Ken Poole says the Welsh Government urgently needs to refocus on overseas opportunities
The debate on the merits of inward investment over the past 30 years has been more vitriolic and passionate in Wales than elsewhere in the UK. While competitor regions such as Scotland and Ireland have had a consistent positive approach to inward investment, Wales has fallen in and out of love with it in ways which have confused potential and existing investors, to the benefit of our competitor regions.
In the early 1970s Wales was one of the first economic regions in Europe to recognise the potential of inward investment. A succession of dedicated organisations was established to respond to the market. The Development Corporation for Wales was followed by Winvest and then the Welsh Development Agency. We recognised the emerging sector market opportunities in automotive, electronics and the geographical originator markets of Japan, Korea, USA, Germany and France.
Wales was regarded as a market leader and exemplar of best practice. Global household names like Panasonic, Sony, Aiwa, LG, Ford and Bosch established significant manufacturing investment across Wales. At that time Wales demonstrated a well developed understanding of the market and its drivers. It provided a powerful low cost proposition built around a competitive offer and a location offering a springboard into the European Community. Wales’ offer consisted of grants, low cost serviced land, plenty of readily available high quality advanced buildings, and a competitively priced labour force supported by pragmatic trade unions.
Wales understood the market and delivered what the market required efficiently. The then effective Team Wales approach was recognised by companies and competitors as a compelling unique selling point.
During the 1970s and early 1980s inward investors were employing large numbers of people and assisting in the diversification of the economy away from steel and coal. Inward investment was seen as a solution to diversification and mobilisation of under-utilised labour resources, both male and female. There was no question of investors being targeted for innovation or their contribution to the emerging knowledge economy. Rather, they were creating the large number of jobs that Wales needed.
During the early 1990s, the volume of inward investment projects flowing into Wales peaked at around 15 per cent of the UK total, in terms of project value and employment creation. However, over the following 20 years, Wales’ share of UK inward investment has steadily fallen away.
The love affair with inward investment began to sour between 1998 and 2008 during which time 171 foreign owned site closures occurred in Wales with the loss of 31,000 jobs, mainly in manufacturing. Many of these companies were heavily criticised and the value of inward investment questioned. However, job losses in sectors such as electronics, automotive components, textiles and call centres were predictable as the companies and their products or services were becoming uncompetitive. They required lower cost locations with many choosing Eastern Europe as new investment locations.
The same trend was occurring in Ireland and Scotland, yet they continued to refine their inward investment strategy and reinforced their inward investment presence globally in the face of market changes. In Wales we continued to promote Wales with the same proposition and failed to recognise that these emerging pressures could not be halted. Whilst there were some successes, there were certainly not enough.
Not only was Wales losing existing investors, we were also failing to capture new opportunities from a new inward investment market. This was one in which high level skills, innovation, linkages, and access to knowledge were the key drivers rather than low cost buildings and labour.
By 2008-09 Wales was securing just over 6 per cent of all new jobs created by foreign inward investment projects in the UK, well below the earlier peak of 15 per cent. This figure fell to 4 per cent during 2009-10, and we now trail our main traditional competitor regions.
In terms of project mix, a large proportion of projects coming into Wales continue to be in manufacturing, followed by services, with a relative lack of higher value investments in knowledge and R&D fields and headquarters projects.
The 2011 Welsh Labour manifesto 2011 signalled a renewed interest in inward investment with a declaration that Wales is “open for business… whether they are Wales based or an inward investor”. This is a welcome positive approach. However, there is a lot to do if we are to be in a position to secure companies in some of the globally competitive sectors that Wales requires.
One of the first priorities for the new Government is to get the message into the inward investment market that Wales is hungry for new investment. This is important as 2010 saw a revival in the global inward investment market for the first time since the credit crisis two years previously. Ireland’s long term commitment to securing inward investment has seen it secure a top ten place amongst European locations despite its current fiscal weaknesses.
Hopefully, Welsh Labour’s manifesto and recent statements by the First Minister will be the beginning of a new love affair with inward investment for Wales. If so we need a new strategy, a new focus and a long term commitment to this vitally important source of future investment.