GVA AND THE WELSH ECONOMY

Every year, the release of the regional GVA (Gross Value Added) data gives politicians and policymakers the strongest indication of the prosperity of Wales relative to the rest of the UK economy.

And whilst some have been quick to dismiss GVA as the main measurement of the wealth of the economy, it is still seen as the gold standard by which the majority of economists view the relative affluence of nations and regions. Indeed, the European Union will soon use it to decide whether the poorest parts of Wales will, for potentially the third time, receive billions of pounds in additional funding for economic and community development.

So what has been the performance of the Welsh economy in 2011?

In terms of relative GVA/head of population, it would seem that the Welsh economy (1.9 per cent growth) has expanded at a higher rate than the UK (1.4 per cent growth), with only South East England and Northern Ireland growing at a faster rate in the period 2010-2011. However, despite this improved performance, Wales remains the poorest part of the UK although it may well overtake the North East of England within the next few years.

Whilst there is scope for optimism in these new economic figures, this growth is not uniform across Wales. For example, the poorest part of the economy - West Wales and the Valleys - has grown at a slightly faster rate than the more prosperous East Wales (which includes Cardiff and the Vale of Glamorgan, Newport and Monmouthshire, Wrexham and Flintshire, and Powys).

This could suggest that the various European Structural Funding programmes are finally beginning to have an effect on the poorer parts of Wales, although this does vary across the region.

For example, if we look at the relative growth across Wales since the highest levels of European funding was granted to Wales in 2000, only three counties – Anglesey, South West Wales and Bridgend/Neath Port Talbot – have grown at a faster rate than the UK economy over those eleven years. Indeed, whilst the Welsh economy has grown at an average of 48 per cent during this period, areas such as the South Wales Valleys have grown at a far lower rate despite having access to additional funds for economic development.

However, the biggest disappointment for both politicians and policymakers must be the decline in relative growth of the more prosperous parts of the economy since 1999. Whilst GVA/head has decreased by 1.4 per cent for the whole of Wales, it has actually gone down by 5 per cent for East Wales since the birth of the National Assembly for Wales.

Some would argue that by focusing resources predominantly on the less wealthy parts of Wales, economic development policies have neglected those parts of the economy that could have the greatest potential and capacity for growth. Certainly, some parts of East Wales have shown a dramatic decline in economic fortunes over the last thirteen years. In particular, the mid-Wales county of Powys has seen a fall of over 10 per cent in its GVA/head to a level that would, if the Welsh Government wanted to make the case, make it eligible for inclusion in the next round of European Convergence Funding for the poorest parts of Wales.

There has been much discussion of late about the potential role of cities as the economic drivers for the future Welsh economy. Analysis of the GVA data suggests that, to date, that role has yet to be realised and, contrary to expectation, the main urban areas of Wales – Cardiff, Swansea and Newport - have only grown at an average of 1.6 per cent as compared to 2.2 per cent for the rest of Wales between 2010 and 2011. Indeed, their growth rate since 1999 is also lower than the average for Wales.

Certainly, if their performance could be improved considerably over the next few years, then there could be a significant impact on the Welsh economy. In fact, some would argue that the city regions approach to economic development recently proposed by the Welsh Government needs urgent action if the full potential of Wales’ three cities are fully realised for the economy.

And what about North Wales?

Since the creation of the National Assembly for Wales in 1999, the Welsh economy has grown by 54 per cent. In contrast, the economy of North Wales has had a growth rate of only 51 per cent This is disappointing, given that there have been concerns that the region has not been receiving the necessary funding required to help build up its economy.

But this figure actually hides a more worrying statistic over the relative wealth of both parts of the region.

For example, the poorest four counties – Anglesey, Conwy, Denbighshire and Gwynedd have grown by 59 per cent during this period, which is higher than the Welsh average. In contrast, the two counties of Flintshire and Wrexham have only experienced a growth of 43 per cent since 1999. Indeed, whilst GVA/head has decreased by 1.4 per cent for the whole of Wales, it has actually gone down by 6 per cent for North East Wales since the birth of the National Assembly for Wales.

Some would argue that by focusing resources on the less wealthy parts of Wales such as those in receipt of European funding, economic development policies have neglected those parts of the economy that could have had the greatest potential and capacity for growth.

Certainly, in the light of the decision not to recommend a city region for North East Wales, many will be asking when the Welsh Government will start to consider how it should address the relative decline in the prosperity of Wrexham and Flintshire.

Therefore, I would imagine that most politicians and policymakers in Wales are heaving a quiet sigh over relief over the headline figures for the relative prosperity of the Welsh economy, especially given the uncertainty that has been caused by recent recessions. However, more detailed analysis shows that there are still challenges that remain in certain parts of Wales, not only in terms of raising prosperity but in using the resources available to drive forward in economy in those areas that have the highest potential for growth.

WALES AND EUROPEAN STRUCTURAL FUNDS

Last week, there was a political storm over the latest GDP figures to emerge from the European Union and which measure the relative prosperity of its regions.

As expected, West Wales and the Valleys – consisting of 15 local authorities – lost ground on nearly every other part of Europe despite being given £1.2bn of European funding for the period 2000-2006 under the Objective 1 programme.

Not surprisingly, the opposition parties went straight on the attack to accuse the Labour Party of failing to use what it once termed a “once-in-a-lifetime opportunity”.

In riposte, that anonymous individual known as the Welsh Government spokesperson responded by noting that GDP per head in West Wales and the Valleys has broadly kept pace with the UK as a whole since 2001.

Was he correct in dismissing such arguments?

Technically speaking, yes he was, as the rate of growth in West Wales and the Valleys is approximately the same as that for the rest of the UK for the period 2000-2009. But given that only London and Hampshire has shown any positive growth out of all the regions over that period, as compared to an overall growth of 23% across the European Union, it does beg the question of what the last UK Government was doing in terms of regional economic policy. That is a discussion for another day. Instead we should focus on the main reason behind European Structural Funding such as Objective 1 and the current round of Convergence funds.

Let’s be clear, Structural Funds are a mechanism for reducing the disparities between regions in Europe. Their role is not, per se, to close the gap between West Wales and the Valleys and the United Kingdom. In that respect, we should focus any analysis on the economic impact of the programmes on a European level, especially the performance relative to the other Objective 1 regions supported by the European Commission during the last decade.

So what do these statistics tell us?

Back in 2000, when we first received European funding, West Wales and the Valleys was the sixth most prosperous Objective 1 region in Europe with a GDP per head of 17,300 euros. However, by 2009, the region had fallen to 42nd out of 50 regions with a GDP per head of 15,700 euros.

And, given our emphasis on high quality tourism, I am sure it would surprise many to find that both the Canaries and the Algarve have a higher level of relative prosperity than West Wales and the Valleys.

Indeed, in relative terms, nearly every other Objective 1 region in Europe has performed better economically during this decade. Some have argued that the economic decline in West Wales and the Valleys is down to the world recession during 2008 and 2009, and the data suggests that the other Objective 1 areas in the UK, including South Yorkshire, Merseyside and Cornwall, were not as resilient as other poorer areas on the Continent.

Yet even if we only consider the growth in GDP per head for the period 2000-2007, we find that Wales’ poorest region had the worse growth rate – at 21.4% – of any disadvantaged area in Europe. In contrast, the Spanish region of Galicia grew at 63.6% over the same period.

So what went wrong?

Certainly the evidence, contrary to the statements from the Welsh Government, suggests that West Wales and the Valleys, relative to other areas in receipt of Objective 1 funding, has performed badly. Some have suggested that this relative failure is down to the fact that there were too many projects being funded through this programme and resources were spread too thinly across our poorest region.

As a result, the new £2bn Convergence programme, which replaced Objective 1 funding, has focused on fewer strategic projects. Yet others would argue that the failure to engage properly with the private sector, in conjunction with the dominance of public sector-driven projects, is a trend that has actually increased under the new round of European funding.

While the next few rounds of GDP statistics will tell their own story of the relative economic success of current Convergence funding, it is becoming clear that West Wales and the Valleys will now qualify for an unprecedented third round of financial support from the European Structural Funds programme.

Given the way that other regions of Europe in receipt of such support have grown economically while West Wales and the Valleys has floundered, I would suggest that Welsh policymakers should start looking at how other poorer parts of Europe have grown their economies, as it seems we still have much to learn in ensuring that our disadvantaged regions become competitive again.

REGIONAL GROWTH FUND AND ITS EFFECT ON THE NORTH WALES ECONOMY

DAILY POST ARTICLE 7TH NOVEMBER 2011

Last week, the UK government announced that it would be looking to award £950 million to boost the economy through the second round of its Regional Growth Fund.

This is a £1.4 billion fund that aims to stimulate private sector investment by providing support for projects that offer significant potential for long-term economic growth and the creation of additional sustainable private sector jobs.

Sounds fantastic for the economy but the bad news for Wales is that the Regional Growth Fund is based in England only and, as a result of devolution, the Welsh Government will need to find its own funding for such economic development levers What is more worrying though is that increased spending across the border on economic development may well have a knock on effect on North Wales.

Certainly, the neighbouring area of the North West of England is one of those regions that has benefited with funding of £227m awarded to 39 projects, some of which are going directly to private businesses and others that are supporting key new infrastructure projects.

For example, Burnley Council's bid for £8.8m will reinstate 500 metres of rail track that, in turn, will halve the train travel time between Burnley and Manchester. It will also help to regenerate a collection of former mill buildings along the Leeds-Liverpool canal. That will certainly help the area become more attractive to potential investors.

In addition, Energy Coast West Cumbria has been awarded £5.5m to help firms maximise opportunities in nuclear and renewable-energy supply chains, a move that could have serious implications for Anglesey’s bid to become one of the key centres for the energy sector in the UK.

In the private sector, one of the companies that has individually benefited from the fund is Cheshire-based Bentley, which received a £3m grant to support the development of a new engine plant, safeguarding more than 200 jobs.

So, whilst the North West of England has access to funding for projects that will create over 47,000 jobs, what is happening here in Wales? As many businesses are no doubt aware, the last Welsh Assembly Government decided to abolish grants to businesses, replacing it with the Economic Renewal Programme (ERP).

Yet, according to data released last month, only 16 firms have been helped by the ERP in the first six months of 2011. But what about the billions of European funding available to the poorest parts of Wales, including Anglesey, Conwy, Gwynedd and Denbighshire?

Despite the Welsh Government having already committed over £1.5 billion to 236 projects since 2007, only 256 jobs have been created in Anglesey, only 46 new businesses created in Conwy and only 254 participants have gone on to further learning through European funded training schemes in Gwynedd. 

That is a woeful performance and there are real worries that the effect of the Regional Growth Fund along with those enterprise zones already established in the North West of England, will place North Wales at a serious disadvantage at a time when support for private firms is critical.

But this should not be surprising, as the private sector has been largely excluded from direct participation in European funding schemes in Wales, with the vast majority of projects going to Welsh Government or local authorities. In contrast, there is now an emphasis on greater partnership between the public and private sectors in England, with council and business groups coming together to bid for projects, as they did for enterprise zones.

That is something that has been sadly missing in Wales over the last decade and I fear that the billions of European funding that could, and should have made a real difference, as the Regional Growth Fund will do in the North West of England, will have little effect on the transformation of the North Wales economy.

THE UNDERPERFORMANCE OF STRUCTURAL FUNDING?

Last week, the BBC’s Dragon’s Eye programme revealed that despite billions of pounds of European funding, West Wales and the Valleys have become poorer during the last decade.

According to the programme, the latest official figures show that GDP per head in the region has fallen from 66.8 per cent of the EU average in 2000 to 64.4 per cent in 2008, the latest year for which figures are available.

The only other parts of Europe to see a drop in their relative prosperity over this period are Malta, two regions of Portugal and four regions of southern Italy.

Every other region that has received the highest level of European funding, including those in Greece, Latvia, Slovakia and Spain, have become wealthier over the same period.

This is a shameful indictment of the use of this vital funding package to turn around the Welsh economy during the last decade.

Defenders of the policies of successive Assembly Governments trot out the line that the first round of funding, known as Objective 1, was not focused enough and spread around too many projects. They then say that the current round of so-called Convergence funding, which will have fewer strategic projects, will make a bigger difference.

However, the facts from the Welsh European Funding Office (WEFO) that administers and manages the funding for the Welsh Government paints a very different story.

According to their latest data, the main Structural Funding programme – known as the European Regional Development Fund – has so far paid out £213 million in grants to various organisations.

And what are the outputs from this funding?

Well, as of May 2011, 4,849 gross new jobs had been created, which equates to a cost per job of £44,000. Believe it or not, this is higher than the amount received by LG during the ill-fated inward investment project.

Worst still, WEFO had estimated that, at this stage of the funding round, 7,348 jobs should have been created, so less than two thirds of the new jobs expected have come to fruition.

And if we look at what has happened geographically, we see that the European fund has had little impact on some of the poorest areas in Wales during the last five years.

For example, in Anglesey, only 246 new jobs have been created as a result of European funding, with 255 jobs created in Blaenau Gwent and 178 in Merthyr Tydfil.

With unemployment in Wales recently rising by 16,000, surely there should be a greater impetus within the programme on job creation.

However, it is not only in terms of new jobs that the programme is behind its targets.

During a month when the Assembly Government has appointed six new entrepreneurship champions, the number of new businesses being created through European funding is also well behind target. Instead of 3,019 firms being set up by May 2011, only 1,105 had been established i.e. only 36 per cent of the expected target.

The other major programme for learning and training – the European Social Fund – has also underperformed in key areas. For example, there are 44,000 fewer participants on European funded training programmes than expected. Of those who are have benefitted from taking part in education and training opportunities, only 32% of those estimated to enter employment are doing so.

Worst of all, there are 12,500 fewer young people being trained through the European Social Fund, which should not be surprising given that WEFO has only paid out £14.2 million to project sponsors against a commitment of £95 million. This is at a time when we have record unemployment amongst young people in Wales.

If WEFO was a business and such targets were being reported to the board of directors, there would be alarm bells ringing throughout the organisation and heads would roll.

Yet if you read the monitoring reports produced for various committees by officials, there seems to be no urgency to address this worrying set of results. In fact, the impression is that those in charge of the funding are more focused on spending the money so as to avoid clawback rather than on generating outputs that can positively benefit the Welsh economy.

This is simply not good enough. It is shameful enough that Wales will have to apply for a third round of funding. However, the woeful underperformance of the current funding programme is, frankly, unacceptable when businesses need vital support to grow and create jobs.

So what is to be done?

The new Minister for Business has made her mark with the business community during the last three months and, given her straight-talking no-nonsense style that is focused on delivery, I would expect that she would be appalled at such complacency.

Certainly, if this continues and no action is taken, I would expect the opposition parties to call for a full investigation by the National Audit Office into the performance of WEFO and the failure to hit key programme targets.

At a time when we have this additional money available to make a difference to the economy, it simply isn’t good enough to perform so dismally in terms of job creation, enterprise development and training for young people.

Wales, and the Welsh economy, deserves better.

Western Mail column 15th October 2011.