Medium-size business miss Welsh Development Agency

Dylan Jones-Evans explores what has changed in the Welsh economy during the last decade

Back in 2004, the gross value added for Wales – which measures overall economic prosperity – was £38.2 billion. By 2012 (the latest year for which data is available) this had grown to £47.3 billion, an increase of 24 per cent over this period.

In contrast, the UK economy had grown by 28 per cent, although nearly a third of this growth was accounted for by London. In fact, the North of England, Yorkshire and Humberside, the West Midlands and Northern Ireland have experienced lower growth than Wales between 2004 and 2012.

This suggests that, in terms of economic growth over the last ten years, Wales is probably doing better than most people think, although it still remains the poorest part of the UK in terms of GVA per head.

Another key economic indicator is the Labour Force Survey and it is worth contrasting some of the key headline data with that for the same period a decade ago.

First of all, it is not unexpected, given the recent recession, to find that the number of people out of work in Wales is currently 112,000 as compared to 60,000 a decade ago.

However, the growth in the economy also means that there are 66,000 more people in employment in Wales than ten years ago and the gap in the employment rate (that is, the proportion of the adult population in employment) has actually narrowed with the rest of the UK.

Unfortunately, this growth in employment has not been matched by a similar growth in the income of employees. For example, average gross weekly earnings across the UK grew by 22 per cent during the period 2004-2012 as compared with only 19 per cent for Wales. Welsh workers remain the worst paid across the UK although this may also be reflected in the fact that there are lower levels of highly qualified staff within the workforce.

For example, only 30 per cent are qualified at NVQ level 4 or above as compared to 34 per cent for the UK. There are serious questions over the commitment by both business and government to the development of higher skills within the Welsh economy.

Back in 2004, the Welsh Development Agency (WDA) was still seen as one of the most effective economic development bodies in Europe. It had been successful in bringing a number of large employers into Wales. Given this, what has happened to the business structure of Wales during the last decade, especially as the WDA was abolished in 2006?

Small firms continue to be the job creators within the Welsh economy. Businesses with less than 50 employees have made an increasing contribution to new jobs created within their local communities since 2004. In fact, they have been responsible for two thirds of the employment growth in Wales during the last decade.

It is also worth noting that the performance of those large firms that employ over 250 people in Wales. The data shows that, despite the demise of the WDA, their turnover increased by 91 per cent in the past decade, well above any other size-band.

However, the biggest disappointment must be the performance of the mid-sized firm sector in Wales – that is, those employing between 50 and 249 people. Their growth in turnover and employment is below that experienced by both small and large firms, despite being described as the engines for future growth by the CBI.

Certainly, more needs to be done to improve their contribution to the Welsh economy, given their disappointing performance during the last decade. Perhaps that is what is missing with the demise of the WDA. We need an agency that is specifically focused on improving the performance of the 2,000 or so mid-sized wealth creators in the economy.

The creation and development of entrepreneurial new businesses is another key aspect of any dynamic economy. A decade ago, the Entrepreneurship Action Plan for Wales was fully operational. As the first regional enterprise strategy anywhere in the World, it was beginning to have a substantial impact on those starting new businesses in Wales.

And it was working. According to the data on the number of business births, 11,525 new ventures were created in 2004. However, if we fast-forward to the latest data, only 8,270 new firms were established in Wales in 2012, a decline of 28 per cent over this period as compared to a fall of 4 per cent for the UK as a whole.

But it is not only Wales’s entrepreneurial performance that has been disappointing. Hundreds of millions of pounds of public and European money was spent in trying to make Wales a more innovative region during the last decade, mainly through expensive initiatives such as the Techniums. However, these did little to improve the Welsh economy.

Worst still, the focus on developing these buildings as the key plank for innovation policy diverted vital funds away from supporting the development of innovation within the business community itself. Indeed, the amount of research and development expenditure by Welsh businesses for the period 2004-2012 has only grown by 20 per cent as compared to 35 per cent for the UK as a whole. This equates to only £46 million during this period, considerably less than what was spent in building Techniums around Wales. A key lesson from this expensive policy is that there needs to be more careful consideration in ensuring that public money is spent more effectively in the future and that it is used to directly support innovation within Welsh businesses.

Therefore, the economic data suggests that for the last decade, Wales has held its own and has closed some of the gap with the UK in terms of performance and employment. At the same time it is clear that much remains to be done in terms of encouraging a higher skilled and higher wage economy in Wales.

Dylan Jones-Evans is Professor of Entrepreneurship and Strategy at the University of the West of England.

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