APPENDIX 7
Memorandum from the Welsh Development
Agency and the Development Board for Rural Wales
1. INTRODUCTION
1.1 This Memorandum builds on the earlier submissions
by the Welsh Development Agency (WDA) and the Development Board
for Rural Wales (DBRW) to the Committee in respect of its Inquiry
into the Government's devolution proposals for Wales. The two
bodies, together with the Land Authority for Wales (LAW), are
currently in a transitionary stage and are, therefore, in the
process of refining and developing future strategy. However, this
Memorandum seeks to set out some of the principles which will
guide the investment policy of the enlarged Agency.
1.2 For some years now there has been a considerable
gap between GDP per capita in Wales and that of the UK as a whole
(see Annex). Whilst the economic position of Wales has improved,
other regions in the UK and the EU also have moved ahead. When
considering GDP due regard should also be had to supplementary
measures of economic performance and prosperity, such as economic
activity rates and average earnings in the manufacturing and service
sectors. These reinforce the message that much needs to be done
as well as highlighting significant success through modernising
the manufacturing sector in Wales.
1.3 We recognise that raising the level of economic
prosperity in all parts of Wales through strengthening the industrial
and commercial base is, therefore, fundamental. Associated with
this are the problems of tackling unemployment, skills deficiencies,
poor health, inadequate housing and infrastructure and social
exclusion. Accordingly, an integrated approach to an Economic
Strategy for Wales is seen as essential, bringing together the
activities of the enlarged Agency, TECs and other key players,
including the private sector, in the fields of skills development,
education, community regeneration , the environment, transport,
health and arts & culture.
2. AN ECONOMIC
STRATEGY FOR
WALES
2.1 The recent Welsh Office Consultation document,
`An Economic Strategy for Wales' is seen as a first, and significant,
step in the process of developing such a comprehensive Strategy.
However, for this Strategy to be fully effective it should be
broadly defined across all sectors of the economy, including,
for example, manufacturing, producer services, tourism and agriculture.
The Strategy must be underpinned by a thorough economic analysis
shared amongst all those with an interest in the economic prosperity
of Wales such as the Agency, TECs, Local Authorities, Third Agencies,
CBI and Universities through informed debate over the coming months.
There is also a need for the parties to reach agreement on their
roles in its implementation, and the performance measures of success
of the Strategy.
2.2 The Boards of the WDA and DBRW believe that
it is an important role for the enlarged Agency to take the lead
in developing such a Strategy for the Assembly which will also
guide the investment policy of the new Powerhouse. Specific and
realistic objectives need be determined along with the means and
policy instruments for their achievement. The resultant programme
of actions, with clear and structured targets and performance
measures, would require to be integrated with UK macro-economic
and other micro-economic policies, such as Regional Assistance
and the New Deal Programmes, to ensure that the resources available
are deployed most effectively. The Strategy would also need to
be integrated with current and future EU policies, including the
reform of the Structural Funds and the Common Agricultural Policy,
and embrace sustainable development.
2.3 A great deal more analysis is required and
this is currently being taken forward. We note with interest the
recent White Paper, `Building Partnerships for Prosperity'. This
has placed emphasis on a primary function of the proposed English
Regional Development Agencies (RDAs) to develop an economic regeneration
and development strategy for each region, providing a strategic
focus for the activities of other key partners such as the TECs
and education sector. This reinforces our view that the Powerhouse
needs to address these issues of strategy at an early stage if
Wales is not to lose out.
3. MODERNISING THE
WELSH ECONOMY
3.1 Investment in manufacturing, particularly
through the attraction of Foreign Direct Investment (FDI), has
made a significant contribution to the restructuring of the employment
base in Wales following the loss of 90,000 jobs in the coal mining
and steel industries during the 1970s and 80s, and the continuing
decline of traditional rural industries. Large scale inward investment
schemes, for example in the electronics and automotive sectors,
with their leading edge technologies, production methods and management
techniques have brought direct benefits to indigenous businesses,
especially SMEs, through supply chain links, industry networks,
centres of expertise etc. This relationship is mutually beneficial.
Innovation, flexibility and responsiveness is a characteristic
of many small businesses, and benefits the larger companies. For
example, large and small companies have been brought together
in sectoral and technology fora such as the Medical, Materials
and Opto-electronics Fora and the Mid Wales Manufacturing Group
where they learn from each others experiences, and this has also
led to large companies sub-contracting product development and
design work to SMEs.
3.2 Manufacturing is an important sector throughout
Wales, in 1995 generating 27.3 per cent of Wales' GDP, compared
with a UK average of 21.1 per cent. The competitiveness of the
Welsh manufacturing sector is based on the high productivity rate,
currently 12.3 per cent above the UK average. (Wage levels are
at 96 per cent of the UK average figure). This makes for competitive
unit labour costs.
3.3 Wales has an enviable track record on inward
investment. Some 1860 projects have been secured since 1983, creating
or safeguarding more than 160,000 jobs, and representing over
£11 billion in capital investment helping provide balance
to the economy. International companies which have located in
Wales include Hitachi, Bosch, Panasonic, Sharp, Valeo and Toyota.
These companies are, in many respects, indigenous businesses,
having become embedded in the Welsh economy and their local communities
since setting up their operations in Wales. The process of embedding
has been assisted by the after-care service provided by the WDA
and DBRW and their partners; and its success may be gauged by:
— Percentage of local sourcing
— Proportion of locally engaged labour
in senior management roles
— Research and development at local
level
— Number of product life cycles, and
expansion of product range
— Progression from `branch plant' operation
— Links with education sector
— Business networks/sponsorship
— `Spin-out' of new business start-ups
Success in this process enables the Welsh operations
of these multinational companies to be well placed to secure expansion
projects in competition with other plants within the organisation,
on an international basis. It should also be noted that much inward
investment, especially that to rural areas, has been of owner-managed
businesses and new start-ups which are truly embedded into the
local economy.
3.4 Inward investment, whether from overseas
or from elsewhere within the UK, once secured, is regarded by
DBRW as indigenous business. In contrast, the Agency classifies
all expansions undertaken by companies who were originally inward
investors, e.g., Sony and Ford, as inward investment. The two
bodies therefore, currently record inward investment activity
and expenditure on different bases. (NB: standard criteria will
be adopted across Wales on the establishment of the enlarged Agency).
All the same, the fundamental point is emphasised that both bodies
seek to support businesses in Wales with the potential for growth,
and the promotion of new enterprises from start ups to large scale
FDI, which create quality jobs and meet local needs.
3.5 The future market is becoming increasingly
competitive on a global scale, with a possible reduction in the
number of large-scale mobile schemes. The importance of fostering
indigenous business growth is, therefore, increasingly important.
3.6 Whilst inward investment has created many
large, modern manufacturing operations which have substituted
for the employers lost in the extractive and heavy industry sectors,
it is recognised that the largest proportion of businesses in
Wales are SMEs. The business development services of the WDA and
DBRW have become increasingly focused on the needs of SMEs, and
this support is manpower rather than capital intensive, and involves
a large number of companies.
3.7 As for the service sector in Wales the figure
of 61 per cent contribution to GDP lags behind the UK as a whole
by 7 percentage points. This is not simply the result of the higher
contribution made by the manufacturing sector, but also underperformance
in the financial services, transport and storage and communications
sectors. Much of the service sector in Wales is in the relatively
poorly paid and low skilled service industries.
3.8 The future challenge for Wales is to increase
economic prosperity in all parts of Wales by developing strategies
which cover both the manufacturing and the high value added service
sectors (particularly internationally tradable services), inward
investment and indigenous business expansion as appropriate, and
to meet market opportunities.
4. MEETING THE
NEEDS OF
PEOPLE, BUSINESSES
AND COMMUNITIES
IN WALES
4.1 Our aim is for the enlarged Agency to develop
an integrated strategy for economic development on a pan-Wales
basis. This should reflect fully regional needs and priorities,
and also ensure that a coherent and well co-ordinated range of
services are delivered to businesses meeting their needs, and
wherever possible delivered at the local level.
4.2 Increasingly, the business development activities
of the WDA, DBRW and its partners seek to address the key barriers
to indigenous business growth and the capacity of businesses to
capitalise upon future market opportunities. These may be grouped
under the following themes:
— Skills Shortages and new skills requirements
— Exploiting rapidly developing technology
opportunities
— Finance for investment and growth
— Market opportunities, including supply
chain links and exports
— Infrastructure and property
In our view future strategies need to develop
effective policies and programmes to tackle these key themes.
These themes apply to a greater or lesser extent, to all businesses
in Wales, including start-ups, SMEs and multinational FDI companies
in both manufacturing and service sectors.
4.3 The enlarged Agency and its partners will
need to develop further their range of programmes within the context
of the Economic Strategy for Wales. Such programmes are likely
to include:
— Mechanisms to fill gaps in the market
for, and the availability of, business finance, especially in
relation to equity funding.
— Better business birth rates and survival
rates, and innovative start-ups.
— A Culture for business growth.
— Innovation and Technology Transfer.
— Utilisation of information technology.
— Sourcing and supply chain links.
— Support and encouragement to export.
— Strategic Skills Development (including
management skills).
— Enhanced links with education across
the range.
— Increased environmental performance.
Many of the existing programmes are tackling
these issues and are recognised as best practice. However, we
realise there is scope for closer integration in their promotion
and delivery as well as new product development. The Wales Regional
Technology Plan (RTP), which may be more aptly described as the
Regional Innovation and Competitiveness Strategy, is seen as providing
a solid base for business support programmes and their contribution
to the key themes outlined in paragraph 4.2.
4.4 Therefore, the enlarged Agency will seek
to increase economic prosperity across Wales through programmes
aimed at job creation, better quality jobs and increased business
productivity, turnover and profitability. These programmes will
promote the growth of indigenous businesses, the attraction of
inward investment and the encouragement of new start-ups. Experience
demonstrates that effective economic development comprises a mix
of elements from these programmes. The mix will also reflect the
needs of the area in which the businesses operate or propose to
set up, and the political, economic and social imperative for
increased investment in the peripheral and rural areas of Wales.
5. THE BALANCE
BETWEEN INWARD
INVESTMENT AND
INDIGENOUS BUSINESS
INVESTMENT
5.1 Inward investment is not an all-Wales panacea,
but will remain an important source of key technologies and quality
jobs to Wales. As outlined in paragraph 3.1 above inward investment
and indigenous business are mutually complementary. They can be
strengthened by, for example, supply chain links, management development
and networks, and technology transfer. These linkages should be
re-enforced and extended. It is therefore a matter of striking
a proper balance between investment in inward investment and indigenous
business.
5.2 This balance cannot be prescribed by any
formula but has to respond to many factors. At the macro-level
these include UK Government economic policies and the state of
the economy at home and abroad. There is also the annual strategic
guidance from the Secretary of State which sets targets for the
Agencies, which include the number of jobs created or safeguarded,
overseas new jobs and private capital investment secured. Increasing
emphasis is also being placed on investment in areas of need in
the Valleys, North West and West Wales. This will call for hard
choices and acceptance that outcomes are more expensive to deliver
in these locations, especially in the context of reduced budgets
and resources.
5.3 It is against this backcloth that investment
decisions are made by the Agencies. These decisions are invariably
made in response to the needs of businesses. Some decisions are
pro-active insofar as they seek to make Wales a more attractive
location for businesses, e.g.: through site assembly and servicing
and infrastructure investment. They are also in response to business
demands such as the provision of premises and business support
services.
5.4 These decisions are not made in isolation.
They are informed by the economic analysis which identifies the
key drivers of Wales' economy. There is also continuing research
on the industry and service sectors in Wales and the areas where
strengths through `clustering' and supply chain links can be built
upon, and where there are future market opportunities, such as
call centres. The needs of businesses are identified through research
and feedback from established contacts with individual companies,
consultants, links with sectors, e.g. Automotive Forum and Mid
Wales Export Association, and other networks, including the Agency's
Overseas offices.
5.5 The Regional Economic Fora also have a major
input into this process. For example, the North Wales Economic
Forum has agreed priorities for investment in the Region and assists
in the promotion of North Wales. These range from inward investment
on Deeside, to the expansion of the aerospace and opto-electronics
sectors, and establishing and promoting small food processing
and media businesses in Gwynedd and Anglesey.
5.6 At the Unitary Authority level Strategic
Fora and Consultative Committees have been established with many
Local Authorities. In these Fora local priorities and opportunities
are discussed which, along with those of the Regional Fora, are
fed into the Agencies Corporate and Business Planning processes.
6. DELIVERY AND
EVALUATION OF
PROGRAMMES
6.1 To increase prosperity in all parts of Wales,
we believe the enlarged Agency needs to provide, or secure the
provision of, a coherent and well co-ordinated range of services
to business, and act as a single point of contact for inward investors.
Our aim is for the Powerhouse to develop an integrated strategy
for economic development on an all-Wales basis which reflects
regional needs and priorities and ensures that quality services
are delivered. The reputations of the WDA, DBRW and Land Authority
for Wales for flexibility and speed of response will also need
to be maintained in the new organisation.
6.2 We believe the present arrangements for
delivering business services can be improved. If we are to offer
comprehensive geographical coverage across Wales of a coherent
and well co-ordinated range of services to business there are
implications for the relationship between the enlarged Agency,
the Business Connect network, the enterprise function of the TECs
and the Welsh Office Industry Department. We suggest that greater
coherence and efficiency would be achieved by bringing together
a number of the Welsh Office Business Services programmes into
the Powerhouse to avoid duplication and confusion. This applies,
in particular, to Business Connect which has a key role to play
in the delivery of services to businesses. It is our view that
to be fully effective Business Connect requires strong leadership,
marketing and quality standards. Local delivery mechanisms such
as Local Authorities, Third Agencies and the private sector should
be utilised wherever possible, providing effective and quality
services which meet the particular needs of business in urban
and rural Wales. Integration of responsibility for leading Business
Connect would fit strategically with the role of the enlarged
Agency in securing the delivery of a wide-ranging of business
development programmes across Wales.
6.3 We also recognise the need to develop a
world class status Welsh economy, increasing prosperity to people
in all parts of Wales. Accordingly, Wales and Welsh businesses
must strive to match the world's best, bench-marking constantly
against the world competitiveness levels, not just other regions
in the UK and EU.
6.4 The impact of economic development programmes
has, to date, been principally evaluated by the number of jobs
secured/created in the short term. Given that an important consideration
is to raise the economic prosperity of Wales, we suggest that
the methodology currently employed for measuring performance needs
to be reviewed to cover the longer term and include qualitative
measures.
7. CONCLUSIONS
7.1 Future investment policy must reflect the
economic imperative within the context of social and stated political
policy objectives. Inward investment remains an important source
of new employment. However, increased global competitiveness and
the essential need to invest in the more deprived and peripheral
areas of Wales demand that additional emphasis and resources are
placed on indigenous businesses, especially SMEs.
7.2 The linkage between inward investment and
indigenous businesses must also be recognised, along with the
potential for attracting further investment by foreign-owned companies
through expansions, mergers and acquisitions and extended supply
chain links.
7.3 Investment in indigenous business support
will focus on programmes tailored to address the obstacles to
growth, and increasing the capability of businesses to exploit
technology, innovation and other market opportunities. An established
framework for these programmes is the Regional Technology Plan
(RTP) which has been developed in conjunction with business and
the education sector. Business growth is very much focused on
SMEs and company start-ups, and includes the manufacturing and
higher added value service sectors. Future policy, programme and
investment decisions will continue to be determined in consultation
with partners and be geared to meeting the requirements of businesses
and addressing market failure, especially in areas of need.
7.4 Effective business support is also contingent
upon the availability of resources, both financial and manpower,
to implement the Strategy across Wales. The aggregated annual
management running costs of the WDA, DBRW and LAW is currently
£25,647,000. The Explanatory and Financial Memorandum of
the Government of Wales Bill states that the merger of these three
bodies and the winding up of Housing for Wales are expected to
result in annual running cost savings of up to £3.5 million.
It is proposed that the enlarged Agency achieves £3 million
of these annual cost savings through a reduction in overheads
and staff numbers.
Roy J Thomas
Legal Director and Agency Secretary
3 February 1998
ANNEX
| Forecasts
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| GDP per Head | 1989 | 1990
| 1991 | 1992 | 1993
| 1994 | 1995 | 1996
| 1997 | 1998 |
| | |
| | | |
| | | |
UK | 100.0
| 100.0 | 100.0 | 100.0
| 100.0 | 100.0 | 100.0
| 100.0 | 100.0 | 100.0
|
| Wales | 86.5 | 86.0
| 85.3 | 83.7 | 82.7
| 83.5 | 84.3 | 83.1
| 83.5 | 83.2 |
| North East | 85.3 | 84.3
| 85.2 | 86.4 | 85.8
| 85.1 | 85.1 | 84.3
| | |
| Scotland | 93.8 | 96.1
| 97.5 | 98.9 | 98.6
| 99.1 | 100.2 | 99.1
| | |
| West Midlands | 92.4 | 93.5
| 92.7 | 93.4 | 92.8
| 93.2 | 93.8 | 93.5
| | |
| South East | 111.2 | 111.7
| 111.2 | 110.1 | 111.0
| 112.2 | 111.5 | 114.5
| | |
| | |
| | | |
| | | |
| EU Regions | |
| | | |
| | | |
|
| Baden-Wuerttemberg | 142.1 |
152.6 | 152.6 | 163.2
| 167.7 | 164.8 |
| | | |
| Emilia-Romagna | 127.7 | 138.5
| 138.8 | 144.2 | 130.3
| 125.0 | | |
| |
| Este, Capital Spain | 76.7 |
85.8 | 89.6 | 95.0
| 85.1 | 80.3 |
| | | |
| Hamburg | 199.9 | 218.8
| 225.3 | 242.2 | 260.0
| 257.5 | | |
| |
| Lombardia | 135.7 | 145.9
| 145.7 | 147.7 | 133.5
| 127.8 | | |
| |
| Madrid | 82.5 | 93.3
| 97.4 | 103.5 | 94.7
| 88.6 | | |
| |
| | |
| | | |
| | | |
Source: ONS, Oxford/NIERC.
| | | |
| | | |
| | |
|
