Written evidence from the Welsh Assembly
Government
INQUIRY INTO MANUFACTURING AND TRADE IN WALES
INTRODUCTION
The Welsh Assembly Government is pleased to
respond to the request from the Welsh Affairs Committee for a
memorandum setting out:
— UK and EU Government involvement
with, and assistance to, the manufacturing sector.
— UK Government policy on manufacturing
and trade in Wales.
— The impact of trade tariffs on Wales.
— The transition from traditional industrial
and rural economies to modern economies.
— The maintenance of existing Foreign
Direct Investment (FDI) in Wales and encouragement of new FDI.
— The role of R&D in job and wealth
creation.
— Links between universities and the
productive economy.
This memorandum:
— Summarises the trends and changing
role of manufacturing and trade in the economy of Wales.
— Sets out the main economic policy
initiatives of the Assembly Government, particularly those geared
to promoting innovation in manufacturing and encouraging trade.
— Highlights the support mechanisms
available for manufacturers and exporters operating in Wales,
including those now possible through the European Structural Funds
Programmes.
— Signals the Assembly Government's
intention to work with manufacturers in Wales to develop an Action
Plan to increase yet further the sector's competitiveness by boosting
relevant skills and its capacity to innovate.
Additional information is presented in supporting
annexes.
These policies are taken forward within the
framework of the Assembly's vision for sustainable development,
reinforced in "Wales: A Better Country". This
was published in September 2003 and sets out the strategic agenda
of the Welsh Assembly Government for the second term of the National
Assembly for Wales.
THE IMPORTANCE
OF MANUFACTURING
The manufacturing sector has been and continues
to be of immense significance to the economy of Wales. World-class
companies such as Airbus, Ford and General Dynamics find Wales
a first class base for their operations. However, employment and
investment trends indicate that the sector as a whole faces a
continuing challenge.
Across all OECD countries, manufacturing's share
of Gross Value Added (GVA) is falling with lower added value production
moving at a fairly rapid rate to lower cost locations elsewhere
in the world. It is clear that a great deal of "churn"
(opening and closing of businesses) takes place in successful
economies and this phenomenon occurs in manufacturing as in other
sectors. In addition, there is a blurring of the boundary between
manufacturing and the service sector as a result of the continuing
trend to out-source functions ranging from logistics to ICT. This
suggests that some care needs to be taken when interpreting long
term trends in the economy as a whole.
Neither the UK nor Wales is Immune from these
Pressures and Trends.
Manufacturing accounted for 24% of Welsh GVA
in 2000 and about 17% of employee jobs as at March 2003. This
is above the UK average of 18% for GVA and 14% for employment,
but slightly below the figures for the Midlands (25% and 19% respectively).
The sector provides some 179,000 direct jobs in Wales and supports
many others.
On-going structural change in the economy of
Wales is reflected in the continuing decline of the traditional
heavy industries that once characterised Welsh manufacturing.
There have been further significant job losses in the steel industry
in Wales over the past two years: however, even here the outlook
is brighter than it has been for some time with Celsa re-opening
the ASW plant in Cardiff and Corus' plans for growing the capacity
of its operation at Port Talbot.
Jobs in manufacturing as a whole have fallen
over the past five years: by 16% in both Wales and the UK as a
whole between March 1998 and March 2003. Nonetheless, as noted
above, Wales still has a higher proportion of jobs in manufacturing
than the UK as a whole.
Foreign Direct Investment (FDI) into Wales has
greatly assisted the diversification of the traditional manufacturing
base. While the emergence of low-cost production locations around
the globe has created intense competition for future FDI, during
2002-03 the UK remained Europe's top inward investment location
and Wales increased its share of that investment. To a large extent,
this reflects the excellent partnership between Invest UK and
the Welsh Development Agency (WDA) and the Agency's own high standing
reputation as a first class operator in this highly competitive
arena.
Further economic analysis of the role of the
manufacturing sector appears at Annex 1.
EXPORTS—A
RECORD OF
GROWTH
Latest Customs and Excise figures (for the second
quarter of 2003) show that the EU continues to account for the
greatest proportion of Welsh exports: 63% compared to 54% for
the UK. Wales has 4.45% of total UK exports, compared to around
4% of GVA, and continues to punch above its "economic"
weight in this area.
The latest figures also show an improvement
in performance, with Welsh exports for the second quarter of 2003
being 12.6% higher than the second quarter of 2002, compared to
a 0.8% reduction in the total of all UK regions. In addition,
the value of exports for Wales for the year ending quarter 2,
2003 rose by £393 million (5.9%) compared to the corresponding
period a year earlier, while the value of exports for the total
of all UK regions rose by £1,794 million (1.1%) over the
same period. Exports to non-EU countries were responsible for
£240 million of the £393 million increase for Wales.
There is no information to show the specific
impact of trade tariffs on Welsh companies. However, it is safe
to assume that the impact would be broadly the same as that felt
by businesses across the UK community (and, indeed, other trading
nations). Also, with the EU accounting for around 68% of Wales'
export trade, our exposure to tariffs is not as high as it might
have been even 10 years ago.
ECONOMIC POLICIES
In the round, the Assembly Government attaches
importance to the same policy priorities as the business community.
It recognises the critical value of sustaining a business environment
which is competitive by international standards and of investing
in skills, transport and other infrastructure and the promotion
of R&D and innovation. A Winning Wales—the Assembly
Government's policy framework for economic development—is
built very largely around these priorities.
The UK Government has a key role to play in
complementing the policies in A Winning Wales. In addition
to its impressive track record in promoting growth, Whitehall
can add real value to our efforts by:
— Investing in improved road and rail
communications between Wales and its markets elsewhere in the
UK and in Europe: "time to market" is critical for all
manufacturers and reducing it would help make Wales an even more
attractive location for high added value activity and HQ functions.
— Boosting financial incentives for
companies to invest in training and R&D: in the case of R&D,
the Assembly Government has argued for some time that higher tax
credits (or similar) for companies operating in the Assisted Areas
could play a key part in promoting the knowledge economy outside
of the South East of England where the bulk of R&D is currently
undertaken.
— Locating Government-sponsored R&D
facilities in Wales to draw on the expertise of Welsh universities
and to help create the critical mass necessary for more R&D-driven
manufacturing.
— Making a determined effort to help
universities across the UK to become centres of excellence and
even stronger engines for growth in their regions.
A WINNING WALES
A Winning Wales was published in January
2002. It sets out a range of actions in Wales geared to making
the economy more dynamic, inclusive and sustainable. The strategic
priorities identified have a very clear relationship to manufacturing
in Wales.
Further information on Foreign Direct Investment
and Trade is presented in Annex 2.
The DTI Manufacturing Strategy, published in
May 2002, highlights the critical need to assist the manufacturing
sector to improve its competitiveness. The Assembly Government
supports the broad thrust of the DTI strategy, and this is reflected
in "A Winning Wales".
The European Structural Funds Programme 2000-06
provides an important opportunity for Wales to increase its economic
and social prosperity.
For the Objective 1 Programme, the largest of
the programmes in Wales, nearly £1.2 billion of structural
funds will support some £2.7 billion of investment across
West Wales and the Valleys. To date, over £530 million has
been committed to some 880 projects, which are helping to support
a stronger Welsh economy and a better-trained workforce. Annex
4 provides further details of the importance of European funding.
Those policy measures within A Winning Wales
which impact most directly on manufacturing and trade are
now discussed in more detail.
SKILLS
Critically, there is a need to ensure that manufacturers
in Wales have access to the range of skills needed, at all levels,
to facilitate high performance working practices and environments.
The availability of European Structural funds in the Objective
One region of Wales provides a unique opportunity to support the
development and retention of those key skills.
The Assembly Government has a comprehensive
set of policies to make Wales a Learning Country, committed to
lifelong-skills development. A key priority is helping to ensure
that the needs of employers are met, both by supplying entrants
to the labour market that have the necessary skills and by helping
employers to develop the skills of their existing workforce.
These aspects of our agenda are fully developed
in the Skills and Employment Action Plan 2002. This is based to
a significant extent on the findings of the Future Skills Wales
research programme, which included a major survey of the skills
needs of employers, and on the advice of the Skills Task Force.
Aspects of the action plan that are particularly relevant to manufacturing
include:
— Ensuring that the new network of
Sector Skills Councils operates effectively in Wales and is supported
by National Council-ELWa.
— Strengthening the Future Skills Wales
partnership by establishing an Employer Group.
— Implementing the National Basic Skills
Strategy for Wales, including the Employer Pledge.
— Re-vamp the work-based training programmes,
such as Modern Apprenticeships and the new Modern Skills Diploma
for Adults, using an all-age approach to improve their attractiveness
and quality.
— Undertaking the Learning Worker Project
in Llanelli to assess the impact and value for money of providing
free learning for all employees up to NVQ Level 3.
— National Council-ELWa is introducing
a programme of Company Learning Accounts to provide flexible packages
of learning support based on employer needs.
— Joint working between National Council-ELWa
and the Wales Management Council to produce and implement a strategy
to boost management training.
R&D AND INNOVATION
Looking forward, the long term future for much
of the manufacturing sector in Wales will undoubtedly be determined
by its ability to embrace innovative approaches in securing productivity
improvements and in developing or securing the higher value-added
products and services that will be the foundation of the knowledge
economy.
Supporting the transition from a traditional,
investment-driven manufacturing to a modern, knowledge-based,
innovation-driven, high value-added manufacturing environment
is a key plank of both UK Government and Welsh Assembly Government
strategy, as outlined in "Wales for Innovation", the
Assembly Government's Innovation Action Plan.
"Wales for Innovation" sets
out an ambitious agenda for change. It includes an ambitious,
£150 million programme for promoting high-end manufacturing
through the roll out of the Technium concept developed in Swansea.
It also demonstrates the Assembly Government's
commitment to streamlining the way in which support for innovation
is managed by Team Wales: the most obvious example of this is
the bringing together of a range of measures into a single, coherent
and easy to access programme—Smart Cymru.
The Assembly Government will build on this by
creating a Knowledge Bank to support ideas and intellectual property,
providing entrepreneurs with funding for their ideas in early
stages as well as business skills and mentoring. The Bank will
be of benefit to manufacturers as well as service businesses.
Work on developing the Knowledge Bank concept is underway and
decisions on the delivery mechanism will be made by the turn of
the year with a view to implementation from April 2005.
The vision and competence of leaders and managers
in the manufacturing sector will be a key determinant of whether
the innovation challenge is met. The Wales Management Council
has recently published its "Agenda for Action" which
provides the framework through which the development needs of
leaders and managers will be addressed in Wales.
The Welsh Assembly Government is committing
significant resources to fuelling the innovation process within
Wales. The key components of "Wales for Innovation"
include:
— Communicating what can be achieved
through innovation.
— Developing more businesses with high
growth potential.
— Better equipping people to innovate.
— Promoting simpler, more accessible
support for innovation.
— Maximising the economic development
impact of Welsh universities and colleges.
— Investment in the attainment of the
objectives of this Plan will exceed £260 million by 2005.
TRANSPORT AND
OTHER INFRASTRUCTURE
Transport
The Welsh Assembly Government fully recognises
the business need for modern transport infrastructure both to
improve access to markets elsewhere in the UK and in Europe and
to facilitate travel to work and communications within Wales.
The Assembly Government's aim of developing
a better co-ordinated and sustainable transport system that supports
economic growth and local communities is presented in the Transport
Framework for Wales' policy document.
This policy is being implemented by sustained
investment both in the strategic road network and public transport
improvements. The Assembly Government has published a forward
programme of work on the trunk road network. This includes eight
major road schemes scheduled for delivery before March 2005 and
23 schemes that should be due to start before March 2008. The
estimated cost of this ambitious programme is £400 million.
The Assembly Government is also making a significant
investment in local authority road infrastructure through the
transport grant scheme. There are 16 major road projects currently
being funded that will address economic, social access and safety
issues.
Investment in infrastructure has not been limited
to the road network. There are two major rail infrastructure projects
being funded by the Welsh Assembly Government. The re-opening
of the Ebbw Valley railway as a passenger line will create opportunities
to communities in Blaenau Gwent that have been severely hit by
recent steel closures. The Assembly Government has also agreed
to meet the full capital costs of re-opening the Vale of Glamorgan
railway line (including two new stations at Rhoose and Llantwit
Major). This will provide rail passenger services to those living
in the Vale and improved public transport access to Cardiff International
Airport.
The Assembly Government is also providing Freight
Facilities Grant to encourage a transfer of freight movement from
the road to the rail network. The Wentloog to St Mellons road
link in Cardiff is also being funded by the Welsh Assembly Government
and will provide direct vehicle access to the new Euro Rail Freight
terminal at Wentloog.
Promoting information and communication technologies
The Welsh Assembly Government is committed to
developing a Wales where all businesses, wherever they are located,
are able to exploit information and communication technologies
fully in order to improve their competitiveness, innovate and
achieve sustainable growth. Improvements in this critical area
will help manufacturers and exporters drive up productivity and
gain easier and more rapid access to markets.
There are a range of important measures in place
or planned to deliver on this commitment.
The All Wales network of ICT Support Centres
offer impartial "low-end" ICT help and guidance to about
5,000 businesses each year. An ICT Support Centre is based in
each of the 22 Unitary Authorities. These centres also showcase
the various Broadband technologies to SMEs through the "Try-Before-You-Buy"
scheme.
Building on the success of an initial SME-Business
programme, the Objective One funded Wales SME-Business 2 will
provide "high-end" ICT advice, awareness raising events,
seminars and one to one mentoring to SMEs looking for full integration
of ICT into their businesses.
Opportunity Wales offers e-Commerce support
to SMEs in the Objective One area of Wales. A Contact Centre has
been established to provide a fully effective Customer Relationship
Management operation. Over 80 trained, accredited professional
advisors are able to visit businesses too.
The Wales Information Society (WIS) Mobile Exhibition
Technology Trailer is equipped with the latest state-of-the-art
technology including broadband satellite, video conferencing and
other facilities and travels throughout Wales throughout the year.
The trailer aims to raise awareness of the potential benefits
offered by ICT, particularly in rural areas where such facilities
are more difficult to access.
There are a variety of Objective One funded
projects which support businesses in Wales on the effective and
appropriate application of ICT. For example the Wales Application
Service Provision (WASP) provides affordable access to ERP and
SAP based software to SMEs in the Objective One region.
Broadband Wales
Though all the measures in this critical sector
are important, there is little doubt that the £115 million
"Broadband Wales" Action Plan launched in July 2002
will have the most impact on business competitiveness.
The Action Plan sets a number of important targets
for achieving an increase in the access and take up of broadband
services that are vital toward the successful transition from
an industrial to a modern, knowledge economy. The targets are
to:
— Increase the availability of affordable
broadband services in Wales by approximately 30%, with 310,000
extra homes and 67,000 extra businesses potentially being able
to access broadband.
— Provide broadband connectivity in
relevant business parks/locations in Wales.
— Make broadband services more widely
available throughout Wales at near-DSL prices.
— Develop 50-100 local or regional
initiatives to deliver broadband solutions.
— Increase awareness of broadband communications
and its benefits.
— Provide approximately 1,200 additional
public sector sites with broadband connectivity (as part of aggregation
of public sector demand activities).
A range of projects are underway to achieve
these targets.
The Broadband Infrastructure Subsidy Initiative
(BISI) will provide broadband connectivity to the Objective 1
area of Wales. This will be achieved through a subsidy process
that will give suppliers the opportunity, the market, and the
viability to invest in establishing broadband infrastructure within
areas where there is market failure.
The Regional Innovative Broadband Support Programme
(RIBS) will part fund local broadband projects that are capable
of improving the competitiveness of disadvantaged regions through
the use of broadband infrastructure. The first call for RIBS projects
will begin in 2004.
The SME broadband Satellite Subsidy Scheme and
associated "Try Before You Buy" Scheme has encouraged
businesses to realise the benefits of broadband. The Broadband
to Business Parks Project will provide connectivity to a number
of business parks and key business locations. The procurement
associated with this project will begin before the end of 2003.
The Assembly Government is actively pursuing
the aggregation of public sector demand for broadband agenda and
already provides connectivity to schools, libraries, learning
centres and the health service in Wales. This will be built upon
over the coming months and years. The subsidy scheme will become
technology neutral by the end of 2003.
MEASURES TO
SUPPORT MANUFACTURING
IN PARTICULAR
Generic support
The provision of support to ensure that manufacturers
in Wales are able to secure the investment necessary to achieve
ongoing improvements in productivity is critical to the sector's
future. This is particularly true in the context of those businesses
where competitive factors are forcing a move towards more sophisticated,
higher value-added products, as production of lower value-added
products is transferred to low cost production locations around
the globe.
The Welsh Assembly Government has a key role
to play in supporting manufacturing investment through the administration
of Regional Selective Assistance (RSA) and through its Assembly
Investment Grant (AIG). These schemes support capital investment
projects in the Assisted Areas that create new jobs or safeguard
existing ones. They are the main forms of financial incentive
to businesses to encourage investment and growth in Wales.
RSA is a discretionary grant scheme and the
main form of financial incentive available to businesses to assist
investment and growth in Wales. The aim of the scheme is to reduce
disparities in employment opportunities between the Assisted and
non-assisted areas. RSA operates under Section 7 of the Industrial
Development Act 1982 and is an approved scheme under the European
Commission's Regional Aid Guidelines.
RSA is currently administered in Wales, England
and Scotland under a common GB framework. In Wales, the scheme
is funded entirely by the Welsh Assembly Government. Grants of
more than £50,000 are generally available and there is no
upper limit, although non-SMEs can qualify for lower levels of
support for smaller projects. To qualify for support, a project
must involve new investment in capital assets such as buildings,
equipment and intellectual property and create or safeguard jobs.
AIG is also a discretionary grant scheme and
operates under Sections 7 and 8 of the Industrial Development
Act 1982. It is also an approved scheme under the European Commission's
Regional Aid Guidelines but only operates in Wales and is funded
entirely by the Welsh Assembly Government. Based on RSA, AIG was
launched in April 2002 and is aimed at providing fast-track financial
assistance specifically to SMEs. Grants of between £5,001
and £50,000 are available and unlike RSA, an AIG project
can take place anywhere in Wales and does not necessarily need
to create or safeguard jobs.
Between 1 July 1999 and 30 November 2002, 430
offers of RSA were made to projects in the Assisted Areas of Wales
with a total value of £250 million. These projects are expected
to lever in almost £1.2 billion of private sector investment,
create 20,000 jobs and safeguard a further 9,493. Of the total
number of RSA offers made, 325 offers (76%) relate to manufacturing,
involving £193 million grant (77%).
During the first 12 months following the launch
of AIG in April 2002, 380 AIG grant offers were made to SMEs throughout
Wales with a total value of £12 million. These projects are
expected to lever in almost £32 million of private sector
investment and create 654 jobs.
Further details of grant awards appear in Annex
2.
Sector-specific support
Within the broad portfolio of support available
to business in Wales, there are a number of schemes which target
manufacturing specifically and which emanate from broader, UK-wide
initiatives. Examples include a joint DTI initiative, the Wales
Manufacturing Advisory Service and the associated Regional Centre
for Manufacturing Excellence.
The emergence of Sector Forums in Wales, covering
key manufacturing sectors including for example Automotive, Aerospace
and Opto-Electronics, has resulted in an improved appreciation
of the key issues facing manufacturers. This improved engagement
of the private sector in determining policy responses to key issues
has ensured that, increasingly, support programmes are able to
target improvements within the sector more effectively.
A good example is the development and implementation
of the "Accelerate Wales" programme that targets the
implementation of lean manufacturing techniques within automotive
supply chains. The successful roll-out of the programme has been
in no small measure due to the engagement of key figures from
the sector with the Wales Automotive Forum and the involvement
of a broad range of partners in steering the project.
POLICIES FOR
EXPORTS
The Welsh Assembly Government recognises that
the development of improved international trading performance
is key to improving the prosperity of the nation.
Wales Trade International (WTI) was formed by
the Welsh Assembly Government in 2000 specifically to promote
international trade in Wales and to act as the driving force in
establishing strategic business alliances between Welsh companies
and their counterparts world-wide. A key objective is to find
smarter ways of connecting Wales to international business opportunities
with the aim of at least matching the UK export growth rate.
In delivering on its agenda, WTI works very
closely with Trade Partners UK and their network of posts across
the world.
The Welsh Assembly Government's International
Trade Strategy "A World of Opportunity" was launched
in March 2003. It promotes a partnership approach to the creation
of a culture of internationalisation in the Welsh economy. Its
vision is "To increase the prosperity of the people of Wales,
by developing a culture of internationalisation within the business
community of Wales, thereby developing new opportunities in the
global market". The Strategy is focussing on the following
six strategic objectives:
— Developing the capacity and capability
of existing Welsh companies to trade internationally, as well
as supporting the creation of new exporters.
— Increasing the value of Welsh international
trade with overseas markets.
— Promoting key sectors of the Welsh
economy in priority overseas markets.
— Creating and maintaining effective
partnerships with other business support agencies in Wales and
the UK—"Joined-Up-Delivery".
— Developing and maintaining a customer
focused approach to service delivery ie; demand led.
— Monitoring the effectiveness of services
and programmes, and in conjunction with partners, review the Strategy
and make any necessary changes in direction or approach.
GREENING BUSINESS
The Welsh Assembly Government is committed to
developing a greener economy that can contribute to sustainable
development. The published Business and Environment Action Plan
for Wales (BEAP) focuses, in its first phase, upon resource management.
This focus on resource management has the objective
of "making more with less". The Action Plan is aimed
at assisting businesses in Wales to exploit the opportunities
that result from reconciling economic growth with environmental
concerns.
It is becoming increasingly evident that there
is significant scope to improve the management of resources and
associated issues such as energy efficiency; on-site generation
of clean energy; waste management and minimisation; recycling;
use of sustainable building materials; pursuit of environmentally
conscious site management etc. These and other areas are being
targeted by the Welsh Assembly Government, WDA and partner organisations.
Partnership is very much the key to delivering
the vision as set out in the action plan. A steering group has
been established by the Welsh Assembly and the WDA to co-ordinate
the activities of all the partners and facilitate the achievement
of stated outcomes. The partner organisations are recognised for
their valuable input and commitment: essential ingredients for
ensuring the successful delivery of the plan."
SETTING THE
FORWARD AGENDA:
AN ACTION
PLAN FOR
MANUFACTURING
As in the rest of the developed world, the manufacturing
sector in Wales is experiencing considerable, ongoing change.
This change process is complex and driven by a range of global,
national and local factors. The policy response is therefore,
of necessity, broad and complex.
Manufacturing in Wales is supported through
a range of instruments and initiatives. Increasingly, it has become
recognised that key decision-makers within the private sector
need to be more engaged in setting the future agenda for public
sector support if interventions are going to deliver the scale
of benefits that are necessary to achieve the desired, positive,
impact. The emergence and development of sector fora, covering
key industrial sectors in Wales, has provided a vehicle through
which this process has been enhanced and business-driven.
The Assembly Government recognises that the
time is now right to build on the success of the sector fora.
It will work directly with key players from across the whole spectrum
of manufacturing to develop an ambitious but practical Action
Plan to ensure that the sector can flourish in Wales.
The Assembly Government wants Wales to become
nothing less than a European centre of excellence for the production
of high added value manufacturing, particularly in those areas
in which it is already strong or could realistically develop a
competitive advantage.
Rob Halford
Head of Economic and Business Partnerships Branch
13 October 2003
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