Tuesday, June 26, 2012
ERNST AND YOUNG REPORT ON INWARD INVESTMENT TO WALES
It showed that whilst the UK attracted 679 projects and nearly 30,000 jobs in 2011, this represented a decline of 7 per cent on the previous year.
More worryingly, Germany is now becoming the major country within Europe for investments from Asian economies such as China and Japan, although the UK remains the most attractive country for Indian businesses. Regionally, the picture was mixed.
Whilst the UK economy as a whole has lost ground, London actually increased its share of foreign direct investment by 13 per cent. In contrast, Wales showed the largest decline of any part of the UK and its share of UK inward investment projects is now only 1.3 per cent as compared to 9 per cent eight years ago. Indeed, if we compare Wales to Scotland, we see that our fellow Celts enjoyed the highest level of inward investment employment in the UK, with 5926 new jobs being created in 2011. In contrast, new overseas projects established only 1090 jobs over the same period in Wales.
When asked to comment on this depressing performance, the Welsh Government wisely kept their counsel, stating they would rather wait for the official government data on inward investment to be published later this summer. But if the Ernst and Young report is accurate, it suggests a serious decline in the attractiveness of the Welsh economy to foreign investors.
The question for many is why Wales has shown such a decline when, at one stage, it was attracting more inward investment than any other region in the UK? Some will argue that the abolition of the Welsh Development Agency (WDA) has had a significant impact on the ability and, more importantly, flexibility of those looking to bring in major projects from overseas.
Certainly, those who want to bring back the WDA can point to the fact that Scotland has maintained its own development agency at arms length from government in the form of Scottish Enterprise and that this body has managed to attract nearly six times the number of jobs found in Welsh new inward investment projects.
One could also point to the mixed messages to investors that came out of the previous Labour-Plaid Government announcements were made in 2010 that no more grants would be available to businesses when the reality was that any major project coming into Wales would have received support from the public purse. Fortunately, that situation has been reversed by the current Minister although we will wait and see what long term effect this strategy has had on Wales’ ability to bring in foreign investment.
In addition, International Business Wales, the body specifically created to attract new companies, was closed without any replacement being put into place. Not only was the expertise of experienced individuals lost to Wales as a result of its abolition but the momentum that the organisation had built up since its creation in 2005 disappeared literally overnight.
Given this, it is no surprise that Wales’ performance currently lags behind that of other nations. But there is also the question of whether inward investment is actually as important to the Welsh economy as it clearly was twenty years ago. In fact, many would argue, and the academic evidence backs them up, that if the focus of current government policy is on job creation, then it would be better for policymakers to put their efforts into supporting Welsh businesses, rather wasting resources in competing against other better financed regions for large overseas projects.
Despite this, and you may be surprised to hear me say this, I still believe there is a role for inward investment. However, rather than accepting any project that is going, the focus should be on bringing world class innovative companies that complement the strengths found in our indigenous business community and, more importantly, our university sector.
And imagine if we could get companies such as Microsoft, Google and IBM setting up operations in Wales. It would change the brand image of the nation overnight and send a clear message to the global community that the best companies want to be based in our economy. Policymakers should also focus its efforts on keeping and expanding those businesses that have already located in Wales.
Too often we have seen major employers such as Bosch leave Wales because there was no relationship between their senior managers and the Welsh Government with Ministers usually being the last to know that the companies had decided to pack their bags and leave.
As any entrepreneur will tell you, it takes ten times the effort to attract a new customer when compared to keeping an existing customer and the approach to foreign direct investment in Wales should be the same.
Therefore, whilst the Ernst and Young report is disappointing, it nevertheless sets a real challenge to policymakers to address this issue over the remaining four years of the current Welsh Government. However, any approach to inward investment strategy will only benefit the Welsh economy if it is part of an overall strategy that not only attracts the best global businesses but also encourage entrepreneurship and helps indigenous businesses to grow.