GLOBAL INNOVATION BAROMETER

Last week, the American industrial giant GE published the results of its “Global Innovation Barometer”, a survey of 2,800 senior business executives in 22 countries.

It is a fascinating study, in that it gives an insight into how the business community views innovation and, more importantly, its impact on the competitiveness of individual companies.

Not surprisingly, the USA is viewed as having the best reputation globally for innovation, followed by Germany, Japan, China and South Korea.

The UK is ranked seventh, behind India, with 39 per cent of British respondents stating that government had not been successful in supporting research and innovation. What should be of interest to policymakers is that the study shows the belief of businesses in innovation as the main driver of competitiveness, prosperity and job creation, although the current uncertainty within global markets is having a major effect on their ability to innovate.

In fact, nine out of ten respondents saw increased challenges at the current time in accessing venture capital, private investment and government funding. Despite this, the study emphasises the links between innovation and competitiveness, showing that countries where innovation policies are perceived as more competitive actually delivered higher growth i.e. markets where business is most satisfied with the perceived political and social environment for innovation delivered higher GDP growth than those markets where business feels anxious or threatened by policies.

Indeed, many businesses seem to be influenced by the government’s approach to innovation, with companies indicating that their internal investments in innovation, from research and development budgets to the pursuit of new products or business models, are at risk when there is a perception of a negative shift in government policies that support innovation.

For the Welsh Government, there is a vital lesson in communicating its innovation policies effectively and coherently to the business community, something that has been sadly missing during the last few years.

In terms of recognising new trends in innovation that could benefit Wales in the long term, the study suggests that companies are moving beyond the traditional closed model of innovation and are instead enthusiastically embracing the open innovation model, where collaboration between several partners, including smaller organizations and individuals, is the norm. However, there is a so-called partnership paradox in this trend in that whilst 86 per cent of the businesses surveyed believe that partnerships are important to innovation, only a fifth believe that finding partners is an immediate priority on a day to day basis. Again, there could be a role for the Welsh government here in providing a matchmaking service between different organisations wishing to develop their innovation, given the payback on wealth and prosperity to the economy.

In terms of business competitiveness, it was heartening to note that 77 per cent of executives acknowledge that small firms have the ability to be as innovative as large firms and whilst R and D is seen to be important, nearly three quarters of businesses agreed that innovation will not be driven by scientific research but by people’s creativity.

A more in-depth study, conducted by the Milken Institute, examined key innovation indicators in the UK. Their findings make interesting reading:

• University-Industry Collaboration (Leading): University-industry collaboration is strong in the United Kingdom. In the GE Innovation Survey,  78 percent of respondents agreed that it is quite easy for firms to partner with universities. The Higher Education Funding Council for England (HEFCE) recently launched the Economic Challenge Investment Fund, which will enable universities and colleges to provide specialized training, development, and professional support to individuals and businesses. The government has also supported innovation vouchers that allow businesses to purchase engagement with knowledge-based institutions. 
• Venture Capital Deals (Leading): The venture capital market in the United Kingdom is one of the strongest in the world, equaling 0.2 percent of GDP. In nominal amounts, the United Kingdom is second only to the United States, and as a percent of GDP, the United Kingdom ranks third, behind Finland and Sweden. Some continue to worry, however, that the government has not fully addressed financing for early-stage, high-growth businesses. Respondents in the GE Innovation Survey were mixed, with 45 percent stating that private investors are supportive of companies that need funding, 41 percent disagreeing, and 14 percent uncertain.
• Gross Expenditures on R&D [GERD] (Leading): At 1.8 percent of GDP, the U.K.'s R&D spending was below the OECD average in 2008.  Industry financed 45 percent of GERD, while government funded 31 percent. Business expenditures on R&D (BERD) equaled 1.1 percent of GDP. Boosting the intensity of innovation activity in enterprises is one of the nation's top policy challenges as cited by the INNO-Policy TrendChart report.
• High-Technology Exports (Leading): The United Kingdom performs comparatively well in high-technology exports, placing in the top of the first quartile globally. The top innovative sectors remain pharmaceuticals, defense, and aerospace. Going forward, the principal areas of growth appear to be in the green economy, the creative economy, and in advanced health care involving biotechnology. 
• Utility Patents (Leading): In 2008, the United Kingdom produced 27 triadic patents per 1 million residents, which was below the OECD average, but still in the first quartile of countries surveyed. While not typically highlighted, the manufacturing industry plays a large part in the U.K.’s economy. Between 1997 and 2009, the country's manufacturing productivity increased by 50 percent, and in 2009, manufacturing represented 13 percent of GDP. In the GE Innovation Survey, 60 percent of respondents agreed that the protection of copyrights and patents was effective.
• STEM Education (Above Average): In global rankings for science, technology, engineering, and math education, the U.K. places in the bottom half of the second quartile, ahead of Russia, the United States, and Germany, but still well behind countries like Singapore, Finland, Switzerland, and Canada. In 2008, the United Kingdom was slightly above average with eight researchers per 1,000 workers; 23 percent of all new degrees were in science and engineering. Respondents in the GE Innovation Survey were relatively negative; 46 percent believed the government had not been successful in improving education.
• Business Environment (Leading):A renowned international marketplace, the United Kingdom maintains one of the best environments for starting and growing a business. The financial markets are well developed and venture capital is abundant. In 2008, nearly 18 percent of gross expenditures on R&D were financed from abroad, greater than three times the OECD average. The governance system is also markedly strong, with significant stakeholder involvement and strong appraisal processes in effect. More recently, the government introduced the Enterprise Finance Guarantee (EFG), based on the previous Small Firms Loan Guarantee, which extends credit to companies with viable business plans that would normally be able to obtain funding in more stable financial circumstances

Therefore, if the UK is to increase its relative position in terms of innovation and catch up with nations such as the USA, government, academia and industry must all their part.

For policymakers, there needs to be a focus on developing an efficient tax system that provides incentives to R and D and investment. It must also ensure that a strong institutional framework is in place to protect intellectual property. However, the danger, in trying to deal with addressing the large public deficits is that education and R and D investments will not be fully supported.

For universities, there must be greater interaction with businesses, especially in terms of having a more open approach to innovation and commercialising knowledge more effectively rather than hoarding intellectual property in laboratories. Creativity must also be valued in education as much as scientific knowledge, as that is the key driver behind innovation.

Finally, businesses must continue to play an important role through encouraging an environment that addresses co-operation with smaller firms and the cross-fertilisation of ideas across different parts of the organisation.

But the clear message to politicians, vice chancellors and chief executives from the Global Innovation Barometer is that innovation is critical to not only restarting the economy, but in ensuring competitive advantage as the economy grows. Given this, it is critical that all of them must not only invest in innovation, but must put it at the forefront of their policies for the future.

WALES NEEDS NEW FIRMS NOT WHITE ELEPHANTS

As governments around the World look to reignite their economies, there is increasing interest in developing policies to encourage greater entrepreneurship. This is not surprising given that a range of studies have demonstrated the impact of both new and small firms on the economic prosperity of many nations.

Earlier this week, a major study from the European Commission showed that 85 per cent of net new jobs created in Europe between 2002 and 2010 came from small and medium sized enterprises (SMEs), far higher than their 67 per cent share of total employment. That, in itself, shows the vital importance of small firms at this critical time for Europe.

However, the one statistic that screams out for politicians to take notice and reach out for new policies immediately is the finding that all net employment growth has been generated by newly born SMEs (i.e. those aged up to five years old). In fact, the number of jobs created by new firms – 17.5 million - more than compensated for the 8.9 million jobs lost through business failure.

In contrast, employment in businesses over ten years old declined by seven per cent over the same period. This is a critical finding and demonstrates unequivocally that entrepreneurship, rather than large firm expansion, is key to the job creation potential of the Welsh economy. More importantly, entrepreneurial activity is not limited to a small number of people.

According to the latest edition of the Global Entrepreneurship Monitor (GEM) released on Thursday, it is estimated that 388 million entrepreneurs were actively engaged in starting and running new firms in 2011. And who are these entrepreneurs?

The average profile of the individual running new businesses remains largely unchanged from previous GEM studies. Through a survey undertaken in fifty-four countries, the results showed that most were often young to middle-aged (25-44 years) although there is a tendency toward younger entrepreneurs in many developing economies. In terms of gender, they tend to be overwhelmingly male although it does vary by nation.

For example, Singapore and Switzerland have comparatively high levels of female participation in entrepreneurship whilst only one in four of the entrepreneurs in France and the Republic of Korea are women.

The GEM study also confirms the findings of the European study in that new firms are job creators, with 141 million early-stage entrepreneurs expecting to create at least five new jobs in the next five years. Given this, it is not surprising that a proportion are also innovative and export-driven - 69 million new firm creators are involved in developing new products and services and 18 million sell at least a quarter of what they produce to international markets.

So what does this mean for policymakers in Wales and the UK? Certainly, it is time for politicians to start walking the talk if the economy is going to recover from its current doldrums during the next 12-18 months.

The Westminster Government should continue with programmes such as UK Start-Up to encourage a greater number of new businesses. But there needs to be more urgency to ensure a greater focus by legislators on reducing red tape and simplification. In particular, ensuring that the needs of new and small firms are taken into consideration when any laws or regulations are developed is critical.

There is also a desperate requirement for better long-term finance for new firms, something that has been sadly missing since the banking crisis despite the efforts of the Coalition government through the Merlin project. In Wales, the recently published report on micro-businesses is a step in the right direction and some of the recommendations could make a real difference. But whilst it is a valuable study in itself, it mainly deals with the issues of firms already in existence rather than addressing how a greater number of new businesses can be created and supported.

And as this blog has been stating time and time again during the last eight years, Wales, through its Entrepreneurship Action Plan (EAP), already has the structure and strategy that is light years ahead of anything else globally in terms of driving forward the creation of an enterprise culture. Through the implementation of that plan between 2000 and 2004, the number of new firms increased considerably in Wales and, not surprisingly, so did private sector employment.

And this was not done by concentrating on a ‘picking winners’ strategy of focusing on high growth start-ups, as the Welsh Government has recently adopted but by developing an enterprise culture in which more people would be encouraged to start a new business.

Unfortunately, the EAP was abandoned in 2005 by a Government that was more in favour of a “Fields of Dreams” strategy which focused on building expensive white elephants such as Techniums rather than having a comprehensive approach to developing an entrepreneurial nation rich in new employment opportunities.

And whilst attracting inward investment is of some importance to Wales, encouraging more entrepreneurs is more critical to the nation’s future, an issue that the Institute of Welsh Affairs seems to have singularly ignored as part of the theme of its third Welsh Economy conference in March.

More importantly, if the new Minister, as she has stated on numerous times, is focused predominantly on creating new jobs, then with the evidence showing that the vast majority of these come from start-ups, it is surely time for the resurrection of the EAP to create more new firms, and therefore more wealth and prosperity, in the Welsh economy.

DIFFERENCES IN PERCEPTIONS OF ACCESS TO FINANCE BETWEEN POTENTIAL MALE AND FEMALE ENTREPRENEURS

Another paper has been published from the research undertaken by the Global Entrepreneurship Monitor research team for Wales.

The paper "Differences in perceptions of access to finance between potential male and female entrepreneurs: Evidence from the UK" has been published in International Journal of Entrepreneurial Behaviour & Research(Vol 18, No 1).

The purpose of the study is to examine whether being female increases the probability that an individual feels difficulty in obtaining finance is a barrier to starting a business. The study aims to extend this to examine if a pure gender effect exists or whether it is the interaction of gender with demographic, economic and perceptual characteristics that plays the most important role in the perception of financial constraint. Although actual financial barriers faced by female entrepreneurs have been extensively studied, this is one of the first studies to focus on the concept of perceived financial constraints faced by potential female entrepreneurs.

The data within this study are drawn from the Global Entrepreneurship Monitor (GEM) adult population survey between 2005 and 2007. The first stage of the study splits male and female respondents into separate sub-samples and runs individual regressions on each portion of the sample. The second stage of the study combines the male and female portions of the sample to directly examine the differences in perceived financial constraint between genders.

The results suggest that a greater proportion of women are solely constrained by financial barriers than their male counterparts. The gender of the respondent was also found to interact with a number of other personal characteristics in a significant manner.In terms of practical implications, this finding suggests that policymakers should be encouraged to market the availability of start-up finance from various sources to encourage women to attempt to obtain the necessary finance rather than being discouraged at the first hurdle.

IS BEING LEADER OF THE OPPOSITION THE WORST JOB IN BRITISH POLITICS?

Daily Post column 16th January 2012

During last week, it may have dawned on Ed Miliband that being Leader of the Opposition is probably the worst job in British politics.

At a time when the economy is struggling and the UK government is managing a massive reduction in public expenditure, his popularity should be at an all-time high.

Yet, not only have the Conservatives overtaken Labour in the polls but, following a series of gaffes reported in the press, even Nick Clegg is rated higher than Mr Miliband.

As cartoonists continue to draw him as Gromit, there are already whispers of plots to replace him only fifteen months after he narrowly won the Labour Party leadership.

And when you start to become a comic caricature, then it becomes difficult for the public to consider you otherwise. In fact, other leaders of the opposition have faced the same problem in recent times.

Michael Foot, one of the great political thinkers of his generation, was reduced to comparisons with a tramp for wearing a donkey jacket to a cenotaph ceremony.

Neil Kinnock saved his party from becoming an extreme left wing irrelevance but once he had been labelled the “Welsh windbag”, fallen into the sea at Blackpool, and let his exuberance get the better of him at a pre-election rally, most of the public simply couldn’t envisage him as Prime Ministerial material.

The same was true of William Hague, lampooned for wearing a baseball cap at a theme park, and Iain Duncan Smith for his unwitting self-parody as the ‘quiet man’, although both have subsequently rehabilitated themselves as key members of the Coalition Cabinet.

As Shakespeare wrote, “Some are born great, some achieve greatness and some have greatness thrust upon them”.

And it is the latter category, that includes leaders of the opposition, that face the biggest obstacles.
Rivals who desperately want their job and have enough time to stab them in the back before the next election surround them.

There is the danger, in trying to show inclusivity, that they abandon people who helped them win in the first place, not only losing the trust of those who gave their support but creating enmity where none existed before.

Indeed, there is the temptation to inject so-called new blood by appointing the wrong people to senior positions of trust and, as Ed Miliband has found out with Lord Glasman, they end up being an embarrassment to both him and the party.

And in an election that was close, as with the Labour Party in 2010, many supporters will then think “What if?”  What if we had realised, right at the beginning that he was never up to the job of leader? What if we had supported the other main candidate, in this case, Mr Miliband’s brother?

And then the whispering campaigns begin, encouraged by rivals and fuelled by newspaper editors whom they have alienated through ill-thought responses aimed at shoring up their authority.

So what is Mr Miliband to do?

Certainly, he must become a more effective public communicator to connect with his MPs and his party. He must also build on the faith of those who supported him in the first place, remembering that, in politics, it is as important to keep your friends close as courting your rivals within the party. That is what David Cameron did so well in building an inner circle of advisors in opposition who are still with him today in Downing Street.

Finally, he must also look to develop policies that resonate with the wider public and not just the Guardian reading intelligentsia who will be the first to turn on him once his star begins to wane.

If he does not, then the four to one odds of him resigning as Labour leader during 2012 may seem very generous indeed.

UKTI AND WELSH FIRMS

Over the weekend, I had a twitter dialogue with Rhuannedd Richards, currently chief executive of Plaid Cymru.

She was responding to a comment by the First Minister that having access to the UK Government's international division, UKTI, was one advantage that Wales had as being part of the UK. Rhuannedd noted that she was "Surprised that Carwyn Jones used how Wales "benefits" from UKTI to justify continuation of UK. Wales has never been important to UKTI".

I am wondering where she received this information as it is certainly different to what I was told by UKTI in a meeting a few weeks ago. Indeed,  I was informed that UKTI had supported 376 Welsh firms to internationalise their activities even though this should be a devolved matter. Indeed,  more crucially, I wonder how this compares to whatever services are now offered by the Welsh Government, especially given that it was Ieuan Wyn Jones, when economic development minister, who abolished IBW (International Business Wales) which previously had responsibility for all internationalisation activities?

So what can UKTI offer to Welsh businesses?

The UKTI’s Overseas Market Introduction Service is a flexible business tool that lets British companies commission the services of trade teams located in overseas missions across the world. The Market Visit Support programme also provides assistance to new-to-export or new-to-market SMEs visiting overseas markets as part of their trade development process. However, in this respect, UKTI also provides some direct funding to the Welsh Government to support their own mission programmes.

UKTI also works in partnership with other organisations to deliver internationalisation initiatives. For example, the Export Marketing Research Scheme is an initiative run by the British Chambers of Commerce as a contractor to UKTI. It provides advice and co-funding (at up to £5k per project) for eligible companies to carry out their own market research overseas. The Chambers can also provide support for an Export Communications Review, which examines a company’s strategic communications approach to trading overseas.

But the First Minister should not just quote the example of UKTI when it is politically expedient if the Department for Business in Wales, as I have been reliably informed, is doing little to ensure a closer relationship with this body.

And if the economy is important to the Welsh Government, then more could, and should be done to help businesses take full advantage of exporting opportunities. In fact, Welsh firms still only account for 2.6 per cent of all UK exporters despite a growth in the value of exports since 1999, which suggests considerable potential within the Welsh business community for further overseas expansion if only the right support and advice was available.

However, that can only be achieved if there is better co-ordination and co-operation between the Welsh Government’s international branch and the UKTI in 2012. Not only could this begin a long overdue entente cordiale between the two administrations but, more importantly, should benefit the Welsh economy at a time when businesses need every help they can get.

ROBERT OWEN, CO-OPERATIVES AND THE WELSH ECONOMY

Western Mail column 14th January 2012

The picture of Wales globally is one that is normally a mixture of coal, male voice choirs, daffodils and rugby.

Yet, it is easy to forget that one of the greatest gifts that this small nation gave to the World originated with an ironmonger’s son from Mid-Wales.

Born in 1771 in Newtown, Robert Owen was the creator and inspiration behind the co-operative movement where the business is owned and operated by a group of individuals for their mutual benefit.

Although most of his work in this area took place in New Lanarkshire in Scotland rather than the country of his birth, his legacy lives on not only in Wales but also in many other countries across the World.

For example, one out of every four people in Germany belongs to co-operatives whilst 30,000 co-operatives provide more than 2 million jobs in the USA. In New Zealand, 22% of the country’s wealth is generated by co-operative enterprises, especially in the food industry where they have 95% of the export dairy market and 70% of the meat market. The South Korean fisheries co-operative has a market share of 71% whilst a Canadian co-operative is responsible for 35% of all world production of maple syrup. In India, over 239 million people are members of the co-operative movement.

Therefore, the whole business of co-operatives is not a marginal activity but one that has a significant economic and social effect in both the developed and developing World. Indeed, with the United Nations estimating that the livelihood of half of the World’s population is dependent, in some way, on co-operative enterprises, this august institution has deemed 2012 as the International Year of Co-operatives.

So what about the co-operative movement in Wales?

According to a new publication by the Bevan Foundation, co-operatives – which include credit unions, housing co-operatives and worker co-operatives - are contributing more than £1 billion to the Welsh economy. They currently employ more than 7,000 people in a variety of sectors, with nearly three quarters were to be found in retail.

Whilst many may think of co-operatives as being organisations that do not make any money, it is estimated that Welsh co-operatives generated a total pre-tax profit of £19m, which is then distributed to members or reinvested in the business. Indeed, the co-operative movement across the UK recorded pre-tax profits of £715 million in 2010, an increase of 25 per cent since 2006.

Therefore, co-operatives are real businesses and nowhere is this exemplified more than by the John Lewis Partnership, which owns the John Lewis Department stores as well as the upmarket Waitrose. Currently, it is the third largest privately owned businesses in the UK with annual profits last year of £432 million.

In Wales, one of the real success stories within the emerging cleantech field has been the renewables firm Dulas, which employs 100 people and currently has an annual turnover of over £22 million. This Machynlleth-based workers’ co-operative, the second largest in the UK, has appeared on the Wales Fast Growth 50 listing for the last three years and is developing a global reputation in a fast growing and expanding market.

Given this, is the co-operative movement the way forward for the future of businesses in an age where politicians are increasingly wary of predatory profit-seeking capitalists?

Certainly, the Bevan Foundation report makes a strong case for the co-operative movement, suggesting that their focus on creating sustainable jobs, generating community benefits and protecting the environment is the business model that all organisations should follow. They also make a persuasive case for the Welsh economy, indicating that co-operatives are innovative, profitable and, more importantly, are anchored in Wales.

Yet, I still believe that the model, whilst it works for some organisations, is not necessarily the one that should be pursued by all businesses. In fact, it could be argued that, despite exceptions to the norm such as John Lewis and Dulas, many co-operatives lack the entrepreneurial drive necessary to become growing and prosperous businesses in key sectors of the economy.

Certainly, I cannot imagine Apple, Virgin, Microsoft and many other successful businesses would have become the success that they are the vision and drive of key individuals such as Steve Jobs, Richard Branson and Bill Gates. Perhaps the real triumph of the co-operative movement is its innate philosophies, many of which have been adopted by successful firms.

During the last few years, we have seen businesses increasingly sharing their profits with their employees, investing heavily in local communities and making a real effort to reduce their environmental impact.

And that, perhaps, is where the real triumph of Robert Owen can be found – not in that every organisation is a co-operative but, 240 years after his birth, having more and more businesses across the World adopting his philosophies for sustainable growth. I believe that if he were alive today, this fact, more than anything else, would make this visionary businessman and reformer very proud of what he created.

12 CRUCIAL CONSUMER TRENDS FOR 2012

The main consumer trends for 2012, as identified by trendwatching.com.

View more documents from trendwatching.com

WHAT ARE THE TRENDS THAT WILL AFFECT YOUR BUSINESS IN 2012?

Fascinating slides on the global themes that affect every type of business, regardless of country in 2012. How will you take advantage of these over the next 12 months?

Next week, a list of 12 Consumer trends for 2012.

WELSH HIGHER EDUCATION POLICY AND THE BRAIN DRAIN

The Western Mail today leads with an important story on how a so-called “brain drain” is affecting the nation. 

The main data for the story is taken from an excellent report, entitled Welsh Graduate Mobility and undertaken by the Welsh academics Dr Gillian Bristow, Dr Madeleine Pill, Rhys Davies and Dr Stephen Drinkwater. 

The study “seeks to establish the extent to which Wales retains its graduate labour in employment; to estimate the labour market outcomes for “Welsh‟ graduates (i.e. those born in Wales) and to investigate whether and how these may change and what factors may become more significant over time.

In so doing, the report focuses on analysing the location and employment outcomes of successive “young” graduate cohorts since the 1992 expansion of Higher Education. However, it would seem that one of the more controversial findings of the report, and one that undermines the whole basis of the current Welsh Government higher education policy, has been missed in the Western Mail’s story.

According to the authors, this research has reinforced the clear link between migration to study and migration of graduates to work. This link seems particularly strong in Wales where, as has been demonstrated, ‘locals’ represent the most significant source of graduate labour. Thus, encouraging locals to study and stay in Wales is more likely to have an impact on graduate retention rates than seeking to either retain those who come to Wales to study, or to attract those who have no prior Welsh home or study links”.

This, of course, is in complete contrast to the current tuition fee policy that has been established by the Welsh Government. Unlike Scotland, Welsh students will get a tuition fee reduction regardless of where they study in the UK, leading to fears that the brightest students will inevitably go over the border to the best universities in the UK and, as the report suggests, stay there in the future to develop their careers.

As the authors point out in their conclusions on page 75, “current Welsh Government policy on HE fees could be regarded as incentivising Welsh student migration. This highlights interesting tensions between what policy might clearly be desirable as far as individuals are concerned and what might be better for a region in economic terms”.

In other words, whilst Welsh students individually may well benefit from a regime where they get subsidised to study anywhere in the UK, the economy of Wales may well be the loser in the long term.

Did the Welsh Government did examine in any detail the economic impact of restricting tuition fee subsidies to Welsh institutions, as has happened in Scotland or, as opposition spokespeople have suggested, this entire policy was drawn up on the back of “fag packet”? Certainly, judging from the responses from Welsh higher education in today's Western Mail, that particular elephant in the room continues to be conveniently ignored.

It is not only the long-term economic benefits that are critical here.

With around 16,000 Welsh students studying in English universities in 2009-10, if this level of cross border flow remains, then the Welsh Government will be transferring nearly £90 million from the Welsh budget to the English Higher Education system every year, a figure that would make even John Redwood’s eyes water.

Will this transfer be compensated by the full fees of £9,000 that will be paid by the 25,000 English students who currently study in Wales? It is a balancing act on which the political credibility of the current Government may depend and, some may say, the equivalent of crossing the Niagara Falls on a tightrope.

If, English students, as the Bristow report suggests, choose to stay and study in their local universities during the next few years and there is, for example, a ten percent drop in numbers from across the borders, then it could see a hole of £23 million in the finances of Welsh institutions annually.

Is this likely? Well, the latest data from the admissions agency UCAS suggest that it could be the case - applications from England are down 8.3 per cent, while those from Scotland and Wales have dropped 0.8 per cent and 1.9 per cent respectively. The picture on applications should become clearer at the end of January, when final figures are announced.

Will the Welsh Government make up this funding shortfall? I doubt it given other priorities. In fact, I can already see the blame being placed firmly on Welsh universities for not doing enough to market themselves properly to English students rather than on the policy itself.

But this is all conjecture. As the Welsh Government has itself admitted, I don’t think anyone really knows what will happen until the students arrive for the next academic year, which is hardly the best way to develop and implement government policy.

At best, nothing will change and the continuing inflow of English students will compensate for supporting reduced tuition fees for Welsh students. However, if they do not materialise in sufficient numbers and if there are any reductions which will have a significant impact on the financial position of Welsh institutions, then accusations of policymaking on the back of a fag packet will return, but this time with far more serious consequences.

DID CARWYN GET IT WRONG? HOW IMPORTANT IS THE EU FOR WELSH EXPORTS?

Given the recent spats between the devolved nations and the UK Government over the decision by David Cameron to exercise the UK veto over the EU treaty in December, there have been numerous statements on how this will have an effect on Welsh trade with the European Union.

According to a recent statement from the First Minister of Wales, "some 50% of exports from Wales are to the EU". Yet recent data from the Welsh Government's own statistics suggest that it is considerably less than that, as figure 1 below shows. In fact, only Scotland had a lower proportion of exports with the EU in the third quarter of 2011.

Will this mean that any downturn in the eurozone will affect Wales less than the majority of other UK regions?

Certainly, as figure 2 demonstrates, there has been a gradual long term decline in the proportion of Welsh exports that go to EU countries since 1999.  The export profile of Wales has changed considerably since devolution and whilst Europe is still a key partner, the fact that we have moved away from a dependency of 75 per cent on the EU back in 2002 to 40 per cent in 2011 shows that, thankfully, we now have a far more balanced exporting economy.

A further piece of good news is that the relative importance of exporting has grown in Wales, and now accounts for 4.6 per cent of all UK exports as compared to 3.7 per cent in 1999.  Europe has played a minor part in this growth - the total value of EU exports has only increased by 16.6 per cent during 1999-2011 whilst overall Welsh exports have gone up in value by 107.3 per cent over the same period.

Yes, the EU remains a major trading partner but thankfully, exports to other parts of the World are also becoming important to the future of the Welsh economy. Perhaps that, and the growth in overall exports, is what the Welsh Government should have been celebrating last month rather than trying to score political points against David Cameron.

More on this in today's Western Mail.




Figure 1: Exports to the EU as a percentage of total exports, by UK region, quarter 3 2011.

Table 2: EU exports as a proportion of total Welsh exports, 1999-2011

Figure 4. Welsh exports, by region, quarter 3, 1999

Figure 4. Welsh exports, by region, quarter 3, 2011

HALF FULL OR HALF EMPTY? PROSPECTS FOR THE UK ECONOMY IN 2012

Often, it is far easier to be pessimistic about the prospects for the UK economy which, given the fragile state of business and consumer confidence, ends up being a self-fulfilling prophecy. 

With official sources suggesting that the UK economy's growth will be just 0.7 per cent in 2012, it is not surprising that many commentators are queuing up to talk down the economic prospects of the nation.

The latest organisation to support this view is the Chartered Institute of Personnel and Development (CIPD), which predicted that the number of people out of work would reach 2.85 million by the end of next year, with the unemployment rate for the UK rising to 8.8 per cent, the highest figure since 1994.


Of course, it is not only what is going on within Britain itself that is important to our economy and it will be events elsewhere that will probably have the greatest influence on the nation’s recovery during the next twelve months.

The one thing most economists agree on is that the greatest danger to any recovery, regardless of any internal policy decisions by the Coalition government, is the eurozone's debt crisis. Whilst nearly all have predicted that the eurozone could return to recession in 2012, there remains some slight hope and optimism that this will be brief and that growth would follow in 2013 if those eurozone members can finally get their act together over the next few months.

And the potential good news for the UK is that once there is greater certainty over in the eurozone, it is likely that British firms, which are currently hoarding £70 billion of cash, will finally release that money for critical investment later in 2012, creating hundreds of thousands of jobs in the economy (and there was fascinating article yesterday in the Financial Times on this theme).

Whilst Europe remains likely to be in the doldrums for most of 2012, there is better news across the Atlantic in the USA. Not only is confidence growing amongst US consumers but economic figures seem very positive. The growth in GDP for 2011 has been better than predicted and American businesses have been creating more than 150,000 positions every month since September.

And if the World’s largest economy is set to grow next year, then as the USA is our largest export market by country, then it can only be good for British firms.


Therefore, as we begin what could be a tumultuous New Year for the UK economy, is there any hope for optimism, however small?

It is difficult to see any improvement during the first six months of 2012 in the UK economy but if we look beyond that, there are a number of indicators that suggest that we are not in as bad a shape as some would lead you to believe. 

Let’s look at inflation, which has led to increased pressures on households during the last few months. Analysts are now predicting that the consumer price index will continue to fall during 2012, resulting in lower prices and hopefully, encouraging greater consumer spending that could help the economy recover towards the end of the year.

Within British industry, there are signs that the gradual rebalancing of the economy could well be reaping dividends in the long run. Take, for example, the car industry, which is undergoing a major renaissance as companies such as BMW, Jaguar Land Rover, Nissan and Toyota have announced £4 billion of investment into British plants, resulting in predictions of record exports for this year. Indeed, according to the Society of Motor Manufacturers and Traders, car exports will be 19 per cent higher in 2011 and will break all records next year. And it is exactly the type of industry that it needed within the UK, developing highly skilled engineering jobs that are producing high value exportable goods.

The aerospace industry has also being doing well in 2011 with Airbus, which manufactures its wings in North Wales, securing orders for nearly 1400 new planes by the end of November, nearly twice as many as its main rivals Boeing. 

But it is not only large businesses that are having a positive effect.

Barclays Bank recently released data that showed that nearly 480,000 new businesses had been created over the last 12 months.  In addition, the proportion of the self-employed that makes up the labour force is now at its highest level for 75 years. Now those who look through half empty glasses would suggest that people are starting their own businesses because of necessity i.e. that there is no other alternative employment available.

However, those of us who are more optimistic would suggest that this is the beginning of an entrepreneurial renaissance within the UK and one that is long overdue. And here, more than anywhere else, is where government can play a more direct role in these uncertain economic times. Not only can efforts be focused on providing the vital business support and mentoring to get these entrepreneurs through the difficult first two years of the business but they can also ensure that banks, especially those that remain in public ownership, are providing the necessary capital to enable people to start their own businesses as opposed to remaining unemployed.

So, whilst there remain serious challenges, the economic picture may not be as bleak as some would like to paint. Indeed, there is some hope that by the end of 2012, we could finally see the beginning of a revival in the UK’s economic fortunes.

Blwyddyn Newydd Dda, Happy New Year!