THE DEVELOPMENT BANK FOR WALES

The Welsh Government may wish to consider several options as to how to take forward the findings of the access to finance review.

For example, whilst there have been calls for a new state-owned bank, it could be argued that the foundations for such an organisation already exist in the form of Finance Wales.

However, unlike other state-owned financial institutions that have been examined as part of this review, the main focus of Finance Wales has, for the last five years, been on establishing its reputation as a leading fund manager rather than on directly promoting economic development in Wales. In this respect, the Welsh Government could give Finance Wales a more direct remit so that economic development becomes its main priority, especially as questions clearly remain about its commitment to directly supporting SMEs in Wales, despite the presence of new board members. However, it is the conclusion of this review that, in its current form, Finance Wales is no longer fit for purpose in supporting Welsh SMEs and helping to deliver growth to the Welsh economy.

In addition, with the Welsh Government’s own finance programmes, such as the Economic Growth Fund, also being utilised to support SMEs in Wales, there remains confusion amongst businesses as to the different types of support that are available from publicly funded bodies. Given this, the evidence from the review suggests that there is now an opportunity to develop a new approach that can bring together all the different sources of government funding for SMEs in Wales under one umbrella, works with other institutions in the public and private sector to add real value, and puts the Welsh SME at the core of what it does as an organisation.


The Development Bank for Wales

The review therefore concludes that the Welsh Government needs to examine the feasibility of creating a new Development Bank for Wales. This would be achieved not by creating a wholly new entity but by bringing together, under one organisation, all the financial support schemes for SMEs within the Welsh Government (which are estimated to be around £70 million per annum), the funds managed by Finance Wales and elements of Business Wales.

It is also proposed that, by agreement with the UK Government, this new organisation takes responsibility for the export functions of the UK Export Finance within Wales  so as to drive forward internationalisation in the economy and discussion should take place over whether the Business Growth Fund should also be located here for its Welsh operations.

This would create a financial institution that would not only have funding of over £100 million per annum at its disposal but this could, working with banks and other organisations, leverage in considerable amount of further funding for Welsh SMEs. For example, RBS has informed the review that, by working closely with the Regional Growth Fund in England, it has leveraged £300 million of investment from £70 million of public funding. In contrast, the JEREMIE Fund has invested £48 million in loans against which it has recorded £31 million of private sector leverage. In addition, only 45 per cent of these loan deals have attracted other funding from private sources.

A recent review by the National Audit Office (NAO)  into improving access to finance for SMEs found that many of the individual funding schemes run by the UK Government have been delivering against their individual targets. However, BIS and HM Treasury have not managed the range of initiatives sufficiently as a unified programme, and have not clearly articulated what the schemes were intended to achieve as a whole, given the resources available. There is therefore an opportunity for the Welsh Government to achieve a more coherent approach to supporting SMEs in Wales to gain access to finance.


Mission and objectives

The mission of the new Development Bank for Wales will be to “to utilise public and private funds to support and encourage SME growth to help grow the Welsh economy”.

To achieve this, the Development Bank for Wales will:

• Act as a gateway for business and financial support, some of which will be provided by the bank and some through public and private sector partners. 
• Provide loans, guarantees, grants and other financial instruments, all of which will maximise the state aid exemptions available to provide affordable debt finance to Welsh business. Indeed, as one of Welsh Government’s industry panels noted, access to debt funding was the most important area for consideration because most financing needs would be for working capital not for equity or ring-fenced project financing.
• Access the different types of funding that is available from the UK Government. As the first report noted, there were concerns that the UK Government’s financial instruments would be focused on firms in the South East of England. This has been confirmed by the recent NAO report into access to finance, which showed that more than half of the support available under the Enterprise Capital Funds and the Business Angel Co-investment Fund benefits businesses in London and the South East.
• Develop specific consultancy and business support services for Welsh SMEs, as found in exemplar organisations such as the SBA and BDC. This could not only include services currently provided through Business Wales but also elements of skills development currently managed within the Department for Education and Skills.
• Gather, collate and provide detailed information on the SME sector in Wales, as the Sparkassen do in their local area in Germany. This would enable the Welsh Government and the Development Bank to understand the dynamics of the Welsh economy in more detail, especially if it worked alongside other financial institutions to generate the necessary data, and then responded appropriately through its services.
• Establish close relationships with Welsh Government economic bodies, including the sector panels, the enterprise zone boards, city regions and Industry Wales. This will be key in ensuring that the Bank works closely with those organisations that have been established to provide policy guidance for the Welsh Government. 

Funding

It is not the intention of this report to consider in detail how this new organisation will be funded. However, there remain a number of different sources of funding available to the Welsh Government in examining future options.

EST has its own budget for the financial support of businesses that can serve as the foundation for the new body, along with the remaining funds within Finance Wales. In addition, a new bid for further European Structural Funding is possible under the 2014-2020 programme although safeguards must be put into place to ensure that full advantage is taken of the highest level of aid available to SMEs within any such arrangement. Whilst matched funds could be available again from the EIB to support ERDF and Welsh Government finance, the UK Business Bank may also be a potential source of funding, especially as the Welsh Government could make a strong case for a number of new funds to be created to support the development of the poorest region of the UK. It is also worth noting that with the Silk Commission recommending borrowing powers for the Welsh Government, there may be an opportunity for the new Development Bank for Wales to use this new status to borrow money from the financial markets cheaply to support Welsh firms, as currently happens with other state-own funding bodies such as Finnvera and the BDC in Canada.

Organisation

In ensuring that the Development Bank for Wales delivers to its key customers, one of the models that could be followed is that which has been established with considerable success, in Finland where the state-owned financial institution Finnvera has three main markets which its serves. These are: (a) local microenterprises, (b) regional SMEs and (c) SMEs aiming at growth and internationalisation, all of which have been identified as having specific financial and business support needs and none of which are adequately served at the moment (Figure 1). There could also be a specific focus on supporting social enterprises in Wales through the same approach and Welsh Government may wish to discuss the potential models in more detail with the Co-operatives and Mutuals Commission.


Figure 1. The Development Bank for Wales

Local micro-businesses 

The Welsh Government’s Task and Finish Group made a number of recommendations regarding financial and business support to this sector, including facilitating accessible finance of between £1,000 and £20,000 that are simple and reflect the level of investment required; supporting micro-businesses with application processes to access wider appropriate finance options; proactively promoting access and awareness of business support services for micro-businesses; and creating a single well recognised brand for access to business support. Whilst the micro-business fund is being managed by Finance Wales, there is a consensus that most lending to micro-businesses should take place at a local level.

The Welsh Government, through Business Wales, already delivers support programmes to micro-businesses across Wales. More importantly, the Business Wales providers work closely with these businesses to develop their potential and, as such, have a detailed understanding of the firm and their funding needs. An alternative model to the delivery of this type of funding could take place through Community Development Finance Institutions (CDFIs). Whilst these are well developed in Scotland and England, there is one such organisation within Wales (Robert Owen Community Robert Owen Community Banking Fund) .

It is therefore proposed that all micro-business lending is devolved to Business Wales providers, under the Development Bank for Wales brand, to provide funding to those local businesses they support. This would streamline the current process and create an effective and efficient means by which affordable funding is distributed to micro-businesses across Wales. As with other micro-business loan programmes elsewhere, the funding would be fixed at an affordable rate, to be determined by the Development Bank which would oversee the governance of this scheme and be responsible for reviewing the cost of borrowing regularly. This principle has already been adopted with regard to the new Start-Up Loans programme in Wales where a number of providers have been given the authority to approve loans to local start-ups. Such an approach could also be extended to programmes such as the Welsh Government’s Digital Development Fund (DDF), which supports the development of new creative products and services that can be exploited across multiple digital platforms and in international markets.

Regional SMEs

These would be financial and business services oriented towards providing financial and business support for the growth of those larger regional SMEs across Wales that largely serve the Welsh and UK markets, and require largely debt finance to grow their business. Similar to other state-owned funding bodies across the World, it will work in partnership with different providers of funding (including the banks, invoice discounters, leasing companies) to ensure information on, and access to, the right type of support. For example, it could grant associate status to Commercial Finance Brokers as well as asset finance providers to deliver specific finance solutions to Welsh businesses.

In this respect, the role of the Development Bank will be complementary in supporting the banks when there is a situation when they cannot lend to businesses, and acting as a publicly funded gap lender to ensure that SMEs obtain the capital they require. This will be in the form of guarantees but could also take the form of subordinated loans to established lenders. This ensures that the risk is not only borne by the state but in partnership with the private sector, enabling funding mechanisms to be used more effectively. It also ensures that the cost of lending to be substantially reduced as the risk is being supported by the state. As one member of a sector panel noted, “the general theme of the Welsh Government providing a guarantee scheme to enable banks to support smaller businesses would be of enormous benefit. Any such scheme must be simple, transparent and encourage faster decisions”.

It will also deliver specific business support, mainly through external intermediaries and consultants, to help these businesses to grow and develop. As the FSB noted in their response to the review, its members have suggested that there is an inherent benefit in government-supported finance schemes that couples business support with finance. Business Wales therefore needs to be fully engaged with financial support mechanisms to ensure that weaknesses in business management are addressed at the same time as financial concerns. This concept is not new to Wales as, in its original business plan, Finance Wales stated that “money with management” was an important element in improving investment opportunities for businesses in Wales although this approach was quietly discontinued several years ago.

High growth firms

There is also an increasing consensus that there should be more specific and targeted support for the small number of businesses that have potential for growth. A recent study by Demos  concluded that if most SMEs had no immediate ambitions to grow, efforts should be focused on those businesses with the potential to deliver significant growth in the future regardless of size. Similarly, Bain and Co’s review of funding in Europe suggested that the emphasis should be on building stronger SMEs for a more challenging future – export and growth-oriented, globally competitive and highly productive firms – supported by an SME funding structure with a different mix of bank lending and alternative funding sources than is currently available .  Yet as previous research has indicated, smaller, younger, and higher-growth businesses find it harder to access finance than more established firms.

Whilst the Welsh economy is not in the position to focus its efforts solely on growth firms, there could be a more coherent approach in supporting this type of firm that, as NESTA has shown , is a significant job creator across all sectors. Currently, there is no specific support structure that is in place to direct business and financial support towards this type of enterprise. However, many of the individual elements are already present in Wales including a business angel network (xénos), mezzanine and equity funding from Finance Wales, private sector-led sector panels (especially those in life sciences, energy and environment, creative industries and ICT), Business Wales’ high potential start-up programme and Welsh Government funding for innovation. Yet, the evidence suggests that there is little co-ordination between these elements to create a coherent and cohesive support mechanism for high growth firms. In addition, there has been little effort to link in with other entities including venture capitalists, the various equity-funding schemes supported through the UK Government, and new forms of financial support such as crowdfunding.

Therefore, there is a requirement for an increased focus on lending to new innovative high-growth businesses, especially those unable to obtain finance from the commercial banking sector. This could, as in some economies, be a standalone body for growth and innovation or could be integrated as a specialist division of the Development Bank for Wales. Alternatively, it could build upon the successful partnerships currently operating the high growth start-ups programme for the Welsh Government. The structure for this entity will be examined in more detail as the Welsh Government considers the way forward for the creation of a Development Bank for Wales.


Summary

During the last ten months, this review has examined access to finance to SMEs in Wales. It has concluded that whilst the lending from the banks has fallen, alternative sources of finance have yet to fill this funding gap. In addition, it can be shown that public sector financial support in Wales seems to be fragmented and more relevantly, the organisation tasked with providing debt and equity finance to SMEs is not specifically focused on developing the Welsh economy.

Given this, the Welsh Government needs to develop an approach where public funding for SMEs is affordable, is focused on economic development, is supplemented by business support and is oriented towards the needs of the business customer. It is also critical that the public sector does not displace the private sector but works alongside the banks and other stakeholders to address a market failure in the provision of finance to SMEs.

The review believes that the most appropriate way in achieving this is through the creation of a Development Bank for Wales that will draw together the various sources of public sector funding in Wales and utilise these efficiently alongside private sector finance solutions. Therefore, the review recommends that the Welsh Government examines the feasibility of this approach as soon as possible to ensure that a viable and coherent solution that supports SMEs in Wales is put into place as quickly as possible.

TRENDS IN BANK LENDING TO WELSH SMEs

In January 2013, the Minister for Economy, Science and Transport announced an independent review into access to finance for SMEs in Wales. Supported by a voluntary advisory panel from academia and business, the aim of the review has been to examine how effectively SMEs in Wales are served by existing sources of funding, identify areas of particular challenge and provide recommendations for action. There are five sections to the report, namely:

• Banks lending patterns to SMEs
• Alternative sources of funding
• The role of Finance Wales
• The principles of public funding for SMEs
• the case for a Development Bank for Wales.

Over the next five days, I will be publishing each of the sections individually so that those wishing to respond to the review can understand each aspect of the issues surrounding access to finance to SMEs that have emerged from the 10 month consultation.

This blogpost will examine the current state of lending by the banks to SMEs in Wales. It will update the data from the first access to finance report published in June 2013 and will examine whether the situation regarding access to finance from the banks to the SME sector in Wales has changed since then.


UK trends in bank lending

At a UK level, the latest available data show that, in terms of gross lending, a total of £308 billion has been lent to all non-financial businesses in the UK since September 2011 (Figure 1).

Of this, only 26 per cent (£80 billion) have been lent to SMEs and net lending, after repayments, for UK SMEs has gone down by £10 billion (for the banking sector, SMEs are those businesses with annual debit account turnover on the main business account less than £25 million; large businesses are those with annual debit account turnover on the main business account over £25 million). This suggests that there continues to be little appetite by firms for bank lending or, as some suggest, a lack of credit being made available to smaller businesses.

As of August 2013, there was a total of £420 billion of fixed term loans outstanding to the banks from non-financial business in the UK, with SMEs accounting for 36.7 per cent (£154 billion) of this amount. Therefore, and contrary to expectation, the Bank of England’s statistics suggest that there has been no substantial increase in the level of lending to SMEs during the last 12 months (September 2012-August 2013). 

In fact, there has been an overall decline of £1.2 billion during this period and the only monthly growth in net lending to SMEs (excluding overdrafts) since September 2011 has been in March 2013 and May 2013, despite claims from the high street banks.

The other main form of debt funding from banks to SMEs is via an overdraft i.e. a short-term loan giving customers the right to overdraw their bank account by an agreed amount and which is normally repayable on demand. According to Bank of England data, there is a total of £34.6 billion of overdrafts with UK businesses, with SMEs accounting for 42 per cent (or £15.5 billion) of this amount. This has fallen by 25 per cent since September 2011, indicating that banks have been put under pressure, through Basel III arrangements, to reduce their risk through such lending to SMEs. 

Various conversations with banks, customers and intermediaries also suggest that there has been acceleration in businesses having their overdrafts withdrawn because of a lack of utilisation and then being encouraged to move into invoice discounting. Whilst it is argued that this may be more effective for managing cashflow, this type of finance is not suited to every business and may cause difficulties over time. 

Therefore, in terms of total loans and overdrafts, SMEs owe a total of £169 billion or 37 per cent of all lending to businesses in the UK. This equates to an overall reduction in debt finance facilities of around £25 billion (or a 13 per cent decline) since September 2011. At this stage, there is no clear evidence that this situation will change soon although hopes of a growing economy may transform the appetites of both the banks and SMEs towards increased lending and borrowing respectively.

Figure 1: Gross lending (excluding overdrafts) to non-financial businesses, 2011-2013.

There are also mixed messages regarding lending emerging from the latest version of the SME Monitor, which reported that in Q2 of 2013, 44 per cent of SMEs using external finance (loans, overdrafts, credit cards), up from 39 per cent in Q1. This was higher than the 36 per cent of SMEs who met the definition of a “permanent non-borrower”, expressing no interest in external finance. However, this growth is in non-core products offered by the banks with the use of core bank products (overdraft, loan or credit card) remaining flat at 33 per cent. Indeed, overdrafts are now only used by 18 per cent of SMEs, the lowest since the SME Monitor was created. Instead, the growth is coming from ‘other’ forms of external finance (such as leasing, invoice discounting, grants and loans from directors), with use increasing to 21 per cent, up from 15 per cent in recent quarters.

Bank lending in Wales

The main source of information on regional lending from the banks can be obtained from the BBA, which publishes limited regional data on a quarterly basis, although this information only dates back to the third quarter of 2011. The updated statistics enable an examination to be made as to how Wales has been performing during the first two quarters of 2013. 

The latest data shows the following:

• Current value of loan balances in Wales in Q2 of 2013 was £4.284 billion, which equates to no substantial change on the position at the end of 2012. The value of overdraft balances had increased, during the previous six months, from £623m to £656m. This represents 4.9 per cent of the total UK lending by banks (loans and overdrafts) to SMEs, with 86.7 per cent of all banking in lending in Wales being in the form of loans, slightly lower than the UK (88.7 per cent).

• During the 12 month period Q3 2012-Q2 2013, the banks approved 11,459 loan facilities for Welsh SMEs with a total value of £862.6 million. The average loan was £76,016, the lowest of any UK region, with an average loan of £58,403 for small firms and £185,359 for medium-sized firms;

• A total of 16,469 overdraft facilities were approved for Welsh SMEs over the same period with a total value of £305.7 million. The average overdraft for SMEs was £20,738, the lowest of any UK region with an average overdraft of £14,610 for small firms and £56,648 for medium-sized firms.

The average loan for businesses with a turnover of less than £1million (i.e. small firms according to banking definitions) remains relatively high (as compared to what would be expected from most micro-businesses) and suggests that micro-enterprises may not be getting access to the smaller loans they require (microcredit is defined by the EC, as a loan or lease under EUR 25,000 to support the development of self-employment and microenterprises (which are defined by the EC as less than 10 employees, and a turnover of less than € 2million).

This supports the finding from the first report namely that whilst bank funding is available to businesses in Wales, many newer and smaller businesses do not get the funding they require, at least relative to the rest of the UK.

To examine this trend over a period of two years, table 1 examines the change in the value of loan balances for Wales over time as compared to the UK.

Table 1: Change in loan book and overdraft balances, Wales UK, Q3 2011 – Q2 2013.

Overall, the comparison shows that the amount of loans and overdrafts to SMEs in Wales has actually increased by £55 million (or 1.3 per cent) between quarter 3 of 2011 and quarter 2 of 2013. In contrast, the amount of lending to SMEs at a UK level has decreased by £4.6 billion, a fall of 4.9 per cent.  More detailed examination of the data shows a considerable difference in the lending profile of small firms and medium-sized firms in Wales. Whilst medium sized firms in the UK are facing difficulties in accessing finance, the loan balance for this size of firm in Wales has increased by 14.2 per cent over this period. In contrast, there has been a decline of £232m in the value of loan balances for small Welsh firms, which is the largest overall decline of any UK region over this period. This decline accounts for 40 per cent of the total UK fall in loan balance for small firms.

This supports the indications from interviews with stakeholders that it is smaller firms that are struggling to get loan funding from the banks. This view is also evidenced by the findings from the most recent Bank of England Agents’ summary of business conditions which suggests that whilst credit availability has continued to improve gradually, “Availability of finance remained polarised between very easy conditions for large companies, both for bank and capital market finance, and tight conditions for smaller companies holding few assets or operating in riskier sectors. For smaller companies, however, access to non-bank financing had increased further, and there were reports of greater activity by some ‘challenger’ banks albeit often in ‘lower-risk’ lending, such as asset finance.“

There has also been an 8.9 per cent fall in overdraft balances for small firms during this period (£33 million) although this is half that of the UK average. To explain this trend, banks have indicated that the reason that small firms’ overdrafts had been withdrawn or converted to invoice discounting was because of a lack of utilisation. For example, data from the BBA regarding overdraft facilities shows that only around 53 per cent is currently utilised by SMEs. Whilst this leaves almost half the agreed borrowing commitments available as ‘headroom funding’ for businesses to draw on, it is reducing year on year.

Whilst examining the decline in loan balances is one way of estimating the amount of funding that is available to Welsh firms, it is also worth examining the loan facilities that have been approved between 2011 and 2013. This data shows that whilst there have been fluctuations in the number of loan facilities approved for SMEs during the last two years, the number of loan facilities approved for medium-sized firms has remained almost flat (Figure 2). 

Figure 2: The value of loan facilities approved for small to medium sized enterprises in Wales, Q3 2011-Q2 2013

Figure 3: The number of loan facilities approved for small to medium sized enterprises in Wales, Q3 2011-Q2 2013.

In terms of the value of loan facilities being offered to SMEs in Wales (Figure 3), this has declined by 58 per cent since Q3 2011 with the value of lending to mid sized firms falling by 140 per cent over this period (from £159 million in Q3 2011 to £66 million in Q2 2013). In fact, it would seem that the main decline occurred between Q3 2011 and Q2 2012, with the number and value of loans to medium sized companies reaching equilibrium and staying there for the last 12 months. A similar pattern has been observed for overdrafts, with the value of such facilities for mid-sized firms in Wales falling by 67 per cent in the last two years. 

Cost of lending

It is not only the supply of lending from the banks that is critical to SMEs but also the cost of lending. This review has found it almost impossible to get any relevant data from the high street banks on the cost of lending to Welsh businesses. In fact, there is an argument made that it remains difficult to get any data on the cost of borrowing as the spread over relevant reference rates that SMEs face on new borrowing can vary widely, taking into account various business-specific risk and credit quality factors. As a result, there is no single definitive measure of loan pricing, though statistical and survey data can provide broad estimates.

The latest report on trends in lending from the Bank of England  (Figure 4) shows that indicative median interest rates and spreads on new variable-rate facilities to all SMEs has fallen slightly in recent months, according to survey data from the Department for Business, Innovation and Skills. This shows that the median interest rates for SMEs stood at 3.55 per cent in August 2013, which equates to a reduction of 1.84 per cent since November 2008. 

For small firms, the median rate was slightly higher at 4.74 per cent - a reduction of only 0.93 per cent that suggests that those with limited negotiating power are paying more.  Another indicator of pricing on loans to smaller businesses (PNFC) - the Bank of England’s measure of effective rates on new corporate lending for advances of £1 million or less - was broadly unchanged over this period. 

Figure 4: Indicative median interest rates on new SME variable-rate facilities, 2008-2013 

This is the median by value of new SME facilities priced at margins over base rates, by four major UK lenders (Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland). Data cover lending in both sterling and foreign currency, expressed in sterling; (b) Median by value of SME facilities (new loans, new and renewed overdrafts) priced at margins over base rates, by four major UK lenders (Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland). Data cover lending in both sterling and foreign currency, expressed in sterling (c) Smaller SMEs are those with annual debit account turnover on the main business account less than £1 million  (d) Medium SMEs are those with annual debit account turnover on the main business account between £1 million and £25 million (e) Weighted average of new lending to PNFCs of all sizes by UK monetary financial institutions (MFIs) for advances less than or equal to £1 million. Data cover lending in sterling. The Bank’s effective interest rates series are currently compiled using data from 23 UK MFIs.

The reduction in interest rates over time was reflected in a recent survey from the Federation of Small Businesses, which showed that the cost of finance continues to reduce for UK small businesses. 

In Q3 2013, the average interest rate to small firms was estimated at 5.5 per cent, down from 6.3 per cent a year before. Within this average, almost a third of small firms report being offered loans at 4 per cent interest or lower in Q3 2013 – up from the 22.3 per cent of firms at the same time a year ago.

At the other end of the scale, the share of firms being offered interest rates of 6 per cent or higher has fallen back notably, with just 7.2 per cent of businesses being offered rates of 11 per cent or over, down from 9 per cent in Q3 2012. Similar reductions over time in the costs of loans have been found in the latest editions of the SME Monitor. For example, two thirds of the SMEs within the SME Monitor Q2 survey  stated that they were paying 6 per cent or less for fixed rate loans (with 23 per cent paying less than 3 per cent). 

Therefore, this evidence suggests that the cost of borrowing to SMEs remains low although evidence from the first stage review suggests that the main difficulty remains one of getting access to the loans with the banks still applying strict rules with regard to security, affordability and the viability of certain sectors. For example, one of the sector panellists noted that “the high street banks have "black-listed" whole sectors, in which our businesses trade, and have been very risk adverse regardless of the considerable financial strength, and low gearing, of our group.  Without the latter I do not believe we would have been able to finance our investment strategy at reasonable rates.”

Rejection rates

As stated in the first report, if a business is declined lending following a formal application for a loan, it has the right to appeal the decision. This is because the UK banks, through the BBA, have agreed a new set of principles for appeals that are monitored and scrutinised by an independent team of reviewers, ensuring that the banks have implemented a fair, prompt and transparent appeals process. 

According to the latest review, the banks have received almost 5,500 appeals since the inception of the new process in 2011, with 39 per cent overturned in favour of the customer and, as a result, an estimated £30 million in lending was put into the economy in its first two years. 4.6 per cent of the appeals have come from Wales, slightly higher than its share of the UK business population.

Detailed case data on a regional basis are only collected on those appeals which have been reviewed and the case selection is predominantly skewed towards reviewing those cases overturned in favour of the customer so that there is a better understanding of the reasons for overturns and whether any process improvements may be appropriate. In those cases, 46 per cent of the appeals were overturned in favour of the customer in Wales and it is worth noting that the main reason given the author of the review, Professor Russell Griggs, for the relatively high number of successful appeals was that banks rejected applications “too early” without giving them thorough consideration. This suggests that a considerable number of businesses that are, of sufficient quality to attract bank lending, are being turned down because of internal processes within the banks themselves.

Whilst banks are obligated to inform those declined for lending of the appeals process, the latest edition of the SME Monitor  suggests that amongst those initially declined, awareness of the appeals process remained low (only 15 per cent of those initially declined for an overdraft in the last 18 months and 7 per cent for those initially declined for a loan). It is also worth noting that most of the firms declined rated the subsequent advice given by the bank as to issues such as other sources of potential funding as poor (70 per cent for declined overdrafts and 62 per cent for declined loans).

As the first report noted, both the banks and Government could do more to ensure that those that are turned down for lending are not only given the opportunity to appeal but to look for alternative sources of funding. In the case of Wales, such action could be a major step in increasing lending to businesses. 

For example, if the banks’ approval rates for lending are 70 per cent, as the BBA suggests, then this would indicate that, extrapolating the data from the regional data discussed earlier in this section on bank lending to SMEs in Wales, that there are nearly 5,000 Welsh firms that have been turned down for loan funding during the last 12 months and a further 7,000 for overdrafts. The total is probably higher given that a number of businesses are actively discouraged from applying formally to the banks for support. In fact, as the review into RBS lending practices by Sir Andrew Large recently pointed out, the bank discouraged a disproportionate amount of businesses from making formal applications and its staff were risk averse.

Therefore, the report estimates, by utilising this data, that there is a minimum of half a billion pounds lending ‘gap’ within the Welsh economy.  A similar estimate can be made from the recent NAO report on access to finance for SMEs, which indicated that the ‘funding’ gap (the difference between the funding required by SMEs and the funding available) for the UK as a whole is £10 billion to £11 billion.

Whilst it is likely that a significant proportion of those turned down may not be ready for funding, if SMEs that do not receive finance from the banks could be supported with their application or to get access to other sources of funding, then this would have a significant effect on supporting business within the Welsh economy. There are a number of implications from this finding including ensuring that more Welsh businesses are ‘investment ready’ and there is more effective signposting to alternative sources of funding.

Summary of key findings

The first report highlighted some of the main issues regarding lending by the banks to SMEs in Wales.

Whilst the banks are stating that they are ready to lend, the data shows a very different picture, with the value of borrowing approved facilities to SMEs in Wales actually falling by 30 per cent since Q3 2011. Differentiating by size of firm, then the data shows that the borrowing levels of small firms have fallen during the last two years whilst the number and value of lending approvals to medium-sized businesses have flatlined during the last 12 months. This is a conundrum as the evidence is clear that the cost of borrowing is at its lowest levels ever with evidence that the Funding for Lending scheme is starting to have an impact on the interest rates charged by some banks.

Nevertheless, in recovering from previous recessions, banks have not had to contend with changes in the regulatory landscape that have changed the cost and balance sheet dynamics of providing credit.  The funding drought that then affected the SME market, especially in the period 2008-2010, has also eroded confidence amongst the business community. Whereas there have been efforts by the UK Government to introduce cheaper lending with rates reducing as a result, this has not been translated into increases in the number of loans from the banks. 

This has left a total funding ‘gap’ of around £500 million per annum for those businesses who want to get access to funding but were refused support by the banks in Wales. This is clearly an upper limit as a proportion of those applying for funding may not be a position to receive it from any source although it does exclude those that are reluctant to go to the bank for funding because of the current uncertain economic conditions or have been actively discouraged from doing so. Nevertheless, it gives an estimate, albeit a crude one given the lack of statistics from the banks themselves, of the finance required by the Welsh SME sector that is currently not served by the high street banks. 

As suggested in the first stage of the review, a large part of this problem may be attributed to the way that banks are currently assessing risk, valuing collateral and whether to invest in certain sectors. In that respect, the question is whether a new challenger bank is needed within Wales - either in the public or the private sector – especially as it will face many of the same issues that are affecting the current set of high street banks? Alternatively, is there a more effective way for the Welsh Government of working alongside current providers whilst, at the same time, encouraging access to other types of alternative finance?

It is important that banks and the Welsh Government do not operate in isolation in terms of the provision of finance to SMEs. Following the first stage review, there have already been negotiations between the Welsh Government and one of the high street banks to develop a referral system for those turned down for bank lending although closer links between business support and access to finance could also sustain this process. In addition, another bank has stated its intention to work closely in developing the potential of growth businesses in Wales. Given this, regular formal meetings could take place every six months between senior officers at the banks and the Welsh Government to discuss the challenges facing the Welsh economy and the way to address these challenges together.

GETTING TO KNOW YOU - ENTREPRENEURS AND THEIR INFLUENCE ON GROWTH BUSINESSES

In November, Wales will once again be taking part in the Global Entrepreneurship Week, a series of events to publicise and promote entrepreneurship as a viable career option, with an estimated 7.5 million people participating in 130 countries around the World.

But is this enough to make a real difference to encourage more people to take the step into an entrepreneurial career? It is a sentiment that seems to be reflected in a groundmaking paper from the World’s foremost think tank on entrepreneurship.

Researchers at the Kauffman Foundation, based in Kansas, USA, has stated that more needs to be done to expose the general population to entrepreneurs, especially those entrepreneurs that grow their businesses.

Indeed, research has consistently shown that a small number of businesses create the majority of jobs in an economy – the latest Fast Growth 50 project saw the creation of over two and a half thousand jobs in Wales in just two years by fifty businesses. So the question is whether greater exposure to entrepreneurs will lead to others doing the same?

Certainly, in conversations with those running their own businesses, a common thread in terms of their motivations is a description of the role models and peers - all usually entrepreneurs - who played a role in their decision to take the plunge and start a new venture Therefore to understand this better, Kauffman undertook a survey of US residents. This showed that not only did a large number of U.S. residents know entrepreneurs, but that knowing an entrepreneur is possibly a significant factor in whether a person runs their own business.

More importantly, the survey indicated that the likelihood of knowing entrepreneurs varied widely by location, income, gender, and age. For example, respondents were much more likely to know entrepreneurs if they were male, had modest income, or were middle-aged. This is a critical finding for policymakers in determining how best to encourage further entrepreneurship not only amongst those who are thinking of starting a business but, more importantly, amongst those who are in business already but have not considered growth as part of their strategy.

More relevantly, the finding suggests that there could be an increase in entrepreneurial behaviour amongst some under-represented groups such as women or ethnic minorities, if they were exposed to existing entrepreneurs, especially peers or contemporaries. For example, women simply don’t know as many growth entrepreneurs as men do, a situation made worse by the male-dominated nature of these fields and an important issue in creating female entrepreneurial role models.

Certainly, we have seen very few businesses managed by women within the Fast Growth 50 project during the last fifteen years and it is an area that needs urgent attention to ensure that there is breakthrough not only in getting more women to start their own businesses but those that grow and create jobs in the economy.

In addition, people in lower income groups are also much less likely to be exposed to those growing their business, a finding that should have particular resonance in ensuring that there is a greater focus on promoting entrepreneurship in areas such as North West Wales, which is one of the poorest parts of Europe.

Therefore, whilst governments around the World focus on various initiatives to promote entrepreneurship, the Kauffman study suggest that perhaps the best way forward is simply helping people to get to know who are the wealth creators in their local economy. In particular, more needs to be done to expose potential and existing entrepreneurs to those growing their businesses within the Welsh economy so that they not only serve as role models, but lessons can be learnt from their experiences.

BECOMING AN ENTREPRENEUR

ENTREPRENEURS, INNOVATION AND THEIR INSTINCTS FOR THE FUTURE

Zach Kaplan, CEO of Inventables, tribute to the innovative nature, instinct for the future, and unconventional approach that enables entrepreneurs to create something new.

MAKING THE PRIVATE SECTOR WORK FOR THE PUBLIC SECTOR - LESSON FROM SAN FRANCISCO

Last Thursday, a conference organised by the independent thinktank Wales Public Services 2025 concluded that there would be increased pressures on the Welsh public sector over the next few years as government expenditure continues to shrink.

One report presented at the event suggested that with increased demand for funding in education, health and social services in Wales, there could be dramatic cuts of up to £1.4 billion in areas such as culture, economic development, transport and housing.

Another study indicated that such cuts would inevitably result in a more fundamental change in mind-set on the part of public service leaders, staff and the general public over the next few years.

From my own perspective, the key question is whether the Welsh Government can continue to develop services in these areas alone to ensure their continuity?

In particular, it must consider whether all of the wisdom on making public services more efficient and effective lies within its own managers or whether it should bring in new ideas and solutions from outside the civil service?

One radical approach to such a quandary was launched earlier this month by the Mayor’s Office in the city of San Francisco.

The Entrepreneurship in Residence (EIR) programme is a competition to select talented teams of entrepreneurs who will work alongside senior government officials to help solve particular problems, help increase revenue, enhance productivity and create meaningful cost savings.

In doing so, the individuals chosen will drive innovative solutions in key areas such as healthcare, education, data, mobile and cloud services, transportation, energy and infrastructure.

And to ensure they quickly adapt to their new surroundings, they will be mentored by senior public sector leaders and supported through training on important topics related to working with government like open data standards, procurement and security.

So what are some of the problems these entrepreneurs can help to solve?

According to the City of San Francisco, these can range from examining how the public sector can leverage the growth in open data can enable better decisions, to how public assets can be utilised to generate additional revenue.

It can also include far more simple, but effective solutions to issues such as improving transport efficiencies and optimising the purchase and use of energy.

The public sector will clearly benefit from such an approach that brings entrepreneurial expertise and experience to bear on specific and protracted problems.

However, there is also the advantage for those entrepreneurs participating in the programme in that it will serve as a showcase for specific solutions that can be applied across other parts of government, which is a massive potential market for any business.

In fact, part of the selection process is that the city of San Francisco expects those chosen to “ramp up” their business through competitive offerings that governments consider purchasing because it has a measurable impact such as lower costs, enhanced productivity and increased revenue.

To a large extent, it could be argued that such a programme is acting as an incubator for those businesses who would want to provide solutions in the public sector but have yet no idea on how to access the purchasing process. Certainly, this is an idea that may be highly relevant to the Welsh public sector that is the largest purchaser of goods and services in our economy.

To date, using the private sector for delivery of public services has been largely a no-no to the successive Welsh governments that have held power since 1999.

However, I believe that this philosophy, whether you agree with it or not, should not preclude politicians from utilising private sector expertise and experience to ensure that we get the most from our public services.

Indeed, there are already examples, such as the potential for the South Wales Metro transport system, where businesspeople have driven forward innovative ideas through their drive and energy.

But more could certainly be done and there is certainly the entrepreneurial talent in Wales that could be drawn upon to help government solve some of its immediate problems.

With some economists suggesting that the public sector accounts for as much as 65 per cent of Wales’s economic output, adopting programmes such as the EIR could establish real opportunities to bring business and government together to not only create greater efficiencies but to also open up new markets for innovative Welsh solutions that can be applied across the rest of the UK.

OVERCOMING FAILURE - IF AT FIRST YOU DON'T SUCCEED, TRY TRY TRY AGAIN

LESSONS FOR ENTREPRENEURS

Forbes Magazine has some fantastic articles on entrepreneurship which are worth catching up on every week.

During the last few days, there have been some exceptionally informative ones on easy businesses to start, teaching entrepreneurship and trends from Silicon Valley.

However, I do enjoy the articles from Paul. B Brown and his latest one, summarising the lessons he has learnt from a lifetime of entrepreneurship,

I wouldn't agree with everything on the list, it is a good place for those who want to launch a new business to start. So what are his 23 lessons for entrepreneurs.....

1. The best way to predict the future is to create it.

2. The most important decision you can make is…where do you want to spend your time. You only have so much time, energy and ability to focus. That means, as much as you would like to, you can’t do everything. That’s a given. So is this: The places which receive your full attention will do better than the places that won’t. What follows from that is this: You need to make hard choices about what you will do–and what you won’t. And it is really is the important decision you can make, because everything else you do will flow from it…including the next point.

3. If you want to be a successful entrepreneur, there is no such thing as work-life balance.  I am not advocating that you spend a disproportionate part of your life working on your company.  (I am also not advocating against it.) I am simply reporting that is what the most successful entrepreneurs do. I have never found an exception.

4. The best entrepreneurs don’t come up with great ideas, they solve market needs. You and I can come up with wonderful ideas all day long but unless they satisfy a large enough need, one that can support a business, they don’t do anyone any good.

5. The one thing all successful entrepreneurs have in common is the desire to make their idea a reality. What entrepreneurs need most of all—above motivation, focus, hope, financing, marketing skills, a brilliant idea, etc.—is the will to bring their idea into existance. Unless you truly want to make something happen, the odds are nothing will. Without that desire, nothing else matters…or occurs. Your life will be filled in other ways.

6. Action trumps everything.  Stop thinking and get underway.

7. Take small, smart steps towards your goals.  Contrary to the popular press, the most successful entrepreneurs are not swing-for-the-fences, bet-everything-on-one-roll-of-the-dice  types.  They are extremely conservative. They take a small step toward their goal; pause to see what they have learned from taking that small step and build that learning into the next small step. Then they pause to see what they have learned from that second small step, build that learning in and then take another small step and so forth. They don’t take large risks.

8. If you want to build a successful company give up control. You can try to micromange but: the business will never grow bigger than one person (you, the CEO) can handle effectively; the company won’t be able to move very quickly. Since everything will have to flow through you, you will create a bottleneck; you won’t get the best ideas out of your people.  Once they understand the company is set up so everything revolves around you, people are not going to take the time to develop their best ideas. “Why should I,” they’ll ask. “He is just going to do what he wants anyway.” And it’s exhausting.

9. Forget about working on your weaknesses, play to your strengths.  This is what will make you successful in the long-run.

10. You need to be able to turn every obstacle into an asset. Yes, every single one.

11. All you need to know about marketing in exactly 30 words? Marketing, when you strip everything away, is extremely simple: You figure out who you want to sell to, and then you determine what it is that will get them to buy.

12. Here’s the only market research you need: Get your product out in the marketplace and see if it sells.

13. If you insist on doing market research anyway, here’s the one question you need to ask. Show potential customers a prototype, or describe the service you are thinking of offering and then say: ”Is this something you would buy,” and if they answer yes, ask for the order then and there. If, as the cliché goes, they are willing to put their money where their mouth is, you are probably on to something. If they aren’t, you still have work to do.

14. You must figure out how you are going to collect what you are owed.  Nobody thinks about this before they get underway and suddenly they learn first hand what they phrase “cash flow crunch” means.

15. As much as you are going to fight it you need a (really smart) advisory board.  You want a board to: give you new perspectives and ideas; to give you people to talk to and to provide honest feedback.

16. If you want to get more done faster and better…create checklists. Checklists are a wonderful way to make sure you don’t overlook anything, and that it is true whether we are talking about the best way to treat someone in the emergency room or if you are about to make a big presentation to a client you really want to land.

17. How to motivate yourself and stay motivated. Starting anything new is hard and the number of obstacles you are going to encounter can easily get overwhelming. Click on the link here for proven ideas that can keep you going.

18. If the dogs don’t like the dog food it’s bad dog food.  You don’t determine what a good product is. Only your customer does.  And if they don’t like your product, it’s a bad product. Period. In others words, the customer is always right. Darn it.

19. If the customer doesn’t like the product, there isn’t much you can do about it with pricing or promotion or positioning. Unpopular products are going to remain so. It is better to come up with a different version, than to keep trying to sell–at a discounted price–the one people don’t like.

20.  If you are going to fail, and sometimes you will, fail quickly and cheaply.  Always take small steps toward your goal and pause after each one to make sure you are staying on the right track.

21. (Really) Learn from your mistakes.  You are going to make mistakes. That’s a) a given and b) okay, providing you truly understand what went wrong.

22. Creativity and innovation must be linked to a business objective. Creativity is wonderful. But creativity that isn’t tied to making money is just a hobby. It isn’t a viable business concept.

23. Get while you still have your marbles. You never want to stay too long at the fair, even if you own the fair.

SUPPORTING ENTREPRENEURS IN WALES

Increasingly, governments and policymakers are realising that entrepreneurs provide one of the primary engines of growth as the global economy emerges from the problems of the last few years.

And not only do they now provide most of the new jobs in many countries, as various research studies have shown, but they develop new products and services, create new business models that can revolutionise industries and support local communities.

This is despite the fact that most societies do very little to promote the development of an entrepreneurial culture where new businesses are promoted and supported, a finding that is reinforced by a study published this week which shows that there is still much work to be done by the World's leading economies if entrepreneurship is to be boosted to make a greater contribution to innovation, job creation and prosperity.

The Ernst and Young Entrepreneurship Barometer provides a detailed insight of the entrepreneurial environment within the leading G20 countries by surveying more than  1,500 leading entrepreneurs, obtaining insights from more than 250 entrepreneurs, independent academics and experts, and undertaking an analysis of more than 200 leading government initiatives.

The latest edition of this important research has a number of recommendations as to how countries can identify the relative strength of their entrepreneurial environment and, more importantly, how to build on this in the future.

According to the study, the most important aspect in terms of a supportive enterprise ecosystem is related directly to how society views entrepreneurs. In that context, it is argued that a more positive image must be created for entrepreneurship by emphasising the impact of these wealth creators across the economy, especially as individuals who are directly supporting employment in local communities through their efforts.

In fact, whilst jobs have been lost across large businesses and the public sector in the UK in recent years, it is easy to forget that entrepreneurs have continued to employ staff, usually by making personal financial sacrifices themselves.

Given this, it is not surprising that 84 per cent of those entrepreneurs questioned as part of the Ernst and Young study said that raising awareness of their role as job creators could significantly improve attitudes towards entrepreneurship, especially in countries where large firms and the government are still significant employers.

87 per cent of the same group also suggested that improving communication around success stories would improve the image of entrepreneurship. Indeed, it was argued that much more needed to be done to showcase the success stories of local entrepreneurs to the rest of the population, as they can often act as an inspiration to other to consider working for themselves.

In Wales, we have seen this type of positive PR with publications such as the Wales Fast Growth which, in just over two weeks time, will highlight the fastest growing Welsh firms and those founders who started them. However, more could be done to promote business success stories, especially through the more effective use of social media by both the private and public sectors.

In addition to the promotion of entrepreneurship, Ernst and Young also suggested that a stronger entrepreneurial culture can be encouraged differently in various groups.

For example, it suggests that women have a more positive outlook on the economy than males when to comes to business creation, especially if they are given the right support to start a business.

Similarly, whilst young people are more likely to want to start a business in the future, there is very little targeted support available within many countries for such opportunities, despite high levels of youth unemployment.

And whilst there is an increasing debate on curbing immigration across more prosperous countries, the report suggests that migrant talent, rather than being turned away, should be welcomed. In fact, governments need to examine their immigration policies carefully
to ensure that those with entrepreneurial flair who want to set up new businesses in their adopted countries are given every opportunity and support to do so.

So what can be done by government to encourage a more positive entrepreneurial culture? According to Ernst and Young's analysis, there are three characteristics of successful government programmes that have been set up to change cultural attitudes within leading economies.

First of all, they encourage successful local business leaders to give up time to act as mentors and role models for other owner-managers in their community.

Secondly, they create networking opportunities so that aspiring entrepreneurs can learn from other businesses in other regions. And finally, they highlight entrepreneurship’s vital role in the community and the broader economy, encouraging people to be proud of this career choice.

For Wales, it could be argued that these characteristics have been generally absent from the approach to enterprise policy during the last few years although there is now a commitment to greater change to drive forward greater entrepreneurial activity. Indeed, with the right strategy, all of the above factors can be easily implemented into current business support practices and, in doing so, could reignite the entrepreneurial potential that exists across the economy.

CREATING ENTERPRISING YOUNG PEOPLE - SUMMER CAMPS FOR FUTURE ENTREPRENEURS?

Last week saw the beginning of the summer holidays for thousands of children across Wales.

But with the workforce changing considerably over the last twenty years and both parents working, this six-week break to become a large financial burden on hard-pressed families.

In fact, a recent survey showed that parents will spend an average of £1200, to keep their youngsters entertained during the six week break. This not only includes the cost of day trips during the holidays but also includes additional childcare whilst parents are working. In fact, this amount would be higher if nearly two thirds of parents did not turn to grandparents or friends for help.

And whilst the papers are full of “free things to do with your kids” articles, the inevitability is that most families will end up paying for activities over the next few weeks.

Sensing a commercial opportunity, various summer camp type activities have sprung up over the last few years in the UK. Following the US model, where 10 million children attend such camps annually, they usually focus on outdoor and sporting activities.

However, there may be another summer trend emerging from America that may be of interest to not only parents, but also to policymakers.

“Entrepreneur-camps” are specifically geared towards getting young people interested in starting a new venture and there are a range of different approaches in ensuring that they acquire the skills and motivation to test their business ideas.

For example, programmes such as SuperBizCamp follow a traditional enterprise educational model where students experience real-world business activities through buying and selling events, role-playing sales, and sessions with entrepreneurial experts.

In addition, they have the opportunity to participate in a buying event at a local supplier and prepare a product to sell at a local venue.

There are also more specialised camps, such as Camp BizSmart, that focus on both product design and business planning to help prepare students to become “the creators of the world’s next great products”.

It gets students aged between 11 and 15 years of age to work in teams to solve real life business problems from innovative companies such as Google, Microsoft and Cisco.

As a result, not only do they learn vital business skills such as marketing analysis, assessing the strengths and weaknesses of the competition and compiling a financial spreadsheet, they also gain wider experience in other areas such ad leadership, public speaking, design thinking, and collaborative teamwork.

Therefore, whilst these entrepreneur camps are becoming increasingly popular in the USA, there are very few running in the UK and, as far as I can ascertain, none in Wales.

This is despite recent data showing that there is increased interest by young people in becoming their own boss.

For example, the recent Wales Omnibus Survey showed that 55 per cent of young people under 25 now have aspirations to work for themselves, a rise from 42 per cent in 2004.

With youth unemployment continuing to be a major headache for politicians, surely this idea of an intensive period of activity could be an option in getting young people fired up for starting their own business?

Indeed, with the Welsh Government already committed to embedding an entrepreneurial culture through their Youth Entrepreneurship Strategy, there could be an opportunity for Wales to begin the ball rolling on this type of initiative to ensure that our young people are given an opportunity to realise their entrepreneurial potential.

And I am sure that many parents in Wales would welcome the opportunity to give their children something worthwhile to do during the summer holidays especially if it could potentially help them to become the next Richard Branson or Anita Roddick.

REVISITING THE ENTREPRENEURSHIP ACTION PLAN FOR WALES

Earlier this week, I was reviewing the Entrepreneurship Action Plan that Dr Caryl Cresswell and I put together in 2000 for the Welsh Development Agency (WDA) back when we were both working at the University of Glamorgan.

It is a fascinating document, mainly because this was the first attempt, anywhere in the world, to put together a regional strategy to boost entrepreneurship at all levels of society.

It was created because, at the time, it was considered that there was an urgent need to raise the understanding of entrepreneurship and to foster a culture of creativity, opportunity and enterprise as being a positive life-option within Welsh society.

And to a large extent, it succeeded in doing this, although other influences outside of Wales also undoubtedly helped in this respect.

In all, we proposed forty-one different projects clustered around the three themes of recognising the opportunity, creating enterprises and going for growth.

And whilst the majority were implemented by the WDA, including an Enterprise Development Fund (which became Finance Wales), there were a number of projects which didn’t, although it is worth revisiting some of those to see if they can still make a difference to entrepreneurship in Wales.

The role of mentoring has now become regarded as a critical factor in supporting businesses to start and grow. In 2000, we proposed a business service whereby SMEs can access the business talent of people who have been in business (or are currently in business) and have the knowledge, skills or experience relevant to the needs of the SME. This talent can then be harnessed for short or medium term projects.

This “Business Talent Bank” could provide new businesses in particular with short or medium term opportunities to complement or supplement their staff at a cost-effective level. It would also provide opportunities for those people within a community who are otherwise unemployed, employed part-time and early retired to utilise their skills and talents, retain an interest and contact within the business community and to be employed (not necessarily on a full-time basis).

My own experiences suggest that there is still an enormous pool of talent out there that is not being used and such a programme could help in ensuring that this talent is not going to waste as well as, at the same time, helping to develop our entrepreneurial businesses.

At the time, we also felt that the insular nature of the Welsh economy and the lack of exposure of many small businesses to international opportunities was holding the economy back.

We therefore proposed a “Return to Wales” entrepreneurial programme that would attract entrepreneurs and businesspeople back to Wales to establish new businesses. It was based on the then Millennium Entrepreneur Fund run in Ireland which aimed to provide early stage seed capital funding (up to £100,000) to highly skilled individuals or teams involving a key Irish national who is willing to relocate to Ireland. The aim was to not only increase in the interest in enterprise development by businesses outside Wales but also the awareness of Wales as a nation that supports entrepreneurs.

Interestingly, the Irish have resurrected this idea with the creation of “the Gathering” which is intended to bring expatriates back to the country to help stimulate economic growth and development.

It was not only the attraction of entrepreneurs back into Wales that we considered important but how we could get our own entrepreneurs based here to interact more with international businesses.

We therefore suggested the creation of an international network structure involving Welsh entrepreneurs and those based in other countries with the aim of facilitating exposure to new experiences which would benefit their businesses.

The aim was to encourage direct contact with other enterprises (especially overseas) to widen the horizons of Welsh entrepreneurs, raise aspirations, and demonstrate examples of best practice that could be implemented at a local level. Certainly, from my own experiences of visiting hotspots such as Silicon Valley, your whole perception of your business changes significantly when one meets entrepreneurs working in such an environment.

And whilst trade missions are a useful way to build up business links, the development of ‘experience’ missions to find out what is going on in the more dynamic regions of the world could have a far larger long-term effect. Certainly, it might be something that the Welsh Government could consider as part of their overseas offering in the future.

However, the one project that I really regret never saw the light of day was the establishment of a National Business Plan Competition with local stages leading up to a final event. This would have provided a stimulus to convert interest in enterprise into action, celebrate entrepreneurship at a Wales-wide level gaining recognition, fostering the development of new business ideas, develop a “can-do” attitude and attracting potential investors for new businesses. Why it never became a runner is beyond me given the success of similar competitions elsewhere around the world but it may be an idea that could be resurrected fairly easily.

Therefore, there are still various options available from that original plan to help to boost entrepreneurship within the Welsh economy. Thirteen years later, with entrepreneurship having become more embedded in our national psyche, perhaps the time has come to revisit some of them and help to celebrate and support those entrepreneurs that create the majority of new jobs in the economy.

UNIVERSITIES AND ENTERPRISE DEVELOPMENT

As regular readers of this blog are aware, I am a passionate advocate of having universities as catalysts for enterprise and innovation in the Welsh economy.

Indeed, much of my own professional career over the last twenty years has focused on trying to identify and develop the best instruments for driving forward change in these areas.

That is why I was very interested in the publication of a recent report which, by examining the world's most highly regarded universities in entrepreneurship and knowledge transfer, attempted to identify the key factors needed for an enterprise ecosystem in which higher education played a major role.

As would be expected, some of these relate directly to the strategy of the higher education institution itself, and most experts interviewed for the report cited a strong institutional enterprise and innovation culture within the university as an essential ingredient of a successful local ecosystem.

Of course, it is not unexpected to find both Stanford University and the Massachusetts Institute of Technology (MIT) in the USA used as examples where enterprise and innovation was "sown into the fabric of the universities from their very foundation" but is also worth noting that there were a number of UK institutions mentioned as a result of the considerable change that has been taking place in the British higher education system during over the last few years.

One example is one of our great institutions, the University of Cambridge. Despite being over 800 years old, it has overcome its traditional academic focus to create an  unexpected entrepreneurial culture. This has been achieved by celebrating enterprising faculty role models, encouraging a relatively unstructured mix of innovation activities across campus, and giving faculty the freedom to devote time to entrepreneurial ideas.

The role of those at the top of the university was also seen as pivotal in sowing the seeds of a strong enterprise culture within the institution as without such leadership, changes rarely happen. In just eight years, Imperial College London was changed by Sir Richard Sykes, formerly CEO of the pharmaceutical giant GlaxoSmithKline, into a powerhouse for academic entrepreneurship. Not only did he transform the technology transfer office into a coherent vehicle for commercialisation across the university but, in doing so, encouraged world-class researchers to become entrepreneurs.

But it is not only university staff that are critical for ensuring changes within the institution. Equally important is the role of student-led entrepreneurship activities that, in many cases, create an environment in which enterprise can thrive.

In Finland, the newly created Aalto University has, in just over three years, established an incredibly powerful engagement by its student population in enterprise and innovation activities. These are supported by resources such as the "Start Up Sauna" incubator on campus and the annual SLUSH conference, which brings together early-stage startups to meet top-tier venture capitalists and media from around the world. In 2012, SLUSH gathered more than 3.500 attendees, 550 companies and 250 investors and journalists for two days in Helsinki, an incredible achievement for a university.

Various external factors are also important in encouraging a more innovative local ecosystem. In particular, the local quality of life is a key issue for attracting and retaining academics as well as entrepreneurs and investors.

In France, the area of Sophia Antipolis has managed, through creating a technology park on a wonderful green field site, to take "the Silicon Valley summery lifestyle and setting it up in the south of France”. And as economic development planners in Wales should take note, this success has also been helped by a strong tourism industry that made the region “open to the world”, an international airport and high-speed train lines to the rest of Europe.

Finally, many of the best universities in the world of enterprise and innovation have not done so alone and have benefited from considerable external support from local and regional governments, usually through generous financial grants. However, what seems to be most important in maximising such a relationship is openness between government and higher education in working to together to achieve similar goals.

In Russia, a Siberian university managed to combine its own facilities with those of the city and local businesses so that all three actors benefited and contributed to the enterprise ecosystem.

Certainly there are lessons there for Welsh universities in working alongside councils and businesses in developing local facilities that benefit the whole community.

Whilst some may say that the ecosystems in Silicon Valley and other innovation hotspots where entrepreneurial university flourish may be hard to replicate in more disadvantaged areas such as Wales, the report does show that an increasing number of successful institutions were to be found in more challenging economic environments. These universities had, despite their location, managed to overcome an internal culture that did not support entrepreneurial behaviour and risk-taking, a lack of venture capital or multi-national companies in the region and a limited local market.

Therefore, with Welsh higher education in Wales facing specific challenges as a result of new configurations, reorganisation and alliances, university leaders and educational policymakers could do worse than learn from some of these examples globally and ensure that their institutions not only stimulate enterprise and innovation internally but play a major role in driving forward their local economies.