3 Inward investment and trade
Wales's
recent performance on inward investment
59. The late 1980s and early 1990s was a golden age
for Wales in attracting inward investment. The country offered
a compelling package of grants, large parcels of land available
for development, low labour costs, and a ready supply of workers.
However, countries from Central and Eastern Europe, China and
other developing countries are now able to offer potential investors
significantly lower employment costs. Since 2006, Wales's share
of UK investment projects has ranged between 3.4% and 4.5%. Wales,
one of the top regional performers in attracting FDI in the period
1990-2004, receiving approximately 15% of the UK's inward investment
and associated jobs created, had become almost the worst performer
by 2009.
60. We published a major report on inward investment
in Wales in February 2012. We are pleased to note that Wales'
inward investment record has improved in the couple of years since
the publication of our report. The 2013 Ernst and Young attractiveness
survey found that Wales had increased its number of foreign-backed
projects by 224% since 2011. Wales's foreign-backed projects quadrupled
from nine to 31 in 2012, the highest total for five years, creating
2,051 new jobs in the process.[64]
61. Nevertheless, only 4% of foreign investors chose
Wales as the most attractive destination in the UK to set up foreign
operations. In contrast, 11% saw Scotland as an attractive place
and 45% saw London as the best place to relocate.[65]
Role of UKTI in promoting Wales
abroad
Attracting inward investment
to Wales
62. UKTI is the joint UK government department with
lead responsibility for trade and investment. It has an annual
budget of £157.2 million and 1,911 staff.[66]
Many witnesses expressed concern over the way in which UKTI promoted
Wales overseas. The Institute of Directors (IoD) Wales told us
that, following devolution, UKTI had focused its activities on
England and had "failed dismally" to fulfil its obligation
to promote Wales abroad.[67]
It believed Wales needed a "new approach to the fiercely
competitive overseas promotional market".[68]
63. Others, however, were more complimentary. Michael
Carrick, Chief Executive of Aventa Capital Partners, praised two
organisations within UKTI—the Regeneration Investment Organisation
and the Automotive Investment Organisation—which "heavily
promoted" Welsh projects, such as the Circuit of Wales.[69]
Mr Carrick said that UKTI's approach was to secure international
investment for specific projects, rather than direct investors
to a particular UK region:
[UKTI] are very clear that it does not matter
to them whether that [project] is in the south-east of England,
Shetland, Northern Ireland or Wales. They want good structured,
robust, investable opportunities to attract international investment.[70]
64. Similarly, the Minister of State for Trade and
Investment said that UKTI had a "UK first" policy in
respect of attracting inward investment:[71]
In term of the UK's welcoming of business and
openness, we try to attract a company to the UK and then depending
on what it does, we present it with the best option of region,
town or cities or whatever for its particular type of investment
[…] It is very much about getting people to decide they are
coming to the UK, not Germany.[72]
65. The then Secretary of State for Wales believed
that improved knowledge by UKTI of the attributes that Wales could
offer to prospective investors had resulted in "more and
higher quality inward investment projects" to Wales.[73]
ENGAGEMENT WITH WELSH BUSINESSES
66. Some witnesses expressed concern that Welsh companies
did not tend to utilise, or have relations with, UKTI. Simon Gibson
from the Celtic Manor Resort told us that UKTI had little impact
on Welsh companies: "I do not think we are always at the
front of the queue at UKTI when it comes to opportunities".[74]
In 2013, the Confederation of British Industry (CBI) recommended
that UKTI needed to do more to promote its services to companies
at the regional level.[75]
67. Although the then Secretary of State for Wales
believed that UKTI did a "tremendous amount overseas"
to promote Wales, he expressed concern that there was a perception
by many businesses across Wales that UKTI was an "England
only body".[76]
He said that UKTI needed to "strengthen its operating market
in Wales" and increase direct interaction between itself
and businesses in Wales.[77]
Simon Gibson told us he favoured a specific UKTI office in Wales.[78]
RELATIONS BETWEEN UKTI AND THE WELSH
GOVERNMENT
68. Dr Andrew Crawley, Marie Curie Research Fellow
at the University of Illinois Urbana-Champaign, said that, following
the demise of the Welsh Development Agency (WDA) in 2006, the
relationship between UKTI and the Welsh Government had gone through
"a very dark period" with poor communication and co-ordination.[79]
Business representatives believed that the relationship was now
better, but there was still "a great deal of room for improvement".[80]
69. The Minister for Trade and Investment told us
that UKTI officials worked closely with their counterparts in
the Welsh Government. He described it as a "structured relationship",
as defined by an MOU, signed in 2012,[81]
which set out the responsibilities of both the Welsh Government
and the UKTI on co-operative working and information sharing.
The then Secretary of State for Wales believed that the MoU had
improved relationships between the two organisations.[82]
70. We were told that a secondee from UKTI had also
recently been placed with the Welsh Government, whose role would
be to liaise with the Welsh Government, the Wales Office, and
businesses in Wales. The Minister for Trade and Investment told
us that this position was unique to Wales and a similar secondment
position did not exist in Scotland or Northern Ireland.[83]
He said he expected to meet the Welsh Government's Business Minister
twice a year. [84]
71. The Welsh Government did not provide written
evidence on the parts of our terms of reference related to inward
investment and trade.
72. We accept that UKTI's role is to maximise
the total amount of investment in the UK. While there are specific
examples of UKTI promoting Welsh projects overseas, we believe
that Wales could still benefit more from UKTI's expertise, reputation,
and international contacts. It is particularly worrying that Welsh
companies do not utilise UKTI as much as they could.
73. We recommend that UKTI reports to us by February
2015 on progress made to improve its profile amongst Welsh businesses
and its engagement with them.
74. Nine of the ten poorest regions in Northern
Europe are in the UK, including West Wales and the Valleys. The
UK also houses the richest—Inner London. The Committee believes
that UKTI has a crucial role in helping address geographical wealth
inequalities and notes the efforts of German Trade and Investment
to reduce disparities within the German state. UKTI should
be mandated by the UK Government to perform a similar function.
A new dedicated trade agency
for Wales?
75. For approximately 30 years, the WDA was responsible
for encouraging business development and investment in Wales.
It was abolished in 2006 by the Welsh Government. Its international
remit was transferred to the newly created International Business
Wales (IBW), which sat within the then Department for the Economy
and Transport. At the end of 2010, IBW ceased to exist as a separate
entity and its activities were subsumed into the Welsh Government's
Department for Business, Enterprise, Technology and Science, now
the Department for Economy, Science and Transport.
76. In our 2012 report on Inward investment in
Wales, we concluded that the abolition of the WDA had "reduced
Wales's visibility in the global market place".[85]
Two years later this view was still shared by several witnesses.
IoD Wales said the abolition had significantly reduced Wales's
profile of its brand.[86]
The then Secretary of State for Wales told us that the WDA's demise
had led to a loss of a "lot of impetus" in promoting
Wales: "scrapping the WDA was a seriously bad retrograde
step".[87] The Minister
for Trade and Investment agreed that the abolition of a separate
body had affected Wales's ability to attract inward investment.
77. Some witnesses noted, however, that the WDA had
been "far from perfect." IoD Wales said that the WDA
had lacked good leadership in the final years before its abolition
and had lost the confidence of politicians and the business community.[88]
Dr Andrew Crawley agreed that the WDA had
a "huge amount of baggage at the end," but still had
"huge brand kudos" internationally.[89]
78. Some witnesses believed that Welsh Government
civil servants now responsible for inward investment were not
best suited to make business decisions. IoD Wales told us that
the role of civil servants in supporting ministers "restricted
their effectiveness when operating in the fiercely competitive
overseas market".[90]
Dr Crawley said that business decisions were best made by those
within the business community:
If you have people who are wise and have the
smarts in particular sectors and industries, they are probably
not people who are in the civil service. I am talking about people
who are right there in the industry-who have their finger on the
pulse and know exactly what is happening.[91]
There were also criticisms of the length of time
it took for Welsh Government civil servants to make business decisions.
Michael Carrick told us that he experienced different levels of
responsiveness among civil servants across the UK; his perception
was that, in Wales, the speed of decision-making in Wales often
depended on the individual civil servant and their "specific
capabilities". He believed that the delays were due to a
culture of risk aversion within the civil service: "we are
asking the Government to do things that they are not geared up
to do, take risks, share risks and process things that we need
done".[92] Simon
Gibson agreed that risk aversion hampered decision-making in Wales:
It is a very scary place for a civil servant
to make a decision when he knows that he might be audited four
times for that decision-not just by his own auditors but by another
Government's auditors or European auditors. It is a very complicated
environment …[93]
79. Most witnesses called for the establishment of
a dedicated trade promotion agency with the promotion of Wales
being "more firmly rooted in Wales".[94]
IoD Wales believed such an organisations should:
[…] be constituted on an arms-length basis
from the Welsh Government, and have a board of directors in place.
While boards should be private sector led, membership should also
include those with senior experience in the public and third sector.[95]
80. In 2012 we recommended the establishment of a
dedicated trade promotion agency, either sitting within the Welsh
Government or as a private sector vehicle working in collaboration
with the Welsh Government to drive inward investment projects
into Wales. We believed such a body should have a mix of skills
with an emphasis on private sector experience.
81. The then Secretary of State for Wales told us
that he favoured the establishment of a new body to further Welsh
businesses overseas, which would work in collaboration with UKTI.[96]
The Minister for Trade and Investment contrasted Wales's situation
with Scotland and Northern Ireland, where Scottish Development
International and Invest Northern Ireland "punch[ed] stronger"
in attracting overseas investment.[97]
82. We are concerned that Wales has no dedicated
trade promotion agency, unlike Scotland and Northern Ireland.
The lack of such a body is, in our view, hampering inward investment
opportunities.
83. Modern broadband alongside the prospect of
rail electrification means that Wales can increasingly offer a
lower cost, lower congestion and better quality of life offer
to inward investors than London and the South East. We reiterate
our previous calls for the establishment of a dedicated trade
promotion agency, either sitting within the Welsh Government or
as a private sector vehicle working in collaboration with the
Welsh Government to drive inward investment projects into Wales.
Overseas trade delegations
84. Overseas trade delegations, led by the UK Government,
are an important way for government and business to seek international
business opportunities. Recent trade delegations have been led
by the Prime Minister, the Deputy Prime Minister and the Minister
for Trade and Industry, and can involve between 40 and 100 UK
companies.[98]
85. The previous Secretary of State for Wales also
led a number of foreign trade delegations on behalf of the UK
Government, promoting Wales, and the UK more broadly, as a business
location. Some examples include North and South East Asia (March
2013), Singapore and Indonesia (November 2013), and Malaysia and
Oman (February 2014).
86. Some witnesses expressed concern that Welsh businesses
and cultural organisations were not adequately represented on
UK trade delegations. David Anderson, Director General of Amgueddfa
Cymru (National Museum Wales), said he had never been approached
to attend a UK trade delegation.[99]
Arts Council Wales expressed frustration that previous UK trade
delegations had included their England counterpart and told us
that "there is a lot of work to be done" to get Welsh
representation on such events.[100]
87. In response to this criticism, the Minister for
Trade and Investment argued that many UK trade delegations included
a Welsh presence, but accepted that more could still be done:
"I do not think, to be frank, that we are good enough about
ensuring across the UK and across different types of companies
that we are always fully represented".[101]
He told us that companies could learn about proposed trade delegations
from local Chambers of Commerce and MPs.[102]
88. The Welsh Government also runs its own trade
delegations. For instance, the First Minister visited Uganda in
January 2014 and New York and Washington in February 2014. It
has published a programme of its trade delegations for 2014-2015.
Some witnesses believed the UK Government (particularly the Wales
Office) and the Welsh Government could co-ordinate better to promote
Wales overseas. Dr Andrew Crawley said it was important for all
levels of Government to "sing from the same hymn sheet":
… [if we] send out different groups of people
who have not spoken, have not organised and have not co-ordinated
before meetings, we end up having this competition factor, with
different levels of Government and different groups trying to
show it. […] We all need to sing from the same page and say,
"This is what we are doing"-and we must put politics
to one side.[103]
It was suggested that the Secretary of State for
Wales and the First Minister for Wales should participate in joint
trade delegations overseas. We were told that the Secretary of
State for Wales' presence could add "huge kudos" to
a trade mission: "You are showing a UK presence and how Wales
fits into the larger picture of the UK".[104]
89. When questioned about the possibility of joint
trade delegations with the Welsh Government, the then Secretary
of State for Wales told us he was in favour of the idea. He said
a recent Wales Office trade mission to Japan had included a senior
Welsh Government official, in order to attract investment to Wylfa
power station. However, he told us that the Welsh Government had
refused offers for a UK Government minister to participate in
Welsh Government trade missions.[105]
We note that the Wales Office and the Welsh Government hosted
an event together in London on 28 August to showcase Welsh business,
education and tourism ahead of the NATO summit.
90. Overseas trade delegations provide a valuable
opportunity to promote Wales and Welsh companies overseas. It
is therefore vital that Welsh companies are given the opportunity
to accompany trade delegations with UK Government ministers. In
too many cases Welsh companies are simply not aware of the opportunities
available to participate in such delegations.
91. We recommend that UKTI ensures a regional
spread of businesses are included on overseas trade delegations
and that Welsh companies are given opportunity to participate.
92. We recommend that the Wales Office and Welsh
Government, as a matter of routine, inform all Welsh Members of
Parliament and Assembly Members about upcoming trade delegations
so that they in turn can inform relevant businesses in their constituency.
We recommend that such a system be in place by the beginning of
2015.
93. Given the shared interest to grow the Welsh
economy, we believe that more could be gained from the Wales Office
and the Welsh Government co-operating more closely on trade delegations.
94. We recommend that the Wales Office and Welsh
Government seek greater opportunities for joint overseas trade
delegations, at both the ministerial and official level, where
interests align and to promote Wales internationally as a place
to do business.
64 Ernst & Young attractiveness survey, 2013 Back
65
Ernst & Young attractiveness survey, 2013
Back
66
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/326050/UKTI_annual_report_2013-14_web.pdf Back
67
Institute of Directors Wales (IRW0010) Back
68
Institute of Directors Wales (IRW0010) Back
69
Q168 Back
70
Q168 Back
71
Q322 Back
72
Q322 Back
73
Wales Office (IRW0011) Back
74
Q92 Back
75
CBI, Local Champions: The Economic Contribution of Medium-Sized Businesses Back
76
Wales Office (IRW0011) Back
77
Wales Office (IRW0011) Back
78
Q92 Back
79
Q36 Back
80
Q170 Back
81
Q329 Back
82
Wales Office (IRW0011) Back
83
Q339 Back
84
Q338 Back
85
Welsh Affairs Committee, Eighth Report of Session 2010-12, Inward Investment in Wales
HC854-I para 113 Back
86
Institute of Directors Wales (IRW0010) Back
87
Q335 Back
88
Institute of Directors Wales (IRW0010) Back
89
Q39 Back
90
Institute of Directors Wales (IRW0010) Back
91
Q39 Back
92
Q175 Back
93
Q95 Back
94
Institute of Directors Wales (IRW0010) Back
95
Institute of Directors Wales (IRW0010) Back
96
Q335 Back
97
Q335 Back
98
Recent UK trade delegations have included UAE and Qatar (March
2014), Colombia and Mexico (February 2014), China (December 2013)
and India (February 2013). Back
99
Q227 Back
100
Q227 Back
101
Q333 Back
102
Q333 Back
103
Q37 Back
104
Q37 Back
105
Q333 Back
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