Select Committee on Welsh Affairs Minutes of Evidence


Memorandum from the CBI Wales



  Wales has been highly successful in attracting inward investment, helped by infrastructural improvements, high labour productivity and regional assistance. The typical inward investing manufacturer in any sector employs more staff than indigenous firms, has higher productivity, invests more per employee and pays higher wages.

  The promotion of inward investment has been a long-standing component of UK regional policy. Its main aim was to alleviate the severe unemployment problems in the UK's peripheral regions such as Wales.

  In the 1980s inward investment policy also became a major plank of national industrial policy with wider objectives such as technology transfer, local sourcing and improving the competitiveness of indigenous industry by providing examples of good practice.

  However, several major questions have been posed about its role:

    —  Does inward investment have the favourable impacts on regional economies suggested?

    —  Is inward investment a cost-effective method for regional economic development?

    —  Would other policies, such as more support for indigenous companies, prove more effective?

  This submission to the Welsh Affairs Committee, by CBI Wales, examines these issues in a Welsh context and covers:

    —  The Welsh economic context

    —  The CBI vision for the Welsh economy

    —  Benefits of inward investment

    —  Welsh evidence

    —  Strategies to embed inward investors into the Welsh economy

    —  Synergy between inward investors and indigenous firms

    —  Why inward investment is not enough on its own for successful development

    —  The need for transparency in decision making, information and the grant process

    —  Conclusions.


  The Welsh economy has outperformed the UK average against selected economic measures, although it has underperformed against others.

  Its main success story has been in manufacturing. Between 1986 and 1996, total real GDP rose by 23.5 per cent in Wales compared to the UK's 22.6 per cent, while in manufacturing the Welsh increase was 38.6 per cent compared to 18.9 per cent in the UK. During the period Wales also experienced higher employment growth, both in total and in manufacturing than the UK as a whole.

  Manufacturing now accounts for over 28 per cent of total GDP in Wales compared with 22 per cent in the UK. In addition the manufacturing sector is more competitive within Wales. In 1983, Welsh manufacturing unit labour costs were 8.5 per cent above the national average. In 1995 they were an estimated 8.5 per cent below. Welsh productivity in manufacturing has been above the UK average since 1983, primarily because of extremely high levels of investment, particularly by inward investors and the steel industry.

  The successful performance of the manufacturing sector within Wales in the last two decades should not hide the fundamental point that Welsh GDP per head has consistently been below the UK average: 16.7 per cent below the UK average in 1995.

  Growth of 0.5 per cent more than the UK average would have to persist for 20-25 years to raise Welsh GDP per capita to the UK average.

  The reasons for this prosperity gap are many and complex but can be grouped into the following main areas:

    —  Service sector—Wales has a smaller concentration in the service sector, in particular producer services such as banking and finance and computer services, with productivity in the Welsh service sector an estimated 8.7 per cent below the Great Britain average in 1995.

    —  Small and Medium Sized Enterprise (SME) formation—Wales has a small proportion of SMEs relative to the UK average in key sectors such as manufacturing and finance. There has also been a declining trend in the number of VAT registered companies in Wales (e.g. only 6 per cent of Welsh manufacturing firms are VAT registered) in contrast to an increase in the UK.

    —  Autonomy and control—Wales suffers from a low level of local decision making. There are only 13 stock market registered firms based in Wales and few headquarters functions among subsidiaries in Wales. This is compounded by the `glass ceiling', whereby Welsh based companies tend to be taken over or sold by their founders to outsiders and control leaves Wales. Wales has the lowest registered office quotient (population:head office) in the UK: just 0.25.

    —  Geographical differences within Wales—There are regional variations in Wales in terms of GDP per head, economic activity rates, unemployment and inward investment performance.

      —  Jobs-based GDP in Welsh unitary authorities in 1995 ranged from £410 million in Anglesey to £4,120 million in Cardiff

      —  Population-based GDP in Wales in 1995 ranged from £7,133 per head in Conwy to £10,576 in Cardiff

      —  GDP per full time equivalent job varied from £23,370 in Conwy to £27,150 in Anglesey, reflecting differences in productivity and employment by sector

      —  Manufacturing provided just 8.4 per cent of total jobs-based GDP in Conwy and 52.8 per cent in Blaenau Gwent in 1995

      —  Jobs-based GDP in Pembroke grew by 13.6 per cent in real terms 1982-1995, compared to real growth of 78.2 per cent in Torfaen over the same period

        Source: Local Prosperity in Wales, by Welsh Economy Research Unit: August 1997.

    —  R&D—Wales has a low ranking in terms of research and development (R&D) with the lowest level of expenditure in Britain on business R&D as a percentage of GDP, and below average R&D spending in the government and higher education sectors.

    —  Skill levels—Wales lags behind the rest of the UK and Europe in training, core skills, and education levels. Also, Wales has not solved the problem of retaining highly skilled workers when plants shut or communicating the career opportunities available in industry. Skill shortages are already evident in IT, management, engineering and construction.


  In 1996, CBI Wales (in its Business Agenda for Wales) recommended developing a coherent economic development strategy which:

    —  Resolved the mismatch between available skills and available employment, with the aim of producing a more balanced labour market

    —  Encouraged the expansion of existing indigenous and foreign industry in Wales by ensuring provision of a comprehensive business infrastructure

    —  Maximised the multiplier effect of leading Original Equipment Manufacturers (OEMs) already in Wales by developing clusters of component manufacturers and manufacturing services around them

    —  Recognised the multiplier effect of capital intensive investment—particularly in terms of employment, supply sources, service requirements and pay levels. Cardiff Business School estimated the multiplier factors of steel in Wales as 3.2 (employees), 2.6 (wages) and output (1.6)

    —  Encouraged investment with high value added employment, which would be a source of quality jobs required to replace those lost from the coal and steel industries and others in past recessions

    —  Assisted the expansion of SMEs.

  As outlined in the Business Agenda for Wales, the two key areas for future competitiveness are skills and the business infrastructure. Economic development in Wales must focus more on improving competitiveness and less on simple job creation.

  Innovation—"the successful exploitation of new ideas" - can have a major impact on Welsh competitiveness, and is of more value in painting a true economic picture than a pure R&D measure. For this reason the Wales Regional Technology Plan must be strongly supported by the Welsh Office and the Assembly, as it is by CBI Wales and the WDA. We must all publicise the practical, company value-added results it achieves, e.g. through the Technology Implementation Programme.

  In order to monitor and evaluate the success of any proposed economic development strategy it is necessary to benchmark the Wales position against other regions in the UK and Europe, for example, Scotland, North East England and Netherlands, as well as the UK and European Union averages.


  Inward investment benefits the Welsh economy in a variety of ways:

    —  Typically, inward investors enjoy competitive advantage over domestic firms and directly contribute to higher levels of domestic productivity (e.g. via high levels of capital investment)

    —  Inward investors create competitive pressure on other domestic producers (e.g. on quality)

    —  It benefits the UK balance of payments. In 10 years, the percentage of cars produced in Britain for export has increased from 25 per cent to over 60 per cent; the UK now has trade surpluses in colour televisions and computers, and has increased the surplus in items such as microwaves and semiconductors. Wales is a net exporting region because of inward investment, and a large proportion of companies in Wales are involved in these market sectors

    —  Inward investment has proved that leading-edge productivity can be achieved with Welsh labour and mainly Welsh inputs

    —  Higher capital spending

    —  Higher employment, generally higher wages, and general spending in the local economy by the inward investor's workforce (retail, leisure, etc.).

    —  Inward investors can support a number of other jobs in the supplier chain (spending on components, raw materials, services, etc.): the multiplier effect.

  For example, the LG project is expected to create 6,100 direct jobs. In addition, it is estimated by the Cardiff Business School that a further 6,000 will be employed through supplying LG with raw materials, components and services. When additional effects are taken into account than the total job creation potential of the project could be as high as 18,000. It is likely that the majority of the multiplier effects will be taken by people living within a 25 mile radius of Newport. These estimates are high because local supplier concentration in electronics is extensive and includes glass manufacture, plastic mouldings, packaging, printing, metal pressings and precision engineering as well as electronic components.

  Potentially the Welsh economy also gains from spillovers in technology from new production techniques, training opportunities for the workforce and management ideas brought into the economy. These spillover effects on the economy, unlike the boosts to output and employment, will persist into the longer term and act as multipliers.

  The mechanisms for the transfer of knowledge of best practice to indigenous firms include the natural movement of personnel between inward investors and local firms, and inward investors' impact on their supply chains. The WDA, through a variety of leading-edge programmes such as Source Wales and Technology Transfer seeks to maximise those returns, unlike a lot of other regions in the UK.

  Whether the domestic economy benefits from inward investment by more than the value-added less the remitted profits earned by foreign firms depends on the impact of technology spillovers on the rest of the economy. These spillovers provide the economic case for inward investment incentives and demonstrate whether there are indeed wider returns to the economy from the location of foreign plants in Wales than simply the cumulative sum of employment they provide.

  In practice it is very difficult to measure these wider benefits to the local economy and an assessment of the benefits is more a matter of qualitative judgment than hard, quantitative evidence. In addition displacement effects need to be assessed—do jobs created by inward investors displace jobs elsewhere in the economy if inward investors compete with indigenous firms in the same markets, and also raise wage levels and create skill shortages elsewhere in the local economy?

  McKinsey, a leading firm of management consultants, have undertaken research on the impact of trade and inward investment on productivity in Germany, Japan and the United States which shows that Foreign Direct Investment (FDI)—transplant factories—play the pivotal role in moving innovations around the world. McKinsey believe that FDI has been far more powerful than trade as a force for improving productivity, especially in Germany and the US. The results are likely to hold true for the UK.


  Mundy, Morris and Wilkinson (1995) found the following benefits and costs of Japanese inward investment to Wales in a survey in 1992:
Benefits and Costs of Japanese Inward Investment to Wales
Added substantially to manufacturing employment (17,000 jobs). Limited pure research but development and design work to modify products for local markets. Graduate employment is low (indicator of R&D propensity).
Stability of employment, few redundancies in the 1990s. Majority of work semi-skilled, emphasis on training but on-the-job and low skilled based.
Diversity of products and capital sources to Wales.
No evidence of low wage levels compared to similar industrial segments.
Sub-contracting complexes developed to cater for Japanese needs, evidence of significant transfer of good practice to local suppliers and joint technical co-operation and problem solving. Sourcing of high value components within Wales is low, local purchases are limited to low technology, bulky items, for example, plastic mouldings, pressings and metal goods.
Plants undertake a mixture of manufacture, assembly and design and development, little assembly of imported kits. Low plant autonomy for minor decisions and little freedom for capital investment and strategy decisions.

  They conclude that the evidence is mixed. There has been a recent significant improvement in investment quality (e.g. Calsonic, Sony, Toyota), but the question of the embeddedness of Japanese companies in the Welsh economy remains an area of concern, as the degree of autonomy for local decision-making often remains low.

  Rees and Thomas (1992) found important changes taking place, increasing Welsh engineering skills. For example, there was a 20 per cent increase in technician and a 324 per cent increase in engineer employment (albeit from a low base) in the 1980s. They believe there is a strong likelihood that inward investors have been instrumental in the changes (since the engineer increase was mainly related to consumer electronics), but the exact relationships have yet to be established definitely.

  Hill and Roberts (1993) found evidence of significant multiplier effects of inward investment in Wales. Every direct job created in electrical and electronic engineering could be linked to another 0.7 indirect jobs created by purchases from a local supplier.


  A vital part of a successful inward investment and economic development strategy is to embed inward investors into the Welsh economy to develop the local linkages that enhance competitive advantage for all firms, and maximise the impact of inward investment and spillovers between multinational enterprises (MNEs) and local firms.

  Policies, which CBI Wales endorses, to maximise the spin-offs of inward investment and embed MNEs into the Welsh economy include:

    —  Investing in the Welsh physical, communications and human infrastructure

    —  Targeting quality inward investment in activities such as R&D, management functions, new management practices and skills training in new technologies

    —  Encouraging the formation of joint ventures, mergers and licensing agreements between indigenous firms and inward investors to promote technology transfer

    —  Forming supplier associations focused on large inward investors that can transfer knowledge on best practice techniques along the supply chain. Source Wales, the WDA's supplier development programme, enhances local sourcing by encouraging local suppliers to meet the exacting quality standards of MNEs. Twenty supplier associations have been formed in Wales. As a result of these initiatives, the recent increase in inward investment has been accompanied by growth in the number of SMEs and an increase in their share of economic activity (Morgan 1997).

    —  Aftercare support from the WDA and other economic development intermediaries to help Welsh MNE managers to win new resources and responsibilities for their plants. Sony and Ford have now reinvested seven or eight times each in Wales. The example of the Sony TV plant in South Wales, which has taken 20 years to develop a significant R&D presence and local sourcing of components (90 per cent), shows how long it takes to upgrade a plant and the long term nature of the strategy of embedding MNEs into the Welsh economy.


  It is important to appreciate that inward investors and indigenous industry help each other to grow and develop. They should not be seen as competitive approaches to economic development but complementary to each other.

  Synergy shows itself in a number of ways:

    —  Both inward investment and expansion by indigenous business requires the right business support infrastructure to be available not merely grant incentives. For example the recent expansion of Toyota in North Wales was undertaken with no grant assistance.

    —  In addition to transport and skills infrastructure, the right power and property infrastructure needs to be available. For instance manufacturing industry is unlikely to be attracted to Pembrokeshire, now that the National Grid is closing all supergrid feeders bar one; and there is a serious shortage of medium to large industrial properties (25,000 feet and above) which prevents existing business expanding in Wales and deters potential new investors.

    —  Many of the business support programmes run by development agencies such as Source Wales and Technology Transfer serve both inward investors and indigenous firms making the distinction between inward investors and indigenous firms irrelevant.

    —  Inward investors help to grow indigenous firms through their impact on the supply chain, and a competitive supply chain makes it easier to attract more inward investment. In relocating to Wales, inward investors are attracted by the extensive supplier network of indigenous firms. The presence of the extensive cluster of consumer electronics suppliers along the M4 corridor and the Valleys was important in securing the LG project for Wales. In turn, inward investors prove to be a good potential market for local suppliers, growing the SME base in Wales.

    —  For example, the first major supplier contracts awarded by LG Electronics went to four South Wales based companies, worth a total of £4.6m, for the first year of production alone, for plastic mouldings, polystyrene packaging, card board boxes and printing manuals.

  However there are two important considerations that need to be addressed with the supply chain and inward investors.

    —  First, it is important that more value-added supplies are sourced by inward investors from Welsh SMEs and not just low value-added, bulky items which has been the case until now. Low value, bulky items are more likely to be sourced close to the plant since transport costs represent a disproportionate percentage of their value. High value-added items can more easily be imported from around the world, but sourcing them locally improves the technology base and GDP.

    —  Second, if supply gaps are identified in supplying inward investors and others, the WDA should assist Welsh SMEs to achieve the required standards to fulfil demand before targeting overseas firms. It is recognised that Source Wales already tries to do this; in many cases Welsh suppliers are not in a position to meet demand for a variety of legitimate reasons: for example, the need to service world markets to make a project viable (size), lack of proprietary technology, etc. If a gap cannot by filled by local supplier development, a carefully targeted approach to inward investment should be adopted, based on key product deficiencies in the supply chain for tier one producers, rather than a scattergun approach.

    —  One way to spread the burden of achieving this might be to provide every grant-assisted investor with a local non-executive director (NED) as a prerequisite of the grant. The role of the NED would be to act as the link between company and supply chain (via schemes such as Source Wales) to increase the volume and quality sourced locally. By the same token, a potential supplier could be provided with a financial package to achieve the standards required, and also required to take on a NED, providing them with expertise.

    —  Inward investors can help indigenous firms especially SMEs to export using their existing networks and contacts overseas. The support structure for promoting inward investment can be used to promote exports as well. For example, the WDA offices overseas, visits by inward investors to Wales and missions abroad can have a dual purpose. Better co-ordination is required between Welsh export promotion and inward investment promotion to maximise the potential synergy.

    —  In Scotland, export promotion is the responsibility of Scottish Enterprise through its arm, Scottish Trade International, and the Northern Development Company (NDC) in North East England undertakes trade promotion as well as inward investment.

    —  In Wales the Economic Powerhouse should take over responsibility from the Welsh Office for export promotion, to have both inward and trade promotion under one roof for better co-ordination and use of resources.


  There are a number of factors that mean that Wales cannot rely solely on a strategy devoted to targeting mobile inward investment, despite the many benefits, and must look to place more emphasis on the development of indigenous industry.

  These factors focus on two aspects: the nature of the inward investment market and the weaknesses identified earlier in the Welsh economic context section.

    —  The inward investment market is cyclical, so concentration solely on inward investment means that for at least some of the time valuable economic development resources will be tied up for no benefit. In contrast, developing indigenous industry is always a good short, medium and long term strategy - and may require less capital outlay, since often what is required is expertise as well as finance.

    —  In the medium and long term, Wales and the UK will almost certainly obtain a reduced amount of inward investment, so more needs to be done to develop indigenous industry in Wales due to:

        Increased competition from Eastern Europe—over 1,000 inward investment agencies according to Ernst & Young

        Increased competition from new English Regional Development Agencies

        The grant map is likely to be revised with many areas of Wales losing grant status or their status being down graded

        Non participation in EMU may weaken the attractiveness of the UK

        Expansion eastwards of the EU makes UK and Wales more peripheral and therefore less attractive to some industries.

    —  The main grant vehicle, Regional Selective Assistance (RSA), for attracting inward investment is unsuitable for attracting high technology led, high capital intensive projects because of its simplistic focus on job-related criteria for grant eligibility, and needs to be revised. Capital intensive projects are generally high quality, provide higher skill jobs and have a major impact on the surrounding service structure (e.g. contracting out toolmaking). In addition, it is more expensive for a company to close a capital intensive plant than a job intensive "shed".

    —  In the short term, problems in South East Asia will probably reduce inward investment from there in the next few years. For example, a recent estimate by the National Economic and Social Research Institute forecast a 25 per cent fall in inward investment in 1998. This is particularly important for Wales, which has achieved great success recently in the Far East markets for greenfield investment.

    —  Much mobile investment to Wales has been concentrated in a limited number of product lines such as TVs and related products, computer display monitors and automotive components. This is good for sectoral concentration and cluster building but not if it is overdone. A diverse sectoral base brought about by indigenous growth is required not to repeat the problems of steel and coal closures.

    —  The low level of research institutes and high value-added service operations (and a parallel shortage of relevant skills) makes it difficult for Wales to attract R&D and value-added service projects. Indigenous industry must be developed to compensate, and the universities can help in this. An English company has recently entered into an agreement with a Welsh university to give the company access to the best graduates in return for practical contributions to the college's teaching capacity: this practice should be encouraged.

    —  Traditional inward investment projects such as assembly manufacturing will not readily move to more remote areas such as Pembrokeshire and Anglesey in sufficient volume due to skill and infrastructure issues and the relative sparseness of the population.

    —  Inward investment does not address but exacerbates the problem of a lack of autonomy and control in economic decision-making in Wales. Strong, locally controlled indigenous firms are a major requirement: profits are generally remitted to the parent company locality, and high value-added aspects of the business (design, R&D) based there.


Economic Decision making

  The Welsh Office and later the Assembly will need to ensure that a coherent all-Wales, economic development strategy framework is "bought into" by all the economic players including the role, resources and priorities to be devoted to inward investment and indigenous industry. The Assembly should publish objectives annually on a five year rolling basis, justifying its choice of targets and evaluating Wales' success in achieving them.

  The Economic Fora established in the regions of Wales and involving the leading regional economic development players including the CBI, should have a key role in deciding allocation of resources and priorities with regard to inward investment and indigenous industry support as well as other economic policy matters.

  For example, South East Wales and North East Wales may put a premium on value-added projects and reject grant support of assembly plants and use the resources instead on developing indigenous industry.

  CBI Wales, in its submission to the Welsh Affairs Select Committee on the Welsh Assembly's impact on economic development, recommended that business representatives be co-opted onto the relevant subject committees and representatives of the Economic Fora be co-opted to the Assembly regional committees.

  CBI Wales supports the view that there should not be bidding up of projects by UK regions and fully supports the proposed concordat between the regions.

  CBI Wales thinks that abolition of Welsh autonomy on inward investment decisions would have an adverse effect on potential investment and slow decisions on projects, possibly leading to potential investors choosing a location outside the UK—many of which provide far larger and more comprehensive packages.


  It is difficult to make decisions on whether the balance of indigenous and inward investment support is correct when the statistics for spending on each are not published in a transparent manner by the DTI and Welsh Office. The Welsh Office follows DTI guidelines in the publication of RSA assistance.

  Any grant of above £75,000 is published in due course, once the first payment is made, in Labour Market Trends, a monthly publication of the Office for National Statistics. A press notice may be issued at the time of the announcement of a project by the Welsh Office but the details of the grant are only released if the company wishes to do so.

  Details of those cases called by in the European Commission are published in the Official Journal: this was how the figure for the amount of support given to the LG project became public. Some large and visible grants are commented in the Annual 1982 Industrial Act Report with aggregate figures.

  Uniquely, the Industrial Development Board in Northern Ireland publishes details of all grants over £50,000 in its annual report, without evident disadvantage. The Welsh Office Annual Report provides details at an aggregate level of RSA grants.

  But nowhere is the overall value and composition of aid packages including site infrastructure, property assistance and training grants published in the UK (in most cases, these are more substantial than the RSA element).

  In line with the recommendations of the DTI Committee Report on the Co-ordination of Inward Investment, CBI Wales believes that broad indicative figures should be published on the commitment of public funds to projects in this category in the annual report of the Economic Powerhouse. In the same report, estimates for spending on assisting indigenous industry should be made. All disclosures will need to take account of commercial confidentiality, the need to avoid previous deals being used as a benchmark for bidding up future deals by companies, and the need to preserve competitive advantage over other nations and regions.

  CBI Wales recommends the various Economic Fora in Wales, as well as the relevant committees in the Welsh Assembly, should have access on a confidential basis to Welsh offers of packages over a certain value identifying separately the various elements which make up the package.

Grants and Perceived Lack of Support to Indigenous Industry

  Fragmentation of business support services with a plethora of overlapping initiatives, not all of which have been successful, has meant that indigenous business support is not perceived by firms to be considered a high priority.

  The Economic Powerhouse should be given overall responsibility for business support in Wales to rectify this situation and retain primary responsibility for inward investment projects in Wales.

  The account management of existing medium to large companies already located in Wales (both inward investors and indigenous businesses) must have a high priority with a view to encouraging further expansions and developing supply clusters. Customer care for inward investors is fairly standard practice; for indigenous firms it is less so. Account management would encourage local companies to develop local supplier networks. It would also reduce the perception indigenous business of the unfair advantage inward investors have.

  For example, planning decisions is an area where indigenous business feels frustrated. Few inward investment proposals have planning difficulties, largely because public sector "account managers" smooth their path.

  RSA and Regional Enterprise Grants (REG) are available not only to inward investors but also to indigenous firms. However the grant schemes have been poorly promoted to indigenous business despite recent Welsh Office roadshows and are in practice difficult to understand and to obtain by indigenous SMEs.

  The main problem is that the most important criterion for receiving RSA is the international mobility of the project which indigenous firms have the greatest problem in proving.

  The CBI recommends that the following changes to the grant system would provide a better balance between indigenous firms and inward investors:

    —  RSA and REG need to be better promoted to indigenous firms and steps taken to convince them that the funds available are not primarily directed towards inward investors.

    —  Decisions on applications must be speeded up. Time is often more critical on a grant application for investment by an existing business (whether inward investor or indigenous) than for a newcomer.

    —  RSA criteria should be weighted much towards commercial viability and be less rigidly applied for more indigenous firms to apply. RSA should be considered on a fairly parochial basis for indigenous companies and a qualitative assessment of the attraction of the project to the particular locality should be made. For example, a 20- job project in Pembrokeshire or west Gwynedd could be more important than a similar or larger project in Cardiff or Wrexham. Grants on such investments should not be assessed solely by cost per job but by the quality and importance of the investment to the locality. A de minimis principle could also be applied to small grants.

    —  SMEs need assistance in terms of advice, implementation and access to appropriate public and private sector finance

    —  Disadvantaged parts of Wales should have access to European grants and RSA based on low GDP criteria as well as the level of unemployment.

    —  Under EU rules, grant aid can be made available for capital investment but not for working capital; a better regime would look at the total project cost.

    —  Reinvestment projects are extremely important for embedding companies and increasing value-added. However, automatic expectation of further grant can be dangerous, removing the focus on quality. Differential thresholds should be applied to large and small companies: for instance, the justification of financial constraint should be disallowed for large companies, as it can lead to unscrupulous firms bleeding a local site dry, secure in the conviction that further public funding will be available.


  Inward investment was a very effective instrument in helping the Wales economy overcome the massive lost of jobs in coal, steel and other sectors in the 1970s and 1980s. At that stage of Wales' economic development, speedy and visible action was required which created many jobs and capital investment. However, at that time foreign companies believed that to penetrate Fortress Europe they needed manufacturing plants in Europe. Moreover, there were substantial grants available, and companies knew that Regional Development Grant (RDG) was statutory and could be topped up with RSA. These were important factors for the Welsh success story in the 1970s-80s.

  The ground rules have now changed, and it is difficult for a company to evaluate the total support available, as this may be provided through the Welsh Office, WDA, TECs or local authorities. The Economic Powerhouse should streamline procedures for both indigenous industry and inward investors.

  However, inward investment on its own will not solve all Wales current economic problems such as weak innovation/R&D, little exporting by SMEs, lack of control and autonomy by plants in Wales, and weak service sector, etc.

  In addition the inward investment market is uncertain and in the long term, Wales is likely to receive a smaller share of it.

  Steps to refocus inward investing into high value-added activities such as R&D, headquarters functions, technology-led manufacturing, and better marketing of the geographically remoter parts of Wales need to be strengthened, while the long-term nature of embedding an inward investor into the Welsh economy must be recognised.

  In the current economic climate, the stage of economic development in Wales and the problems the Welsh economy faces, indigenous industry needs to be put higher on the economic agenda.

  But it must be realised that inward investment and indigenous industry strategies need to be seen as complementary approaches to economic development, as part of a holistic strategy. In many ways, inward investment versus indigenous industry is a false dichotomy and there are many synergies and technology spillovers between them as examined earlier in this submission.

  What is urgently needed is transparency in information, economic decision making and the grant process to allow economic decision-making to be made with full access to information. This is particularly important because many of the decisions are a matter of judgment rather than hard evidence and precise calculations on cost per job; for example, measuring the extent of technology spillovers and multiplier effects.

  Inward investment should continue to be seen as an important part of a successful economy, but should not be viewed as the cornerstone or sole platform of Welsh economic regeneration.

Dr Elizabeth Haywood

Director, Wales

16 February 1998

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