Thursday, December 29, 2011



Over the last year, the manufacturing sector, ignored for so long by politicians, has now become a favoured industry again.

With the UK Government partially pinning its hopes on an export led recovery, policymakers are looking to refocus their efforts on manufacturers, especially those in high technology sectors. In fact, whilst manufacturing only accounts for 10 per cent of the UK economy, it generated some £205bn in exported goods in 2009, representing approximately 53 per cent of total UK export by value.

This refocusing on the manufacturing sector could be particularly good news for Wales, especially as the industry is mainly located outside the south east of England and any growth in the sector will have a disproportionate effect on the less prosperous parts of the UK, such as the Welsh economy.

As the First Minister said recently, “Manufacturing is vital to the economy in Wales and should be considered at least as important as financial services at a UK level.” This echoes an earlier call by the innovator Sir James Dyson, who noted in a report for the Conservative Party that it was critical for the UK economy to rebalance itself away from financial services and property But successive governments in both Westminster and Cardiff Bay have hardly covered themselves in glory when it comes to developing the manufacturing sector here in Wales. Let’s take, for example, the relative contribution of manufacturing to the UK economy since 1997.

An analysis of the latest GVA (Gross Value-Added) data on the sectors of the UK economy shows that manufacturing accounted for 25 per cent of the Welsh economy in 1997 but by 2009, this has plunged to only 15 per cent of the economy. To put this into context, the contribution of public sector services had increased from 22 per cent to 27 per cent over the same period. In absolute terms, the cash contribution of manufacturing to the Welsh economy had fallen from £7.1 billion in 1997 to £6.7 billion in 2009. This in itself, is not surprising, given that low level manufacturing operations have been switched from Wales to cheaper countries overseas, most notably in parts of Central and Eastern Europe. However, it does demonstrate the lack of any strategy to support the development of knowledge-intensive products in Wales and, more relevantly, the service provision around such products, all of which add far higher value to the economy.

In this context, it is also worth comparing the relative fall and rise of employment in manufacturing and the public sector since 2001. The data shows that the numbers employed in manufacturing has declined by 26 per cent (a fall of 55,000 jobs). In contrast, the numbers employed in the public sector has increased by 57,000 over the same period. Nevertheless, there remains real potential within the manufacturing sector in Wales that can be built upon, from global giants such as Airbus, Toyota, Sony and Tata to thousands of small companies producing specialist goods across the nation.

And the new advanced manufacturing and materials sector panel set up by the Welsh Government has made its intentions clear to develop an approach that embraces globalisation, encourages R and D in innovative products and processes, matching education provision to meet the demands of the 21st century manufacturing workplace, developing new finance packages for growth and building capacity by targeting investment in a sustainable business environment.

However, the Welsh Government cannot and should not do this in isolation. For example, much of the real value added support and expertise for innovation rests in national non-devolved bodies such as the Technology Strategy Board and NESTA whilst the vast majority of R and D funding for universities operating in fields relevant to manufacturing is still controlled centrally by the UK Research Councils. There is also billions of pounds worth of funding support for exporters available through UK Export Finance whilst UKTI, the UK Government’s trade arm, can help develop international links through its global reach in embassies and consulates throughout the World.

Given this, could 2012 herald a new dawn for manufacturing in Wales? There is no reason why this should not happen, especially if our businesses have the right management, the right products and the right skills in place and, more importantly, the appropriate support is provided by governments in Wales and Westminster.