Monday, December 12, 2011


As those who read this blog regularly are no doubt aware, I believe passionately in entrepreneurship as the main vehicle by which the global economy can recover again after the worst recession since the 1920s.

In my opinion, the passion, creativity, innovation, perseverance and sheer hard work of entrepreneurs are the vital ingredients needed to get economies moving again.

Given this, I was hoping that the latest data on business births and deaths, published by the Office for National Statistics last week, would have some good news for the Welsh economy and show that it was on the road to recovery.

Unfortunately, my optimism was misplaced.

Instead, the official statistics showed that the situation in Wales was worse than expected, especially compared to the other devolved nations.

For example, the data released showed that in 2010, there were 7,505 enterprise births in Wales as compared to 8,325 in 2009. This represented a decline of 9.9 per cent, the worst performance of any region in the UK. In contrast, the number of new enterprises increased by 16.4 per cent in Northern Ireland and by 5.5 per cent in Scotland.

Only Cardiff, out of all the counties in Wales, showed any increase in new business starts.
In terms of business closures, the statistics are also depressingly bad for the economy. The number of  business deaths has increased by 9.5 per cent with only London and Yorkshire and Humberside performing worse in terms of the number of businesses that have closed down during the period 2009-2010.

This means that the total stock of businesses in Wales continues to decline (see graph below). Given that the average turnover of all businesses in Wales is around £100,000, this means that, in the last year alone, a minimum of £300 million has probably been lost to the Welsh economy.

Therefore, Wales seems to be losing ground in terms of entrepreneurial activity to other parts of the UK. This is despite having tens of millions of pounds of additional European Structural Funding available to support new business creation, funding which seems to be having little effect on increasing the number of start-ups, especially in our poorer regions.

For example, the most recent results from the European Structural Funding Programme  show that the number of new businesses being created in the more deprived parts of Wales is well behind target. Instead of 3,439 firms being set up by October 2011, only 1,140 had been established i.e. only a third of the expected output.

Something is clearly going wrong in terms of encouraging greater numbers of new firms in Wales and as I have emphasised many times in this column, I believe this is down to the lack of vision and a comprehensive strategic approach to develop entrepreneurship as the poorest region of the UK.

Of course, it was not always this way and Wales once had the world's first regional enterprise strategy, namely the Entrepreneurship Action Plan for Wales (EAP). Whilst managed by the Welsh Development Agency, it was the private sector, universities and voluntary bodies that led its design and implementation.

And, more importantly, it worked, as the evidence on start-ups clearly shows.

During the period 2002 and 2004, the number of new enterprise births in Wales went up from 8,970 to 11,525, an increase of 28 per cent. In contrast, after the EAP was abolished, the number of  new firms created in Wales fell by 28 per cent between 2004 and 2009, thus reversing the success of the programme, a trend that has sadly continued as the recent statistics have clearly shown.

In fact, if Wales had kept the same level of business creation as at the height of the EAP, then an additional 13,500 new businesses would have been created during the last six years, with considerable impact on employment and prosperity in Wales.

As governments around the World struggle to develop comprehensive strategies to deal with the current economic crisis, Wales already has a tried and tested approach that has already been proven to make a real difference to the economy by releasing the entrepreneurial potential of the Welsh population.

Therefore, policymakers at the Department for Business, Enterprise, Science and Technology could do worse than to dig out an old copy of the Entrepreneurship Action Plan for Wales and study it carefully.

This would not only create an understanding of how to arrest the decline in new business starts, but might also help ensure that our entrepreneurs are again driving forward employment growth and prosperity in the Welsh economy.