INWARD INVESTMENT IN WALES

There must have been a huge sigh of relief from the Welsh Government earlier this month when Ernst and Young released their annual report on foreign direct investment.

With the results showing that with Wales having increased its number of foreign-backed projects by 244 per cent since last year, the Minister could be forgiven for opening a couple of bottles of bubbly to celebrate such a turnaround in its fortunes in this arena.

In fact, Wales saw its foreign-backed projects almost quadruple from nine to thirty one in 2012, the highest total for five years, creating 2051 new jobs in the process.

But it is not all good news as only 4 per cent of foreign investors chose Wales as the most attractive destination to set up foreign operations, the same as Scotland. In contrast, 45 per cent saw London as the best place to relocate. This suggests that there is still a long way to go before the Welsh Government gets its offering right in attracting new businesses to set up here. Certainly, as has been argued by a number of senior politicians already, the brand for Wales needs a lot of work to ensure that those from outside the country know exactly what is on offer.

So what other lessons are there from the Ernst and Young report for the Welsh Government to build on this success?

First of all, it would seem there is some thanks due to the UK Government in establishing a more business-friendly environment during the last twelve months, with nearly two thirds of investors interviewed for report believing that the UK had developed a more attractive tax regime during the last twelve months and just over half suggesting that future changes will be a significant influence on international companies’ decisions to relocate.

Indeed, the proposal to reduce corporation tax to 20 per cent by 2015 could be a magnet for getting more businesses to relocate to Wales and it is critical that this is used as part of any future marketing campaign to attract foreign investors.

In terms of the business sectors that could drive the growth of the economy over the next few years, there is some good news for Wales.

According to the international companies in the survey, financial services, telecommunications and manufacturing were ranked as the three most important sectors. Given that there is a sector-based approach to all three of these industries in Wales, there is an opportunity to get the right strategy in place to attract the best in the World. Perhaps the only disappointment, given that there is considerable investment going into this sector, is that the life sciences were not ranked highly by investors as an industry which will grow in the future.

One of the reasons for the growth in inward investment across the UK during the last twelve months has been the perception that the environment for inward investment has improved in a number of areas. These include having a flexible financial system that increases the availability of finance, increased support for SMEs and easier access to funding.

But investors are also attracted by non-financial factors including quality of life, culture and language, telecommunications infrastructure and the stability of the legal and regulatory environment. Certainly, these are aspects that the Welsh Government could and should emphasise as part of any offering to new businesses looking to come to Wales.

According to investors, if the UK wants to become a leader in innovation, then it must improve education and training, increase tax incentives for innovative companies and develop more attractive policies for sustainable investment. Again, the Welsh Government can, if it wishes, develop a different path in terms of more vocational and technical training whilst ensuring that universities develop courses that are relevant to those new industries that we want to attract  to Wales.

And whilst it cannot offer direct tax incentives to innovative companies, there are more creative ways in which it can ensure that Wales has a strong package of financial support to investors and their companies.

Therefore, whilst the latest figures on inward investment into Wales are to be welcomed, more needs to be done in ensuring that we become a more attractive location to companies around the World.

Certainly, the Ernst and Young report is a good place to start to get blueprint as to how politicians and policymakers could and should develop a strategy to achieve this.

THE AUTUMN STATEMENT AND THE WELSH ECONOMY

Just over halfway through the current Coalition Government's term of office, there was a strange mix of anticipation and trepidation over the latest Autumn Statement from the Chancellor of the Exchequer, especially as the UK economy remains fragile.

Given this, George Osborne must have been relieved that, despite disputes about economic and fiscal policies on the front pages, there was a broad welcome from the business community for most of the main measures announced.

The £5.5 billion package to develop the UK's infrastructure was largely in response to pressure from business groups, with the Welsh Government receiving £227 million to spend on key capital projects via its Barnetised share of this funding. In addition, the decision to reduce the main rate of corporation tax to 21 per cent by 2014 is seen as not only supporting British businesses but also makes the UK a very attractive option for overseas investors.

And whilst unexpected, the ten fold increase in the Annual Investment Allowance for small to medium sized firms (SMEs) should act as a catalyst to get entrepreneurs investing their cash in developing their businesses over the next two years. However, whilst those were some of the headlines from the Autumn Statement, the more interesting new policies that have potential for the Welsh economy have to be found by reading carefully through the ninety three page document. For example, the UK Government has extended the temporary doubling of the Small Business Rate Relief, a move which has been automatically replicated by the Welsh Government in previous years.

Whilst politicians in Cardiff Bay could improve on such an offering, this is unlikely to happen until the business rates review is completed. It is great news for Newport that it has been chosen as one of only twelve cities to benefit from the second wave of the Government’s Urban Broadband Fund to help build one of the fastest and best connected communications networks in Europe. With Sir Terry Matthews' Alacrity Foundation also based in Wales' third city, this could give the local economy a massive kickstart after years of decline.

The announcement that Ebbw Vale and Haven Waterway Enterprise Zones in Wales will join Deeside in getting enhanced capital allowances will also help the development of key projects in both areas. A more controversial issue is that of shale gas, which is seen by some as the panacea to the growing energy problems of the UK economy.

Given the way that the USA is looking to become self sufficient through natural gas resources, it is not surprising that the UK Government is taking the first steps towards examining such potential through establishing an Office for Unconventional Gas to manage this relatively new industry. With South Wales having the potential to become one of the main areas for shale gas extraction, what seems like a minor policy change could have a big impact on both the local economy and the environment.

The recent thawing of relations between the Welsh Government and UKTI (the UK Government's trade body) is timely given the increased focus on exports and the announcement that UKTI's annual budget will be increased by £70 million to deliver more services to SMEs. Certainly, one would like to see Welsh firms take greater advantage of these exporting services in the near future. Indeed, the closer co-operation that has been established with UK Export Finance should ensure that Welsh firms are in a strong position to tale advantage of the new scheme to provide up to £1.5 billion of loans for the purchase of UK exports.

In supporting science and innovation, the UK Government announced that it will be investing £600 million in research infrastructure and facilities for applied R&D. If this was fairly distributed, Wales would be getting around £30m to support the development of innovative technologies. However, with Wales having access to additional money via European Structural Funding, then both the Welsh Government and the Wales Office should be making the case that the UK could get more bang for its bucks if facilities to support high quality research were built in Wales.

An announcement was also made that the Prime Minister will soon be setting out the next steps to support the UK Life Sciences sector. Again, with the Welsh Government showing the way to other regions through its £100m life sciences fund, we cannot be left behind other favoured regions, such as Aberdeen, Cambridge, Dundee, London and Oxford, as this vital high technology industry is developed further.

Another policy development that should be of relevance to Welsh firms the decision to provide £120 million for two additional rounds of the Advanced Manufacturing Supply Chain Initiative. This will support R&D, skills training and capital investment to help UK supply chains achieve world-class standards and encourage major new suppliers to locate in the UK. With Wales remaining one of the major manufacturing regions of the UK, I hope that our best companies, such as Airbus, Ford, Toyota and Tata, are linked into this programme. I would also expect that this initiative can be used to support new developments, such as the nuclear programme at Wylfa, to ensure that local firms take full advantage of major projects.

Therefore, as with every statement from the Chancellor of the Exchequer, there are policy changes that could have positive impact on Welsh business. The challenge now is to ensure that the Welsh Government work alongside their counterparts in Westminster to ensure that the economy of Wales takes full advantage of such opportunities over the next twelve months.

ENTREPRENEURSHIP AND OUR ARMED SERVICES VETERANS

One of the most important books on entrepreneurship written in the last two decades is “Start-Up Nation”, which describes the way that Israel transformed itself into an economic powerhouse through the development of a vibrant and entrepreneurial high technology sector.

According to the book’s authors, a key factor in the success of this innovation hotspot has been that, at the age of 18, Israelis must serve in their country’s defence forces for at least two years, with many young people therefore being directly exposed to utilising technologies at the cutting edge of areas such as telecommunications and information technology.

And with the nature of the Israeli Armed Forces valuing improvisation and, despite their military focus, having an anti-hierarchical structure, potential entrepreneurs emerge not only with skills in teamwork and leadership, but also with experience of technologies that are the base for many new innovative sectors of the economy.

However, the entrepreneurial potential of those who have served their country in the Armed Forces should not be surprising.

Recent research suggests that previous military service has one of the largest marginal effects on self-employment, with “veterans” being 45 per cent more likely to be self-employed than non-veterans.

One of the countries which values its veterans and their potential contribution to developing an entrepreneurial economy is perhaps unsurprisingly the United States of America, where it is estimated that there are over 2.4 million businesses owned by veterans, equivalent to around 9 per cent of the total business population.

Unlike many countries, the US Government provides specific and targeted support for military veterans to start and develop their own business. This is largely driven by its national enterprise agency, the Small Business Administration (SBA), which has established an Office of Veterans Business Development for this purpose. Its mission is to maximise the availability, applicability and usability of all existing small business programmes for veterans and reservists as well as their dependents or survivors.

These include Veterans Business Outreach Centres, which are organisations set up to specifically provide entrepreneurial development services for eligible veterans owning or considering starting a small business.

There are also training programmes, such as the “Boots to Business” initiative, that have been introduced by the Obama Administration to train service members who are moving from military life to business ownership through courses focused on creating a feasible business plan.

Most importantly, the SBA has a range of small business loan programmes that are specifically targeted towards supporting veterans who wish to start up their own business.  For example, the Patriot Express Loan Initiative for veterans and members of the military community wanting to establish or expand small businesses gives a decision on loan applications within thirty six hours and on the lowest interest rates available from the SBA.

Therefore these programmes, in addition to many others at state and local level, mean that those leaving military service are given the backing they need to set up their own businesses after serving their country.

But what about the UK? What support is provided to British veterans when they leave the Army, Navy or Air Force?

Last year, the UK Government published an Armed Forces Covenant that sets out the relationship between the Nation, the State and the Armed Forces.

Long overdue, the Covenant recognises that the whole nation has a moral obligation to members of the Armed Forces and their families and establishes how they should expect to be treated.

Yet, despite the introduction of actions such as improved council tax relief, the establishment of a veterans card for commercial discounts and a pupil premium for service children, there seems to be no specific support, as found in the USA, for those who leave the Armed Forces to set up their own business.

And with the Ministry of Defence aiming to cut 29,000 military and 25,000 civilian posts by 2015, it is critical that the UK Government, along with the devolved administrations, puts into place the relevant backing to help with training, education and business support for those UK veterans who wish to undertake the transition into self-employment.

The US model shows how this can be done and, more importantly, how veterans can be helped when they return to civilian life. Certainly, there is no reason why those who have served our nation bravely should not get all the backing needed to make a real and sustainable contribution to their local economy.

IMMIGRANT ENTREPRENEURS - CHALLENGES AND ISSUES

Research from the Kauffman Foundation has previously shown that immigrants start companies in the United States at greater rates than native-born Americans do, and are disproportionately successful in starting high-tech firms.

This is not surprising to many of us, with studies such as AnnaLee Saxenian's seminal "The New Argonauts" demonstrating that immigrants have driven the boom in high technology companies in areas such as Silicon Valley for the last three decades

However, a report released this week by the National Foundation for American Policy shows the advantage that the USA has with regard to immigrant entrepreneurs is likely to deteriorate dramatically if legislators do not radically change their policies.

It shows that visa wait times are likely to increase in employment-based immigration categories and such backlogs, according to Kauffman, means that foreign nationals with the skills and abilities to start high-growth companies will have to return to their home countries and likely start companies there rather than in the United States.

To demonstrate the importance of immigrant entrepreneurs, Kauffman has produced this video in which the case for supporting and attracting immigrant entrepreneurs is strongly made.




Bob Litan, vice president for Research and Policy at the Kauffman Foundation, also makes a strong case in this recent article from the Washington Post.

However what applies in the USA equally applies here in the UK.

We need to be at the forefront of attracting the best entrepreneurial minds into Britain to help grow our economy and the Coalition Government will need to look very carefully at its own immigration policies to ensure that this happens. Certainly, it must examine whether the current rules and regulations are fit for purpose or whether they are dissuading individuals from bringing their business ideas to the UK.

More on this subject soon.

A FUTURE FOR WYLFA B?

As we all know from the excellent coverage in the Daily Post during the last few days, the business community in North Wales remains shell-shocked at the decision by the German energy companies RWE npower and E-ON to pull out of plans to build an £8 billion new nuclear reactor at Wylfa B in Anglesey.

With the county consistently rated as one of the poorest areas in the UK, the development was seen as the panacea for its lack of economic opportunities, with experts estimating that it had the potential to contribute over £2 billion to the economy over the next fifteen years, creating 5,000 construction jobs and 800 direct jobs at the new power station.

More importantly, it would have given Wales, and Anglesey, the opportunity to become a major centre of expertise in the sector through the creation of value added projects around the new development. For example, helping to create an energy technology park around the power station and ensuring that the skilled workforce needed for its construction are sourced locally were just two simple examples of how the project could have created additional benefit for the Anglesey economy. It would have also enabled Bangor University to become an international centre of research and development excellence in this sector.

But despite the bad news, local and national politicians remain convinced that new investors can be attracted to the site. There does not seem to be any specific technical or economic rationale for withdrawal with insiders suggesting that political pressure may have been the main factor in the decision to pull out of not only plans for Wylfa, but other nuclear developments in the UK. In fact, with the German government recently stating that it would abandon any new nuclear power plants within its own borders, many have been expecting that country’s energy companies to pull out of any new developments in the nuclear industry.

The quality of the project itself was emphasised by the chief executive of RWE npower, who went on record to make the point that not only was Wales one of the "most attractive" new nuclear sites across Europe but that any new investor would be able to build on the work that the current consortium had put together during the last three years.

Another positive development from this story is that both the Welsh Government and the UK Government have now co-operated closely to try and deal with this issue. After recent wranglings between Cardiff Bay and Westminster, they have come together to save a project that could create thousands of jobs within an economic blackspot.

Of course, this was not always the case and during the last administration, there was a difference of opinion between the Economic Development Minister, who supported Wylfa B, and the Environment Minister who was diametrically opposed and even called for a public inquiry into any new nuclear facilities in Wales. Certainly, such confusion did not help engender a coherent governmental approach to the development.

Indeed, Carwyn Jones’ positive comments last week on the project were to be welcomed, as was the news that he had already held urgent talks with the UK energy secretary to try and secure new investors for the project. Therefore, perhaps the one silver lining in the Wylfa B story from last week is that we may see greater co-operation between the two governments and a more cohesive and joined up “Team Wales’ approach that sees any political differences put aside in favour of economic imperatives. Certainly, with the prosperity of the Welsh economy continuing to fall relative to many other parts of Europe, such co-operation is vital for the future of our nation.

Daily Post column April 2nd 2012.