APPENDIX 19
Memorandum from British Steel
1. BACKGROUND
1. The House of Commons Welsh Affairs Committee
has recently reported on the Impact of Devolution on the Economic
Development of Local Government in Wales. One of the themes that
emerged from this study was the balance in public sector investment
initiatives between stimulating inward investment and encouraging
the growth of indigenous enterprises.
2. British Steel has been asked to give its
views on this issue and this paper will address:
— the background to the steel industry
in Wales and its recent achievements
— employment by the steel industry
in Wales
— the economic importance of steel
to the Welsh economy
— the impact of inward investment on
the Welsh steel industry
— the requirements of the steel industry
from the public sector and government
2. BACKGROUND TO
THE STEEL
INDUSTRY WALES
1. Contrary to the widely held view that steel
is a declining industry, more steel is being made in South Wales
than at any time in the past. Over 7.5mt of steel per annum is
currently made in South Wales—representing about 45 per
cent of UK steel production and 5 per cent of all steel produced
in the European Union. Nearly 5 per cent of the world's tinplate
production is in South Wales.
2. British Steel's works in Wales are world-class
facilities. This has been achieved by investing in people, equipment
and new technology, and through commitment to quality and customers.
As a result of the considerable investment in new technology,
the Welsh steel works are among the most productive in Europe
despite the decline in employment numbers. Sales from British
Steel's works in Wales have increased by 25 per cent over the
last 5 years.
3. The steel industry developed in South Wales
because of its easy access to both coal and iron ore. These basic
raw materials now have to be imported, and about 30 per cent of
current spend is on imported materials. These costs are similar
for most coastal integrated steel producers. British Steel's ability
to respond to competitive pressures depends on being able to convert
these raw materials more efficiently, and with less cost than
its competitors.
4. There is no advantage to British Steel from
being in Wales apart from the loyalty and expertise of the workforce,
and the considerable investment British Steel has put into its
sites.
3. EMPLOYMENT BY
THE STEEL
INDUSTRY IN
WALES
1. British Steel employs about 13,000 people
in Wales and a further 30,000 to 35,000 jobs are considered to
be directly and indirectly dependent on the industry. In total,
British Steel supports about 4.0 per cent of the Welsh workforce
and directly accounts for 6.0 per cent of the manufacturing jobs
in Wales. There is additional employment of about 1,500 jobs in
the steel industry in Wales from ASW and Alphasteel.
2. British Steel believes its success is founded
on the transformation of its employees into a highly motivated,
well-trained, high productivity workforce, producing value-added
products and responding to customers changing demands. In order
to remain competitive, British Steel has introduced flexible working
practices and multi-skilling between trades. On average, British
Steel invests in eleven training days per employee per annum,
and overall training represents over 5 per cent of total UK employment
costs.
3. Over the last five years, British Steel provided
new job opportunities for 2,150 people in Wales by recruiting
480 graduates and managers, 550 career entry modern apprentices
and 1,120 other skilled workers. The retention rate for graduates
has been running at over 70 per cent. This level of recruitment
is equivalent to establishing five new companies each employing
over 400 people over this period.
4. Despite the on-going manning rationalisation
to maintain competitiveness, British Steel plans to continue to
recruit both modern apprentices and graduates on a regular basis.
Creating a younger and higher skilled workforce is a significant
strategic aim.
4. ECONOMIC IMPORTANCE
OF STEEL
TO THE
WELSH ECONOMY
1. In 1997 British Steel's added value in Wales
is estimated to represent over 2 per cent of Welsh GDP. In addition
British Steel spends over £400m with companies in Wales and
£300m on employment costs which further contribute to the
Welsh economy.
2. It is estimated that a quarter of all Welsh
manufacturing investment has been in the steel industry over the
last 15 years. Over £1000m has been invested over the last
10 years in new steel making, rolling and coating facilities has
helped to ensure that British Steel's works in Wales are world-class
facilities. Capital investment is currently running at about £100
million per annum. A large proportion of this investment is to
improve the product range and services from British Steel's facilities
in Wales and there is also increasing investment on environmental
schemes.
3. Steel products manufactured in Wales provide
the essential raw materials for a number of other industries throughout
the UK, such as construction, motor vehicles and packaging. In
addition over half of the steel produced in Wales is exported,
mainly to Europe, and British Steel accounts for about 50 per
cent of Welsh manufacturing exports by volume.
4. By any measure, the steel industry is critical
to the Welsh economy. It is an industry which the Welsh Office
should be actively striving to support with central Government,
particularly in the face of a currently crippling exchange rate
burden, especially against the Deutschmark.
5. IMPACT OF
INWARD INVESTORS
ON BRITISH
STEEL
1. Some inward investors have benefited from
the skills provided by British Steel but the loss of staff has
been less than originally feared. For example in the last year
5 engineers and technicians have left British Steel for LG's new
plant at Newport. However British Steel has had to recruit and
train replacement staff incurring additional costs and losing
valuable experience.
2. There was a fear in British Steel that the
influx of major inward investors could lead to skills shortages.
The evidence to date is that there is little evidence to suggest
that wage rates for skilled workers are being directly affected
by the presence of the inward investors.
3. At times it appears that investments in education
and infrastructure are driven by the needs of inward investors.
For example funds have been directed at establishing electronics
and semi-conductors training centres in the Newport area. However
the local colleges have also worked closely with British Steel
to develop the modern apprenticeship schemes. Local budgets spent
on inward investors rather than tackling the underlying infrastructural
weaknesses could have a long term impact on indigenous industry.
4. The opportunity for inward investment to
provide new sales opportunities for indigenous manufacturing industry
seems to have been missed. While steel is often used in the buildings
and equipment required by the inward investor there is little
on going demand for steel products. Only about 25 per cent of
the plants in Wales owned by overseas companies are in sectors
that may consume steel and the steel intensity of many of the
components manufactured is low.
6. REQUIREMENTS OF
INDIGENOUS INDUSTRY
1. For the indigenous steel and manufacturing
industries in general it is essential that well trained people
are readily available, that the infrastructure supports the easy
movement of goods and that cost of local services and local taxes
do not present a disincentive for future investment. It is recognised
that this will be similar for inward investors.
2. As mentioned above British Steel places great
emphasis on a well trained labour force and more could be done
to ensure that education and training in the region supply the
skills and know how required by manufacturing industry. In particular:
— changing the perception of manufacturing
within the education system. Too many teachers fail to communicate
the challenges and job satisfaction manufacturing industries can
offer.
— ensuring that the curriculum provided
in the education system meets the needs of manufacturing industry.
Technology as a subject has been removed from the key stage 4
curriculum and must be reintroduced if students are to have the
skills required in the future for the manufacturing industry.
— improving the teaching of technology
and increasing the emphasis placed on the pure sciences, applied
sciences and mathematics. Information about modern technology
needs to be included in a wider curriculum.
These changes would help manufacturing industry
attract employees and make it easier to compete in the labour
market particularly against the perceptions of jobs offered by
some inward investors.
Increasingly it is the ease of communications
and the cost of moving goods that establishes the competitiveness
of manufacturing industry. This in turn determines its success
on a European and global basis and the permanency of employment.
The steel industry faces significant competitive pressures and
it is important for the survival of the indigenous industry that
the cost of transport and services together with local taxes are
kept as low as possible.
One of the threats to the success of the steel
industry is the lack of a significant manufacturing base in Wales
and the UK. As a result British Steel exports more than 50 per
cent of its output and also purchases most capital plant from
outside Wales. Support for the Welsh manufacturing economy would
help mitigate these effects. It is important to have a stable
and competitive exchange rate that will allow manufacturing industry
to export profitably. The consequences of the strong pound has
made it difficult for indigenous industries and will increasingly
force manufacturers to consider moving production nearer to the
point of sale. This will result in a loss of jobs in the UK.
7. CONCLUSIONS
1. As well as encouraging inward investment
there needs to be greater emphasis on building on the success
of existing industries. It appears that there is more kudos from
attracting inward investment than from supporting indigenous industries
and the importance of the existing industries to the Welsh economy
needs greater recognition.
2. More emphasis could be placed on inward investors
that use the products already manufactured in the region as this
reduces logistics costs and builds up the markets for established
manufacturing in the region.
3. It should also be recognised that well-trained
and experienced people move to other local industries, thereby
creating more job opportunities and helping to train the workforce
for the local community. This emphasises the need to focus equally
on support of indigenous manufacturing industry as well as encouraging
inward investment.
Peter Wallace
Director of Strategy Planning
26 June 1998
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