Inward Investment in Wales

Written evidence submitted by the Cardiff Business Partnership

Introduction

1. Funding channelled into Wales by national governments from the 1930’s to 1990’s attempted to create the economic conditions for prosperity by underwriting inward investment directly and indirectly, funding large scale public industrial/employment estates ; housing and new town development and providing major infrastructure such as road and rail bridges. Regeneration programmes meanwhile tended to follow local authority boundaries, or were based on groupings of local authority areas.

Wales and Economic Strategy

2. Proposals for a National Economic Development Strategy prepared in July 1999 stated that it will be the vehicle for setting the strategic priorities for the economic policies and programmes of the Assembly. It stated that the Assembly had an unique opportunity to take the programmes it has inherited, alongside the significant contribution of the new European funds, and shape them to provide a consistent and concerted impact on our future prosperity. It further stated in 1999 that Europe offered a window of opportunity to achieve new levels of prosperity in the whole of Wales. The key policies and priorities outlined focused on getting the best out of the unique opportunities for development over the period 2000- 2010. Separate action programme were intended to detail the specific measures necessary to implement European programmes in particular regions of Wales.

3. More importantly, it stated that by 2010, Wales wished to see a renewed Welsh economy based on: high and appropriate skill levels; higher levels of participation; strong representation in growth sectors; innovation; an export culture; added value; higher quality jobs; the highest quality of the natural environment; This economic transformation it stated must increase levels of employment and activity, raise earnings, and increase the quality of life, health and opportunity for all. In 1999 it set Targets GDP to reach: This failed to take place. It is now time to reconsider matters.

The Economy today

4. Due to the poor nature of the economy in Wales (compared to other regions of the UK) there is a constant call to bring back the likes of the WDA – "Welsh Development Agency" as an economic development driver. Wales needs to now explore what is good about economic intervention by governments as well as the challenges. However:

· Wales had the lowest proportion of exporting companies by UK region in 2006/7, some 2.1% of Welsh businesses. The value of Welsh exports fell from £10.6bn to £9bn between 2008-9. (UWIC, NS)

· Manufacturing as a proportion of Welsh GDP has fallen from 38% in 1995 to 17% in 2007. In 1980, total employment in basic metals and metal production alone was around 77,000 people, or 6.6% of the working population. (ONS, Steel Communities Study vol II,)

· Output from biotechnology, pharmaceuticals and telecommunications fell in Wales 2008-9, but rose at a UK level. (Cited in the IWA response to the Economic Renewal Programme)

· Wales now ranks last in the UK Competitiveness Index, on 83.9% of the UK average. (Centre for International Competitiveness)

· Spend on R&D is 60% of the UK average. (Centre for International Competitiveness)

· In the 1990s, pre-recession levels of UK GDP were not regained until three years later. Pre-recession levels of employment were not regained for eight years. (Assembly Members’ Research Service) .

5. Long term unemployed in Wales in the four years to June 2010 rose sharply over the 12 months from June 2009, from around 21% to 28.2% of all those unemployed, overtaking the UK rate of 28%.

6. The youth unemployment rate in Wales also rose sharply, from just under 15% of 16-24-year-olds in June 2008 to 21.7% in June last year, up on the UK average for that time of 19.5%. (Annual Population Survey, NS)

7. Four of the 10 districts for highest benefit claimant rates in 2009 are in Wales: Blaenau Gwent (26.7% of the working population), Merthyr Tydfil (26.5%), Neath Port Talbot (22.6%) and Rhondda Cynon Taff (22.5%). Caerphilly (22.1%) is 11th.

8. Welsh GDP against the UK average currently stands at around 75%. It has been falling steadily for over a century and, save an increase during the 1960s to a high of around 88% in 1970, Welsh GDP has been falling since the 1890s, when it peaked at around 95%. London, by contrast, has never fallen below 120% and currently stands at just over 150%. (Regional GDP in Britain, 1871-1911 & Scottish Journal of Political Economy)

9. In 2006, Wales was listed as ninth in a table of older industrial regions in Europe, with a GDP per capita of 24,000. This compares Noord-Brabant in the Netherlands, which was on 33,400. (EU Statistical Unit) .

Inward Investment challenges

10. The Welsh economy was brittle going in to the recession it fears the worse coming out with the loss of major inward investment corporations such as Bosch, Visteon , TRW and Hoover from the economy. Between 1983 and 1997 the WDA ( it took responsibility for inward investment in 1983) recorded a number of inward investment projects- estimated to be about 855--from overseas. Investment brought new ways of working and capital expenditure. Instead of seeing what that these corporates achieved in Wales and invested commentators who should know betters sometimes look on in disbelief that corporations like our heavy industry do not stay in one place forever. Business is globally fleet of foot. We are arguably no longer seen as a place to easily invest because we fail to reach out and compete.

11. To increase competitiveness in economic development targets are essential to measure success or failure. Others measure us but we seem not to wish to do this therefore we figure poorly in UK and European leagues in economic development and it becomes a surprise or a political tennis match ensues with no conclusion or real solutions arrived at. The Welsh Development Agency was established in 1976 under the WDA Act 1975. The purpose of the Agency was to further the economic development of Wales; to promote industrial efficiency; and to further the improvement of the environment, and to promote the development of communities throughout Wales. It had targets which provided focus to staff and its independent Board. There is currently no economic target to measure success in economic development in Wales. Inward Investment is the only economic performance that is reported upon as it is UK report to Parliament but there is no target set.

The importance of the Capital to the economy of Wales and future investment

12. Wales’ competitiveness is reliant upon both indigenous and foreign investment. Indigenous businesses, as much as the local workforce itself, can benefit from increased foreign direct investment in the city.

13. Despite being the envy of other places in Wales, Cardiff has experienced economic growth over the last 10 years .It boasts buildings that are distinctive and public money was spent wisely on the Millennium Stadium in the City Centre and the Millennium Centre in the Bay.

14. Much of Wales delights in the fact that Cardiff now boasts a growing European Core City and the highest growth in private sector employment over the last 10 years of all UK Core Cities.

15. In the early 1900s, Cardiff controlled the global market for coal, its docks were the world’s largest exporter, and the city’s Coal Exchange set the world price. In recent times, Cardiff’s economy has since become more diverse but remains equally ambitious. Heavy industry has given way to a transformed economy, with dynamic knowledge driven sectors competing effectively at the highest level.

16. European Cities of the Future Awards February 2008 - The Financial Times’ Foreign Direct Investment magazine, ranked Cardiff as 7th in list of top 50 European cities of the future. Cardiff is also ranked the 7th most attractive city in Europe as a destination for Foreign Direct Investment

17. Cardiff is an established and thriving international business location. For over 30 years, international companies from all over the world have been attracted to Cardiff by its skilled labour pool, competitive cost base and strategic position close to London.

18. Cardiff has transformed its economy into a modern and competitive knowledge based economy. The city has an above average number of people employed in knowledge based sectors with the greatest opportunities for growth in Biosciences, ICT and the Creative Industries.

19. Cardiff has a strong cluster of around 100 bioscience related companies and organisations and Cardiff University has a growing international reputation for research expertise in bioscience related disciplines. Major international companies like GE Healthcare (employing over 1,000 people locally), Shaw Healthcare, Bio Trace and Cogent, compliment an innovative small firm sector attracted by the University and the 2,500 local students and 500 doctorates in bioscience related disciplines.

20. Together these organisations represent much of the Cardiff’s workforce. Analysis of the Annual Business Inquiry for Cardiff reveals that over half of those employed in Cardiff can be accounted for by less than 5% of the total number of workplaces. The remainder of those working in the city are spread amongst around 12,000 businesses or organisations. These organisations are also as vital for small businesses as they are for employment. Many of the city’s SMEs are reliant upon the large organizations for businesses, and as such it is vital that the city’s top corporate, investment and entrepreneurial firms flourish in order to help maintain a competitive SME base in Cardiff.

21. In terms of economic impact, there is a growing understanding of the role that large companies have on the region. A study by Aston University further emphasised that large local companies are the biggest drivers of economic growth in cities. The study found that companies with more than 200 employees were the biggest investors within the city, demanding that policymakers develop a new approach to private sector engagement.

22. The figures in Wales are compelling. In 2006 for example, 41 per cent of business sector employment was accounted for by large enterprises (those with 250 or more employees), compared to 43 per cent for the UK as a whole. This compares with a figure of 32 per cent for micro businesses (0-9 employees), which account for 32 per cent of Welsh business sector employment.

23. Larger domestic companies make a significant economic contribution. Investment by these companies will have the biggest impact on both productivity and employment. Enterprises active in Wales with 250 or more employees accounted for 55 per cent of total turnover in Wales, compared to 52 per cent for the UK as a whole. They also represent an opportunity to deliver the city’s aspirations around skills, social inclusion and improved environmental performance.

24. Cardiff’s competitiveness has helped it to generate some 40,000 jobs for the Welsh economy according to Annual Business Inquiry data for the period 1998-2008. That’s almost three quarters of the total jobs growth for South East Wales. These jobs have benefited the whole City region.

Conclusion

25. The Cardiff Business Partnership is committed to maintaining and developing Cardiff’s position as a leading city, not just in the UK context but worldwide. We’ve seen the city successfully navigate the hangover of deindustrialisation to become a modern knowledge-based economy in recent years, but we need to make sure we can make that next step. In a worldwide context we consistently see cities such as Copenhagen, Helsinki and Zurich figure prominently in competitiveness and quality of life leagues, and there is no reason why Cardiff should not also be featuring and continuing to be the engine and shop window of economic growth for Wales.

March 2011