructure and the local business community.
WDA needs to ensure that it maximises the potential offered by
local authorities by working with them in marketing Wales.
16. More specifically, local authorities are
central to the smooth implementation of individual investment
projects, from the granting of planning permission for new developments
and the provision of transport infrastructure, to assessing the
implications for housing and education. These are not minor, supporting
functions but essential to the delivery of projects. The LG investment
in Newport was heavily dependent upon the assembly of the site
and the provision of a major access road by Newport County Borough
Council - there are many other examples. We cannot stress too
strongly how important it is that WDA involves local authorities
in inward investment projects at the earliest stage - ideally
during negotiation. This provides authorities with as much time
as possible to deliver their part of the deal.
17. Local authorities also have a role to play
in helping to integrate inward investment into the local economy:
there is scope for authorities to contribute more to WDA initiatives.
For example, discussions between WLGA and WDA have begun on how
authorities might contribute to Source Wales.
Indigenous Firms
18. Inward investment is not and cannot be the
sole solution to Wales' economic problems. Despite high levels
of past investment from overseas, indigenous businesses remain
the mainstay of the Welsh economy providing a large proportion
of GDP and employing the vast majority of the workforce. They
have the potential to create many thousands of jobs, as well as
to shed jobs if they are not given adequate business support.
It must also be recognised that the potential to secure inward
investment is uneven across Wales: areas with less potential must
look to their existing economic base as the best prospect for
growth.
19. The vast majority of Wales' indigenous firms
are small and medium sized enterprises (SMEs). They are a very
diverse part of the economy, embracing every size of firm from
sole traders to substantial businesses, and every economic sector
from agriculture to electronics to computer programming. There
is at present no discernible all-Wales strategy for developing
small and medium sized firms. Instead, there are a large number
of different organisations, including local authorities, involved
in supporting businesses and a wide range of different services
on offer to them, from all-Wales programmes currently administered
by the Welsh Office to highly localised services offered by local
authorities, enterprise agencies and others. Many services are
essentially reactive, in that they are available to those who
seek them rather than being actively targeted.
20. WLGA has welcomed the shift towards supporting
small and medium sized firms signalled in the Government's consultation
paper on an economic strategy for Wales. As part of this, we have
recommended that there needs to be a pro-active, targeted all-Wales
strategy for supporting SMEs, which would provide a framework
for the delivery of services locally. This should be based not
just on an analysis of the needs of SMEs but a critical assessment
of their potential for job (and income) creation and retention.
21. A policy shift within the WDA must recognise
and value the role of local authorities in providing services
to SMEs. Authorities are able to identify and respond to the needs
and potential of their areas and have close contacts with the
local business community. They can complement all-Wales and UK
support programmes by providing services which are more sensitive
to local needs. Many authorities employ former businessmen and
women to deliver their schemes, which are of the highest quality.
We believe that the diversity of local aid packages is a source
of strength to the Welsh economy.
22. The question of the institutional arrangements
for delivering business services also needs to be addressed. WLGA
supports the concept of Business Connect but believes that there
is a need for significant changes to current arrangements, involving
a rationalisation of service providers, a transfer of responsibility
for the operation of Business Connect networks, and a more comprehensive
and rigorous approach. In this way, provision will more closely
match local need, eliminating duplication and providing best value
for money.
23. We are convinced that the current fragmentation
of provision of services (and hence the proliferation of programmes)
should be tackled by, first, transferring the administration of
all of the Welsh Office industry department's programmes to the
WDA. The Welsh Office should concentrate on strategic, policy
issues and WDA should be able to offer a comprehensive package
of services. Second, pending our more comprehensive review of
TECs, we believe that responsibility for their enterprise programmes
should be transferred to local authorities. TECs' role in training
and labour market issues should also be reviewed. They should
not attempt to engage in the development of the economy generally.
24. WLGA also believes that responsibility for
the operation of Business Connect networks should transfer from
TECs to local authorities. Local authorities, unlike other bodies,
are keenly aware of the needs and potential of the local business
community. They are able to adapt and focus the provision of support
services to meet local circumstances, and are democratically accountable
for their actions. As part of this, local authorities are currently
required by section 33 of the Local Government and Housing Act
1988 to prepare an economic development plan, which assesses the
needs of the business community in the area. In many areas this
document provides the strategic focus for local partnerships,
with all local agencies (including the private sector) supporting
and jointly implementing it. The economic development document
could provide a vehicle for planning all local business support
services, the delivery of which would continue to be through a
number of local bodies, either through contracts or partnership
agreements. A similar arrangement already operates very successfully
in North Wales and could usefully be adopted elsewhere.
25. As part of these changes, Business Connect
should be much more comprehensive than at present. All
support services to all sectors of the economy should be
included. We have welcomed the Welsh Office's proposals to include
many of its programmes, along with those of WDA, TECs and enterprise
agencies in the network. However, Business Connect should be extended
even further and include services offered to agricultural businesses
and tourist businesses as a matter of course. All publicly funded
business support programmes should be required to work through
Business Connect, and all services should be `branded' as part
of the Business Connect network alongside that of the service
provider.
26. Support to established inward investors
should also be given priority. Not only do we understand that
they are a significant source of new investment in their own right,
but they can also be encouraged to take on higher order activities,
e.g. research and development, head offices, and manufacture of
components as well as the assembly of goods, production processes
so raising skill levels and enhancing their impact on the Welsh
economy generally.
Economic Sectors
27. Investment in the economy is conventionally
focussed on manufacturing industry, because this sector is seen
to be the producer of wealth and prosperity, whereas service industries
are seen to be dependent on manufacturing and not wealth generating
in their own right. This approach has been adopted in Wales where
the great majority of economic development activity has been targeted
on the manufacturing sector.
28. However, WLGA considers that this approach
is no longer appropriate for Wales' needs. Many "service
industries" in fact create products which are sold in exactly
the same way as manufactured goods, such as computer programmes,
films, public relations services, and tourism products. Service
activities have also been one of the main sources of new jobs
in the UK over recent years and are forecast to create many more
jobs than manufacturing over the next few years, both generally
and in specialist areas such as computing, and environmental consultancies.
Yet service industries are markedly under-represented in Wales
as a whole although in some communities they are the main element
of the local economy. In addition, many service businesses are
very footloose, not least because of their use of information
technology, and so offer excellent prospects for location in the
parts of Wales which are less popular with manufacturing investors.
All of these points mean that government policy and development
agencies should make supporting dynamic, high quality service
activities a high priority. Similarly agriculture needs to be
considered as a business sector, with business needs and opportunities
which need to be addressed.
29. The Welsh Office's economic strategy identifies
a number of sectors to be targeted by WDA and others. The selection
of sectors should be based on an assessment of their long-term
future of a source of jobs and income as well as Wales' potential.
It is not clear if those sectors singled out in the strategy offer
the best prospects, or whether there are others, particularly
in the service sector, which should also be considered. There
must also be scope for the proposed regional economic fora to
identify sectors with potential in their particular areas and
to develop appropriate strategies.
COMPLEMENTARY INVESTMENT
30. Any strategy to encourage investment in
industry itself must be complemented by appropriate investment
in complementary infrastructure, both physical (such as roads,
public transport, and sites) and social (such as skills and child
care). It is essential that the Welsh Office's (and in due course
the Assembly's) strategy for economic development is supported
by appropriate investment in transport, education, regeneration
of towns in rural and urban areas alike, support for working parents,
community development and so on. All these areas contribute to
the wider well-being and prosperity of Wales. WLGA was disappointed
that the consultation paper on the strategy paid little if any
attention to these essential areas and urges that this be remedied.
We would also argue that the only bodies that can integrate economic
and social development, together with awareness of and accountability
to the community are local authorities.
31. Local authorities have statutory responsibility
for the planning and implementation of many functions which complement
investment in industry. Their activities underpin the investment
efforts of all other organisations, and are very substantially
larger than just the provision of sites as suggested by the consultation
paper on an economic strategy. It is therefore imperative that
local authorities are fully involved in the activities of the
WDA and are adequately resourced to carry out their responsibilities.
The regional economic forums will help to ensure that local authorities
and the Agency work together at regional level, but arrangements
also need to be established to ensure that there is co-ordination
at national level between local government and the Agency's headquarters
functions.
FINANCE FOR
INVESTMENT
32. WLGA is considering the wide range of programmes
currently offered to industry as part of its overall review and
will make recommendations in due course.
CONCLUSIONS
33. Wales continues to need significant public
investment to stimulate its economy. That investment involves
both direct assistance to businesses and investment to create
a positive business environment. To be effective, institutional
arrangements must be streamlined and there must be full recognition
of the role of local authorities. Whilst inward investment will
continue to be important, WLGA supports a significant shift towards
support for indigenous, small and medium sized enterprises. We
also support a broadening of economic development efforts to include
industries other than manufacturing.
34. Direct investment in industry will not be
successful unless there is sufficient investment in physical and
social infrastructure to ensure that businesses prosper and that
the people of Wales benefit from economic growth. Transport, education,
the regeneration of town centres, and community development are
all integral to the economic development process and must be adequately
resourced.
35. Creating a prosperous and sustainable economy
will take time. In some parts of Wales a wholly new economy has
to be built. In others, over half a century of decline needs to
be reversed. Wales' economic development must be based on a sound,
long term strategy for sustainable growth, which promotes the
well-being of all its citizens.
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