The signs we should be reading

It is the impact of many small decisions that can sometimes give the best overall picture of what is happening to the economy, says Rhys David

Straws in the wind indicating the trends that are establishing themselves are difficult to pin down but when enough have settled to cover the bottom of a hamster’s cage it is probably worth making the effort to try to assess what is happening. This is a point we have reached with the Welsh economy where a number of largely unheralded announcements over recent months from the private sector present a clear and rather uncomfortable message.

We are not talking here about the big closures we have seen in recent years – Hoover or Visteon for example – or the equivalent taking place in the public sector, such as the Passport Office in Newport or the cutbacks we know will come in Welsh local authorities. In fact, the most recent straws are not large in terms of loss of employment or contribution to Welsh GDP but significant, nevertheless, for what they tell us about current day Wales.

Earlier this year the well-regarded French restaurant, Le Gallois, in Cardiff’s Pontcanna, announced its closure, depriving the capital of one of its all too few chef-led establishments. Restaurants close for all sorts of reasons but the loss of this particular one is not encouraging. Instead, it almost certainly points to the pressures on restaurateurs from rising food, energy and other prices and, crucially, the difficulty of passing these on in Wales when consumers are keeping their purses more tightly shut. It is some consolation that Wales’s four Michelin-starred restaurants did manage to retain their one star status but it is worth pointing out that over the UK as a whole there was by contrast an increase in qualifying establishments in the latest guide.

Another straw has been the closure of the iconic Cardiff furniture store, Maskreys, before Christmas last year. This business has been a feature of the Cardiff scene for decades and had expanded into England with branches in Bristol but it, too, has had to cease trading. Again, family businesses change all the time for all sorts of reasons but,  interestingly, the owners have not found a buyer willing to carry on selling Maskreys’ particular speciality of high end furniture and furnishings. Instead, the properties are being sold for development.

There is, of course, no shortage of other businesses selling furniture and household goods in Wales and the arrival of John Lewis more than a year ago has increased competition and choice. The loss of locally-owned Maskreys, however, means anyone wishing to buy more exclusive top of the range designer goods in this field will now probably have to search over the border.

All of which serves to re-inforce a point made by former Welsh First Minister, Rhodri Morgan,  a few years back that Wales has too small a middle class  – a point that could be made even more forcibly about really high income earners. The highest earners – those with incomes over £150,000 a year are now on a top rate of 50 per cent but the net catches comparatively few people in Wales. While there are 87,000 in London – admittedly with a population more than double that of Wales – there are only 4,000 in Wales itself. Scotland with a population two thirds bigger than Wales has 14,000 and Northern Ireland with a population one third smaller matches the Welsh figure. Our near neighbours in the South West boast 15,000 people in the top bracket.

Like it or not it is the wealthy and the comparitively wealthy who are vital for sustaining and attracting in sufficient numbers the sort of businesses – quality restaurants, fashion specialists, jewellers, interior design, financial advisers and the like – that are to be found in other more prosperous parts of Britain and Europe. And in a vicious circle their absence impacts on the attractiveness of Wales as a place to set up just the sort of businesses that the Government’s six sectors approach concentrating on fast-growing new areas of industry is meant to address.

The problem, too, can be seen in the recent announcement of a sharp drop in passenger traffic at Cardiff Airport. It is all too easy to criticise Cardiff Airport for lack of services and to argue that if only new destinations were added – or the roads were improved – the passengers would turn up. The situation is much more complicated. The disappearance from south Wales of many of the multinationals that used to operate here – Alcoa, Alcan, Bosch and going further back ICI and BP being just a few examples that spring to mind – has deprived the airport of a potential business passenger base, the bedrock customers of the most successful airlines.  This has left the airport with an increased dependence on holiday traffic.

Only last month one of the airport’s main operators, bmibaby, which has spent the best part of 10 years trying to build up services from Cardiff announced the closure of its routes to Munich, (opened only three months previously), Edinburgh and Jersey, citing low passenger numbers. The senior employees of multinationals are particularly important for airports because these companies will usually be headquartered elsewhere, and increasingly outside Britain in Europe, the Far East of the US. As a result employees will need to fly to attend business briefings at headquarters or to visit facilities in other parts of the world.

Unfortunately, there is as yet no significant evidence that new entrepreneurial companies, such as the Welsh Government has been seeking to encourage, are starting up in sufficient numbers to fill the gaps, taking on employees who will patronise top-end shops, restaurants or the business class compartments of the airlines (as well as creating direct and indirect employment). The past year has seen a big increase in the number of entrepreneurial companies in Britain seeking a listing on the smaller stock market, the Alternative Investment Market (AIM), and this is being seen as an indicator of  the bounce back taking place in manufacturing from recession. Sadly, this activity has been conspicuous by its absence in Wales where the past year has been characterised instead by the exit of companies, such as Freshwater, the Cardiff marketing group, and Energybuild, the energy group from AIM.

There have been other disappointments, too, which appear to have gone largely unnoticed. Five years ago Britain’s most important industrial estate owner and developer, Segro (formerly Slough Estates), acquired the iconic Treforest Industrial Estate near Pontypridd for £63m. Anyone who can remember Treforest buzzing with activity – much of it provided by companies started by East European émigrés before and after the second world war – will have been saddened to see it in recent years as a lifeless collection of public sector offices, trade counters, car dealerships and vacant plots.

At the time of the Segro purchase it was described as a move that demonstrated confidence in the continued growth of the regional property market and the economic strength of south Wales and seemed to offer a real hope of renewal. Sadly, the estate, where vacancy rates are currently running at 25 per cent,  has now been sold on for £27.7m to a European Real Estate Investment Trust, Hansteen. The reasons for this volte-face are not clear but it is worrying, to say the least, that Segro, a company that describes itself as being in the places customers need to be across Europe and in major cities or at key infrastructure junctions in areas of economic growth, has decided a key spot on the M4 does not fit into this portfolio.

It would be wrong, of course, not to point out that there are many good news stories coming out of the private sector in Wales – witness the recent successes of Airbus in winning new orders and, very much against the trend, converting contract workers to staff.  Also in the aviation sector GE is taking on apprentices at its engine overhaul plant in Caerphilly, and Wales has a growing stake in the important renewables sector through Sharp’s solar panels factory in Wrexham and Mabey Bridge’s wind turbines plant in Chepstow. There is vitality, too, in some of our new university developments, notably the proposed new science campus in Swansea, and in retail with new centres being developed or now in place in a number of Welsh towns.

It goes without saying, however, that there is just not enough wealth in Wales, at the bottom, in  the middle, or at the top of society. Nor do we seem as yet to have worked out a way to create it. (It is generally forgotten that if we are to close the gap with the rest of the UK and other parts of Europe, we will actually have to grow faster than these other areas for a period of years.)

As the examples from a variety of sectors of the economy quoted above suggest, we need to look behind the immediate impact of the decisions individual businesses in Wales are  taking and be sure we understand what they are telling us so that policies can be shaped accordingly.

Rhys David is a trustee of the IWA and writes on economic and business affairs.

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